Having just recently had to deal with air travel I can safely say there is room for competition. My thought isn't fight the current crowd of typical airlines, like Delta, United, American. Nor do I think it's a good idea to go up against the budget airlines like Southwest or JetBlue. Why not a new segment?
Many travelers are happy to travel first class, but lets face it, first class today is not the first class of yesterday. You might get a nicer seat and more leg room. Perhaps a premium snack instead of peanuts, but what else are you getting? You still have to hear the baby crying in the back and you might be sitting next to someone who for various reasons, had a coach seat and is now sitting next to you.
I'm not saying people who fly coach are bad. I'm 99% of the time one of those people. I have gotten at the gate upgrades due to over booking before, I've never personally paid for first class.
That said, there are many who would happily pay for the luxury. So why isn't there a luxury airline? Sure there are private jets and the like, but are they enough to make this market non-viable?
Imagine a jet with only nice plush seats, plenty of leg room. Internet, individual movies, good food, etc, all inclusive to the price of the ticket? The current airlines have to nickel and dime us to death because they are trying to compete with the discount airlines who seem to have figured out how to do things well and on a budget. A luxury airline would be immune to that market pressure because it offers something those other airlines do not. Look at Southwest and United. What difference is there in actual product? Not much really. They have to compete.
Having an all inclusive ticket might be a bit more pricey but as the traveler the experience becomes so much more pleasurable. The airports themselves might be a drag still but once on the plane, it could be relaxing and enjoyable instead of stressful.
Flight availability would be less of an issue for a luxury airline as well. If you are going to pay a premimum are you likely to use that airline for a short commuter flight for business? No, of course not. It would be silly therefor for the airline to even offer such a flight.
Seasonal flights from New York City to Denver for skiing or from Miami to Boston for Autumn leaves, and other such travels, where they are truly vacations.
Reservations would be completely different for this type of airline. Because there would be fewer flights you wouldn't be going to Expedia to book your trip. Fewer trips and fewer seats creates demand.
There would be a certain amount of exclusivity of course, but isn't that the point of a luxury brand?
UPDATE: Since writing this article I've found that there are a number of trans-Atlantic and trans-Pacific airlines that do provide many of the luxuries I was thinking of above, between $4000 and $5000. But why not specialized domestic flight?