Yesterday, Eos Airlines announced that it had filed for bankruptcy, with a complete cessation to flights. A little over a year ago, SwelledHead posted about the then emerging new breed of all-business class airlines. First came MAXjet and Eos, followed a few months later by Silverjet.
As transatlantic marketing professionals, we had to wonder about the possibilities for this trio. Did the all-business class business model make commercial sense? Who had pitched the price/service equation right? How would the major carriers react to a different type of competitor?
For expert insight, we turned to Henry H. Harteveldt, Vice President & Principal Analyst, Travel Research, at Forrester Research. He looked right past the self-acclaimed “better service at a lower price” promise, citing utility as the fundamental factor for long term success.
For most business travellers, the majority of whom don’t reach into their own pockets to pay for the seat, the big advantage of the major carriers is flexibility in the service. BA, Virgin, United and American have many flights leaving each day, so missing one really isn’t much of an ordeal. Moreover, all have major international feeder networks of their own and/or through partner airlines (these factors make Lufthansa’s all-business class offering workable). MAXjet and Eos started out with a single daily NY-LON departure. Even after boosting this threefold, it just wouldn’t be enough to meet the needs and expectations of seasoned business class flyers.
To reiterate Harteveldt’s words: “Part of the challenge for Eos, MAXjet, Silverjet and L’Avion [a French member of the all-business class cohort], is that you need to reach a critical mass to provide the utility the traveller needs. JetBlue would be nothing if it hadn’t expanded beyond its initial routes… its impact would be de minimis. The brand has to offer utility to its customer… must represent value and meet emotional and rational needs.”
Taking MAXjet as an example, he continued: “They haven’t mispriced the product, but missed opportunities. Perhaps they would have been better off not adding other airports, but greater frequency to London and new routes from JFK to destinations such as Paris, so it represented greater utility from New York… then added flights to Las Vegas and California to add utility for domestic and international travellers.”
While the better service at a lower price model worked well for some customers – typically the principals of smaller firms who travel frequently but are more price sensitive – MAXjet and Eos missed or were unable to fulfil the real demands in transatlantic air travel.
Where does this leave the remaining incumbent? Silverjet is still running at a significant loss, according to its last published results. While this is acceptable for a business that is still in its start-up phase, the current downturn in economic conditions will not be creating favourable conditions. While Silverjet may be able to pick up business from passengers forced off Eos (it has arranged a clever deal to honour tickets of Eos passengers), with just two NY-LON daily departures it is still not fulfilling the needs of most business class traffic. The situation does not look good.
That’s not to say that the major carriers have won the war. The battle still rages, but on a different front, from low cost carriers. The first of these is Zoom Airlines, a Canadian carrier that also plies the NY-LON route. A relaxation of the rules governing transatlantic air travel, the “Open Skies” agreement, may see more of this sort of competitor take to the air. Or maybe such a major change will see the large airlines reduce their prices against each other, squeezing out Zoom and any other such pretenders. There can be little doubt that the transatlantic airline business is a tough one.
