Don’t Believe the Hype: Silverjet and Eos Not Looking Good

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.


  1. Why are their costs so high? The reuters cites fuel and rebooking expenses, but while they can’t do much about fuel they could solve the rebooking problem, no?

    And they have a window with the currency rates. Yes, 800 pounds may not be a lot, but I’m assuming they can buy fuel and other things here — and they may be able to pay their staff in dollars as well. Also, their target market on the UK side is only going to get larger as casual shoppers attack NYC.

  2. Their costs are high because due to the huge fixed costs associated with an running an airline, it’s very expensive to run a small airline like this. There’s really no such thing as a small airline — you need a sizable staff even for a carrier with a couple of planes. Add to that the high fuel costs and limited pricing power due to competitors with billions of dollars, and you’ve got a tough problem.

  3. You are spot on. Most of the glowing comments from these upstarts are from internally generated articles. According to input from employees inside the companies, there are severe cash flow problems. Couple that with a contentious, inept management team, employee morale problems as a result of poor management adds to the mix. And then, the final piece. They have been unable to raise ticket prices. These airlines have devalued their own product to the point that, although they have a good concept, through mismanagment, the customer has come to expect a “first class ticket at coach prices”. The rise in fuel prices just accelerates their demise.

  4. Youngy McFastguy

    Awesome piece sir. I thoroughly enjoyed it.

  5. It’ll be sad to see them go if it comes to that, but the numbers seem to be moving them in that direction. The upstarts didn’t take in to account the pricing pressure that the legacies would push on them. And with a whole fleet over which to amoritize the effects of reducing prices on the one route, the legacies are in a very strong position to handle the “situation.”

    Also, I don’t see paying that much for a ticket personally, so unless it was a reward I probably wouldn’t use it, but it’d be nice for them to stay around long enough for me to have that opportunity :)