The sudden demise of Eos will come as a relief to the carriers remaining in the fiercely competitive New York-London market and further throws into question the viability of the all-premium model.
New York-based Eos filed for bankruptcy and ceased operations over the weekend, leaving UK-based Silverjet as the only all-premium carrier left operating between New York and London. For nearly all of last year there were three all-premium carriers in the world's largest business class market. But on Christmas Eve US-based Maxjet shut down and filed for bankruptcy and, exactly four months later, Eos has now dropped out.
In only two years the three carriers had built up almost a one quarter share of the entire New York-London business class market. All five of the legacy carriers operating in the market - American, Continental, Delta, British Airways and Virgin Atlantic - claimed the launch of three all-premium carriers were not having a significant impact but clearly they were.
American retaliated last year by launching a service to Stansted from New York JFK, putting it in more direct competition with Eos and Maxjet, both of which linked Stansted with JFK. It is no coincidence both carriers are now out of the game. American will now have to decide whether it will go ahead with its planned second daily frequency to Stansted, which originally was going to start in March but has been delayed until August. American ironically has been building a new lounge at Stansted which it doesn't really need now that Eos and Maxjet have vacated their lounges.
BA also claimed the all-premium start-ups were not having a significant impact but in January unveiled plans to launch a new all-premium service in 2009 from London City to New York. BA's announcement, which was unusual in that it was made over one year prior to a route launch, was clearly aimed at Eos and Silverjet.
At the time Eos and Silverjet were talking to potential new investors. It is hard enough attracting capital in the current market but if cash-rich BA comes in and says it will offer an even more convenient service clearly any potential new investors would have some second thoughts. Indeed for Eos a $50 million capital injection it was banking on getting at the end of April ended up falling through, forcing the carrier to throw in the towel.
Eos in fact began looking at acquiring Airbus A318s and serving London City before BA came along and said it was acquiring A318s to link London City with New York. Eos knew BA linking London City with New York would pose a serious problem - many of its clients were based at Canary Wharf, which is located only 10 minutes from London City. Potential investors clearly didn't like Eos' chances.
London-based Citi analyst Andrew Light calls Eos' demise a "mild positive" for big BA. Light estimates Eos had an 8% share of the New York-London business class market and "its demise helps offset the recent 11% increase in business class capacity due to Open Skies". Since EU-US Open Skies went into effect at the end of March, Delta has launched double daily flights from JFK to Heathrow and Continental double daily flights from Newark to Heathrow. Both carriers continue to serve London Gatwick from their JFK and Newark hubs.
BA also has added capacity to New York since Open Skies went into effect. It now operates 74 weekly flights from Heathrow to JFK and Newark and has a 36% share of the business class market, according to Light. London-based ABN Amro analyst Andrew Lobbenberg also calls Eos' demise "a modest positive for BA since Eos, with its very high service levels and up to four frequencies a day from Stansted to JFK was the most relevant of the start up all premium airlines to corporate passengers."
Eos was planning to add in coming months services from Stansted to Newark and Dubai but executives acknowledged there were not many viable markets for its 48-seat Boeing 757s. The prospect of a recession and a cut in business travel, especially by banks which are a key part of the New York-London market, further dampened its outlook. Eos was looking at adding a premium economy cabin to give it a better chance in today's difficult environment but it simply ran out of money before it could make any such investment.
Eos' demise leaves only two all-premium carriers in the transatlantic market - Silverjet, which serves New York and Dubai from London and French carrier L'Avion, which serves New York from Paris. Last year there were 17 aircraft operating across the Atlantic in all-premium configuration now there are only eight. This includes two from Silverjet, two from L'Avion, two from Lufthansa and one each from KLM and Swiss.
The all-premium model was always considered an experiment and at record high oil prices any new model struggles. But Silverjet does not seem too concerned and thinks it can still survive. The carrier has differentiated itself by operating from Luton and operating out of private terminals. Eos was also more after the very top of the market - providing a first class service at a business class price. Silverjet offers a business class type product at a fare that is cheaper than legacy business class fares and only slightly more expensive than premium economy tickets on BA and Virgin. "With our unique proposition and very reasonable prices, passengers can look forward to continuing to fly with Silverjet," says Silverjet chief executive Lawrence Hunt.
Lobbenberg adds: "Eos failure may make life easier for Silverjet as it will pick up some passengers. On the other hand Eos's failure will also further raise consumer concerns about the viability of the all premium start ups."
Source: Airline Business
