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Joe Brancatelli - What Happened to the Hype about EOS? Print E-mail

When my business travel writer hero sent his short burst on the ‘bust’ at EOS in late April, we decided to dig more deeply into the outlook for small upscale carriers moving forward.  In coming weeks we will be talking to those still standing, and those still planning.

But quickly, I asked the bearer of bad tidings, “ What about all that press hype, Joe?” His same day answer:

“As for the hype these carriers have had, -- well, to some degree it has been justified.  This was a new concept (at least across the Atlantic) and worth discussing. However,  I have always resented people not attaching the history to it.  So,…”

 

I'll tell you three things I have been thinking about today:

  1. This theory that the luxury market is immune to market downturns is clearly baloney.
  2. Luxury is expensive. None of the five all business class carriers (Mima, Maxjet, EOS that are down, Silverjet that might tank before summer, and L'Avion, which no one knows anything about because they are, after all, French...) were well-enough capitalized. The reason why JetBlue made it was it had $150 million in the bank to start back in 2000. I would think Eos should have had that much to start.
  3. Luxury in airlines is also a function of schedule. That was actually Eos' problems. It had to fly AT LEAST four times a day to match BA's eight in the JFK market. That was almost 200 first-class seats. With BA's eight daily flights, it only has 112 in first. So see point 2. You better have A LOT of cash if you wanna fly in the luxury air market...

ABOUT THAT PECULIAR EOS AIRLINES BANKRUPTCY…May 1

 
When Eos Airlines tanked on Sunday, I was shocked, but not surprised. After all, it was the fifth airline of the month to fold. Still, the first reports said the airline filed for Chapter 11 with $70 million in assets and less than $35 million in liabilities. That was both shocking and surprising.

 

Now that the supporting paperwork has been filed, the shutdown of the all-business-class airline that flew between New York/Kennedy and London/Stansted seems even more peculiar. And if you can look past the top-line number (Eos burned through about $120 million since it launched in the fall of 2005), the reason for its closure is fascinating.

 

According to an affidavit filed by the airline's chief financial officer, Eos had secured a promise of $50 million in new funding from an existing investor. Before the unnamed investor would close, however, he/she/it demanded concessions from Eos' suppliers. Eos approached its aircraft lessors and, when confronted with the concession request, the lessors promptly issued default and termination notices. Eos management eventually convinced the lessors of six of the seven aircraft to rescind the notices. That wasn't enough for the unnamed investor, however. He/she/it claimed that the Department of Transportation was "concern[ed]" by the term sheet of the new funding. Then the investor simply pulled out, claiming he/she/it "was no longer interested."

 

The closure comes while new Boeing 757s were being outfitted with the airline's 48-seat configuration, Eos employees were in the Middle East planning new service and the airline's Newark-Stansted route was ready to launch next week.



 
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From the Editor

Ipsos Mendelsohn and American Express Publishing-Harrison Group
Offer Fresh Insight on Consumer Behavior in 2010


According to new studies from two blue-chip research sources, Ipsos Mendelsohn and American Express Publishing - the affluent are not only ready to travel -- they are frequently going to spend more on it. While the Ipsos study focused on intent and American Express Publishing on mindset, they both point to a surge in affluents taking to the road (Amex sees an increase of 6 to 8% in spending on all luxury categories). Interestingly, both studies agree on a positive attitude despite lingering concerns about the economy. Here's a look at the highlights of both 2010 studies.

LuxuryTravel 360 has long looked to the affluent as a burgeoning market in business and leisure travel, fueling growth in more affordable, common sense luxury - less glitz and glamour, but ready to pay extra for memorable family experiences and genuine local culture.

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