FLYING IN STYLE: FRENCH STARTUP ELYSAIR EYES

UNCLAS PARIS 000027

SIPDIS

SENSITIVE
SIPDIS

FOR EB/TRA, EUR/WE

E.O. 12958: N/A
TAGS: EAIR ECON FR
SUBJECT: FLYING IN STYLE: FRENCH STARTUP ELYSAIR EYES
TRANSATLANTIC BUSINESS CLASS MARKET



1. (SBU) Summary: French start-up Elysair inaugurated flights
on its Paris-New York route January 3 using its all
business-class "L,Avion" brand. Touting fares that are 50%
lower than Air France business-class and the convenience of
using nearby airports at Orly and Newark, Elysair hopes to
grab 10% of the lucrative business class market between Paris
and New York in the next year. U.S. carriers who were forced
to move operations from Orly to Charles de Gaulle airport a
number of years ago, and who are now faced with a rival
seeking to use Orly as a competitive advantage, may protest.


2. (U) Originally conceived in 2002, Elysair has spent the
past five years developing the financing and business plan to
offer "premium service at an attractive price," extending the
low-cost model to high-margin business class travel. With 25
million euros in financing drawn primarily from private
investors such as the Rothschild holding company Compagnie
Financiere Saint Honore, and experienced management headed by
Marc Rochet, former CEO of French airlines Air Liberte and
Air Outre-Mer, the new concept will receive a serious test of
its viability.


3. (U) By offering round-trip tickets at average price of
around 1600 Euros, Elysair looks to undercut current business
class fares by as much as 50% and to break even after 18
months of operation. Operating one Boeing 757-200 aircraft
leased from Lufthansa in a 90 seat configuration, the company
will initially offer service five times per week, and plans
to expand to six flights per week by Spring. Elysair will
take possession of a second Boeing 757-200 in June. If the
model proves successful, the company plans to extend it to
other markets in the U.S., Russia, and Middle-East.


4. (SBU) Comment: With five well-entrenched and
deep-pocketed competitors, Elysair is likely to face stiff
competition for the premium-class customer on the Paris-New
York route. We will be interested in particular in how US
carriers react. A number of them were forced from slots at
Orly airport to more distant Charles de Gaulle airport some
years ago, only to find Orly's proximity now being used as a
marketing hook by a start-up competitor. Although we have yet
to see any overt signs of dissatisfaction, they cannot be
pleased with this outcome,
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HOFMANN