Archive for the 'EOS' Category
April 29 2008
A bit of a post-mortem on Eos:
Most of the articles about the bankruptcy have mentioned either oil prices or something related to the credit meltdown (Eos had additional financing lined up, but it fell through), but to suggest the airline failed because of either of those things is missing a far larger issue: Eos was never, ever, ever close to succeeding.
Sure, the airline put out announcements about how great everything was going, including this now-laughable note after MAXjet went under: “Industry failures, rising oil prices, a weakened economy and planned reductions in corporate travel have neither diminished travelers’ enthusiasm for Eos … nor hindered the company’s march toward becoming an unqualified business success…” Right.
And various media continued to print that type of nonsense without bothering to do the small amount of online research necessary to see that they were burning through cash at an impressive rate. As I wrote back in January, under all the hype lay an operation that was burning through about $5 million in cash each month. They hit investors up for more cash a few times (in total for about $200 million), but each $50 million infusion would last less than a year — and that cash burn never really diminished. They were down to $9 million in cash midway through last year before they received $50 million from investors. The business was never close to succeeding.
Why? Let me throw a few reasons out there:
- An all-business class airline that flies between New York and London has a major drawback: during a sizable chunk of the year, traffic falls off a cliff. Wayyyyy off a cliff. And with no coach (or premium economy seats) to offer, those 48 cushy lie-flat seats aren’t very attractive to leisure travelers. And in the airline industry, especially as a start-up, you can’t afford the cash drop off that comes with slow business travel periods. No cash means your fixed costs are burning through that $50 million investment.
- They were never able to get fares close to where they needed to be to succeed. Even before American Airlines introduced their purely evil JFK-Stansted service, Eos couldn’t get fares high enough. Once AA came along (and everyone else lowered their business class fares), they had no chance. Their business plan did not allow them to sell 40 seats at $1200 each way. Yet that’s what they were left with. With AA’s flight it was all over.
- The New York to London market looks incredibly attractive for startups (ie, MAXjet and SilverJet) because it’s the largest international business class market. So every start up will make the point that if they only generate 2% market share, they’ll be profitable, blah blah blah. If only it were that simple. So much of that traffic is locked up in corporate deals that the huge New York-London pie is more crumbs than pie. Eos didn’t make inroads in the corporate market (in part because they shunned travel agents at first) and in part because they underestimated the difficulty of getting people to switch due to their frequent flyer affinity. Those corporate deals are also at fares well below where the airline needed to be to make any money.
- I know they tried very, very hard to market their product, but they never succeeded: they never managed to explain how Eos differed from flying first class on BA or Upper Class on Virgin. In fact, that was an interesting problem from the start: consumers are pretty happy with BA and Virgin’s business class products. How do you convince people that they really aren’t happy with it and that they should try a new service? One way you do that is by not going through advertising agencies like Spinal Tap through drummers. Another is by having marketing staff actually flies the airline once in a while. Et cetera. If the company could never succinctly tell the story of why they were better, they had no chance of convincing people to switch.
And on and on. There’s so much more here — maybe this won’t be my last post on the subject.
In short, fares that are too low + marketing that is too weak + competition that is too brutal = disaster.
On a final note, after Skybus shut down I wrote a little blurb about SourceSpeed, the small company that ran the airline’s website and how they were owed $250,000 at the time of the shutdown. I knew them because they also ran Eos’ website and were a great group of guys. Sadly, they were listed as creditors for $127,000 in Eos’ bankruptcy filing. This is a brutal industry, and today I thought a lot about the 450 people out of work and how Geoff from Sourcespeed will absorb $375,000 in unpaid invoices. It’s still going to get worse before it gets better.
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April 26 2008
I’ll have more about this on Monday, but Eos Airlines will shut down today (Sunday) after filing for bankruptcy on Saturday. The investment they announced last week didn’t close and, hence, they ran out of cash. If you have tickets booked on Eos in the future, ask your credit card issuer for a refund.
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April 21 2008
Eos Airlines announced that they’ve secured another $50 million in funding meaning:
a) They’ve blown through about $200 million
b) They won’t be going out of business this summer as I had previously thought
Their press release says that they’ll be profitable next year, but every financial press release they’ve ever put out suggests they’ll be profitable the following year. Given fuel and British Airways’ new product, that’ll be a tough road. It’s really a great product, though…
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March 26 2008
Eos Airlines’ press release touting its new service from Newark to London-Stansted notes, “With up to 58 flights per week serving these two capital cities, you’ll be sure to find the schedule that best suits your individual travel needs.”
Um, what is Newark the capital of? Essex County?
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February 11 2008
Eos has announced that it will launch flights between Newark and London-Stansted in May and between Stansted and Dubai in July. You may be saying to yourself, that’s funny, because doesn’t SilverJet already fly between those cities? Yes, yes they do. Eos received some funding from some Middle Eastern sources last year, and it wouldn’t be surprising if flights to Dubai were part of the deal.
So I’m of 2 minds here: In general, it’s certainly better to stay out of the way of competitors. But on the other hand, this may be a case of more competition helping to create the market. On yet the other hand, given Emirates’ multiple nonstop flights from New York to Dubai, Eos is really just launching London-Dubai (there will be few people connecting NYC-STN-DXB). Given that the bulk of their marketing comes out of New York, it will be very interesting to see whether they’re able to market a non-US-based route.
Oh, and what about Paris that was supposed to be launching this spring?
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January 15 2008
With the demise of MAXjet, several articles have commented on EOS and Silverjet, frequently suggesting that they "say they are in good shape" (as in today’s NY Times) or something to that effect. This wholly-unfounded assertion is based (as far as I can tell) on press releases put out by the airlines themselves (which are generally presumed to be doing fine, apparently, until they put out a press release like MAXjet did essentially saying they are going out of business.) But let’s look at the facts:
Brokerage Daniel Stewart (UK) put out an absolutely blistering note on Silverjet saying, "Our target price is nil. We would sell at any price." Ouch. There’s more: They add that their performance "is so far adrift of what is required that, in our view, the business is doomed to fail unless something changes – significantly and rapidly."
SilverJet, of course, says that the figures cited in the report are wrong, but how wrong could they be? The bank says their costs are twice their revenues. OK, so adjust that by, what, 50%? It still means they’ll run out of cash without an infusion. Their average fares (about $2400 round trip) simply aren’t even close to where they need to be, and with AA at about the same price point in biz class, they have zero pricing power. They’d need to lower their prices to fill up their half-empty planes, and that won’t cover the bills. It’s not good.
And despite EOS’ press releases (and news reports) to the contrary, it’s not looking so good over there, either. Reporters who don’t usually cover airlines will sometimes say that private carriers don’t release financial results, so their performance is a black hole. That is not true — all airlines have to file financials with the US government (you can find them here). So let’s look at what’s happening at EOS (full disclosure: I worked there for a bit as a consultant. I harbor no ill will, and I think it’s an amazing concept.)
Financials have only been released through the end of the 3rd quarter, so we’ll look at those: Eos lost $11 million in Q1, $14 million in Q2 and $12 million in Q3. Operating revenues were about $16 million in Q1, $20 million in Q2 and $21 million in Q3. When you’re only taking in $21 million, a $12 million loss is significant. They had only $9 million of cash on hand at the end of Q2 after burning through just under $15 million in cash in Q2 (though they’ve since raised $50 million — at this burn rate, they’ll be through that by Q3 of ‘08).
Perhaps we’ll see a turnaround. But really, how is that going to happen? How do you close the monthly gap between $7 million in revenue and about $12 million in costs?
Although media generally lumped EOS and MAXjet together, they really weren’t competitors (EOS launched with a $6000 round trip fare vs. $1200 round trip fare; completely different products). Silverjet and Eos are closer, so a defunct Silverjet will probably help Eos a bit. Perhaps the Paris launch they’ve mentioned could help longer-term, except that:
a) launching a new city is costly;
b) L’Avion already serves that market with a Silverjet-esque product;
c) British Airways will launch that route with its new OpenSkies product soon
Doesn’t sound like that will turn things around by July.
Without further cash infusions, Silverjet and EOS may very well be gone by the end of the year, though I’m certain someone else will come along and try to serve the route. Consumers should be disappointed with that — EOS offers an untouchable product for, at times, 1/4 the price of British Airways’ first class. Sad.
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July 06 2007
American Airlines has had enough with Eos (and MAXjet, I guess): They have announced that they are launching daily nonstop service from JFK to Stansted on a 767 (they used to serve STN from Chicago about 14 years ago). They’re also giving triple miles on flights between New York and London in business or first. Knowing what little I know about the economics of that route, there is roughly zero chance they’ll make any money on it. Continental couldn’t give away seats on their brief and ill-fated time flying EWR-STN in 2001.
While AA’s first class isn’t even in the same league as Eos, they certainly have deeper pockets and have now decided they’re finished with the competition. So, who’ll blink first? Can AA really drive Eos out? Does anyone care?
Oh, and they’ve also just filed a GBP 75 round trip fare from London to New York for November and December travel. Take THAT, Zoom!
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May 04 2006
EOS Airlines, which flies all first class seats to London from New York, has lowered fares to $1,475 each way. The airline had originally hoped to get $3200 each way, has lowered prices in a bid to win traffic from the myriad other airlines flying the same route. EOS’ seats and service are at least as nice as anyone’s first class, so this is a bargain. Even so, you can fly the all-business-class MAXjet for about $1000 round trip (sometimes less). If price is no object, though, EOS is a steal.
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April 11 2006
A new airline called Silverjet announced that it will launch all-business class service between Newark and Luton Airport in London by the end of the year. The carrier, which will compete with similar services by EOS and MAXjet, will charge about $1800 round trip for one of its 100 lie-flat seats on a 767. They also said that they expect to be able to charge as little as $200 round trip for some seats. You do the math. Anyway, they need to raise about $45 million before they go out of business, er, launch.
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March 29 2006
All business-class carrier EOS is offering a money back guarantee for its flights from New York to London. Here’s the deal: First off, it’s only for passengers flying EOS for the first time. Second, you have to have flown British Airways or Virgin Atlantic twice in business or first class in the past six months. That’s a pretty big hurdle. Even so, EOS’ $3500 round trip fare is a bargain (considering what you get), and if the service isn’t as nice as BA or Virgin, they’ll give you the $3500 back. Hard to beat.
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A Final Word about Eos
