Category Archives: EOS

Inside Eos Airlines: What The Hell Were They Talking About?

I recently found a few old emails from the Eos Airlines days, and if you had any question about why they didn’t succeed, I think this one will pretty much sum it up.  Written by a marketing team member, It is an unparalleled jumble of quasi-marketingspeak coupled with a complete lack of understanding of how to differentiate the product from competitors.  Brilliant and timeless.  And sad – really sad.  But brilliant.  Just thought you would all enjoy…

Team:

The uncompromising tagline will have minimal content effect to what we’re currently doing.

Similarly to how we were identifying some of our product attributes and service offerings as unordinary and that our Guests wouldn’t have to adjust their way of living to ours…uncompromising will still deliver on that message.

We will have a new brand essence document reflecting the above; I will send that round ASAP should be by tomorrow.

OpenSkies and L’Avion: Beginning of the End?

Someone over at Airliners has posted the copy of an internal memo from the head OpenSkies that sounds very, very, very much like the type of memos we used to see at Eos right when it was getting bad:  They’re not taking delivery of their 5th airplane thereby cutting out any expansion in the near future, they’re eliminating flights on slow days through the holiday season, they’re moving their headquarters to Paris, and they’ll have full codeshare on both the OpenSkies and L’Avion flights (even though the products are pretty different).

Much like Eos, it’s a great product at a fantastic price.  Unfortunately, given the cost structure and economic environment, that’s not nearly enough to succeed.

New Blog to Tell You About

A quick note to let you know about Channel 9, a new airline blog written by friend/former colleague Tom Lang.  Tom is a former journalist and former Eos revenue/marketing guy and has a great perspective on the industry.  You can check his site out at http://channel-9.blogspot.com/

Silverjet Shuts Down

I was off by a couple of days…Silverjet shut down operations today blaming the usual mix of fuel and blah blah blah.  They’ve been doomed for a while, and when a recently announced bit of financing fell through it was all over.  If you’re booked on them, give your credit card company a call.

In only slightly related news, if you care about Eos’ bankruptcy, it’s worth noting according to this bankruptcy filing that as they were running out of cash, they managed to give a number of their execs bonuses of more than $200,000 in December ’07 and January ’08.  Good stuff.

A Quick Update on the Airline Apocalypse

I thought it might be useful/depressing to pass along a quick overview of the horrible/annoying/depressing things we’ve seen happen since the fuel hike:

Northwest/Delta merger (less service + higher fares = unhappy flyers in Minot)

American’s $15 first bag fee

Everyone else’s $25 second bag fee

US Airways removes snacks from domestic flights

American cuts domestic capacity 12% and decimates San Juan hub

Eos, MAXjet, Aloha, Skybus, Champion and ATA shut down.  Mesa, SilverJet and ExpressJet poised to shut down.

jetBlue defers 21 a320s

jetBlue defers launching LAX service

US Airways, after begging for China route, begs to delay Beijing launch

$100 antler fee on Frontier (damn you, Frontier!)

Return of the Saturday Night stay

Airlines attempt to raise fares 16 times.

Ticket changes cost $150.

And there you go…the state of the industry. I’m going to bed.

This Could Be SilverJet’s Last Weekend Flying

Shares in SilverJet were suspended today as the airline announced that it did not receive the Middle East funding it had announced a couple of weeks ago (basically what happened to Eos).   The business class carrier was expecting a $5 million to keep themselves afloat, but the cash never arrived in their account (the old check-is-in-the-mail issue).  That their shares aren’t trading is a terrible sign, and I would expect them to announce shutdown in the next couple of days.

You Will Have SilverJet to Kick Around Anymore (Probably)

(Thanks to Sean for the heads up…)

Silverjet, which many predicted would be shutting down shortly, says that they have signed an agreement for a $100 million investment ($25 million now, $75 million later) from an unnamed source in the United Arab Emirates (the UAE is so flush with cash that people there think it’s a great idea to throw $100 million at the airline industry right now).  I’m guessing that Silverjet’s finances look something like Eos’ finances before their shutdown, so that $25 million will last them through, oh, the end of the summer.

Unlike its previous pronouncements that everything is just perfectly A-OK, their chief executive admitted that they were running out of cash and that if this deal falls through they would need to seek “alternative means of funding as a matter of urgency” (ie, we have no money.)

A Final Word about Eos

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.

Eos Airlines Shuts Down

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.

Ex-AA CEO: Mergers Are Not the Answer

Former American Airlines CEO Robert Crandall and I DO have something in common:  we both think the idea of airlines merging in this environment to be nutty.  In an op-ed in the NY Times, Crandall bashes the proposed (and rumored) mergers writing, “The case for mergers is unpersuasive. Mergers will not lower fuel prices. They will not increase economies of scale for already sizable major airlines. They will create very large costs related to consolidation. And they will anger airline employees, who will perceive themselves to be hurt by the mergers.”

Amen.

Delta’s terrible financial results they announced today do not suggest that a merger is a good idea, it suggests that slamming it together with another airline in a difficult financial position is a miserable idea.

Don’t get me wrong:  The CEOs of these companies aren’t idiots – they are very smart people.  But no airline has really tried anything drastic yet (remember that Pan Am sold off its Latin, Pacific, intra-European and Shuttle operations piece-by-piece in a bid to save the airline.  THOSE are drastic measures.)  Ultimately, of course, those measures didn’t save the airline, which had far more fundamental problems than Delta does.  But Delta hasn’t tried everything — in fact, it turned down an acquisition offer by US Airways about a year ago.  That was supposedly an awful idea (because it was being acquired) whereas the Northwest deal is a great idea (because it is the acquirer).  You can’t tell me ego isn’t driving some of this.

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