Can Eastern Air Lines, A Start-Up With An Old Name, Survive In the Modern Market?

Eastern Air Lines took to the skies for the first time in 24 years on Wednesday, operating a charter flight from Miami to Havana and back. The Florida-based carrier, one of America’s iconic airlines for more than 60 years before it went bankrupt in 1991, is back -- at least in name . This new Eastern is a startup that acquired the intellectual property of the old airline, including its name, logo and even its slogans, and it’s hoping to make a big splash in the Miami and Latin America markets.

For now, Eastern has partnered with HavanaAir Charters LLC to operate twice-daily charter flights to Havana and weekly flights to Camagüey and Santa Clara, Cuba, from Miami. But CEO Ed Wegel has his sights set on much more: getting off the ground as a scheduled commercial passenger carrier with a focus on Latin America.

"We will always have a charter division, but we will begin to move into schedule operations in 12 months,” Wegel told reporters. “This will happen once we conclude another round of equity raising.”

But can Eastern compete in an already crowded market dominated by the likes of American Airlines and JetBlue, the biggest U.S. carriers to Latin America? Many experts believe it’s going to be an uphill battle for the airline that may have a legacy name but will face all the challenges of a startup in a brutal industry that’s known more for failures than success stories.

“It’s a very difficult, unforgiving business, and it’s left a long line of carnage behind it,” said Brian Foley, an airline industry analyst in Sparta, New Jersey.

And the competition Eastern will face in the market it intends to focus on -- Latin America and the Caribbean -- is especially fierce. Behemoth American Airlines, the biggest airline in the world, serves some 80 destinations in 18 countries throughout Latin America, Mexico and the Caribbean, and many out of Miami. JetBlue also has a strong network of flights from Florida to the Caribbean. Competing with these established players is going to require Eastern to offer passengers something they don’t already get.

“It’s going to be a very tough road for them,” said airline industry analyst Henry Harteveldt of Atmosphere Research. “You can’t say that they will have unfettered access to customers and take off into a bright blue sky. The reality is that they’re starting up in one of American Airlines’ largest and most important international hubs.”

American Airlines President Scott Kirby has been vocal in recent months about American’s imperative to protect its hubs. “He’s said the airline will not lose passengers to other carriers based on price, mostly referring to their hub in Dallas," said Harteveldt. "But I interpret that to apply to any airline that’s serving a route competitive with American. It will respond in some way by lowering its fares.”

In all likelihood, established competitors will undercut the prices of new entrants for as long as they need to to freeze out those newcomers. “American is established, and they can make up for the losses that that takes in this market,” said Foley.

In order to nab new passengers, Eastern will have to define itself for customers.

“What is its distinct value proposition? What will make someone who flies American or JetBlue choose Eastern?” said John Thomas, managing director and head of aviation at L.E.K. Consulting, a global consulting firm. “You have a group of people loyal to JetBlue, others to American, and they rely heavily both on travel within the U.S., but also a deep South American network. It’s a big market, but big markets aren’t necessarily the most attractive ones for startups.”

Wegel told AirwaysNews.com that Eastern is not positioning itself as a low-cost carrier. Currently, its one aircraft -- a Boeing 737-800 previously owned by Kenya Airways -- is configured with 16 first-class and 129 coach seats. But this approach will require Eastern to set itself apart from the legacy carriers, and it’s too early to tell how the airline might do that.

“If they have right mix of network, price and product, they may be able to win customers' hearts,” added Harteveldt.

And Foley says that the airline’s slow approach into the industry may work in its favor. “I like that they’re being very pragmatic, starting with one plane on a charter route. And using a preowned plane, in this slow, measured approach, keeps capital costs down. Hopefully that will enable them to manage their cash flow.”

The airline expects to add four 737s to its fleet by September and also has 10 737 MAX planes on order for delivery by the end of 2022. At least two of the upcoming additional 737s will be leased -- a good strategy for a startup, said Foley.

“If things are rough, you can hand the keys back to the leasing company. There’s a penalty, of course, but you won’t be stuck with it,” said Foley, who added that starting with a charter operation to Cuba is a good way to ease into the industry. “It’s a way to establish a track record, get your operations up to snuff, before you take a bigger bite and try to be a scheduled airline.”

And what of the old name, one that’s probably most recognizable to baby boomers who remember Eastern Air Lines from its heyday? The brand recognition likely helps in some cases, but it could also backfire.

“The challenge is that when Eastern shut down, it was a failing airline. It had a terrible reputation for poor on-time performance, dirty planes, unhappy employees,” said Harteveldt. “So there’s a risk.”

But CEO Wegel, who started his career with the original Eastern Air Lines in 1985, is optimistic, as he told the Miami Herald in January. “Combine a modern airplane with a legacy airline name on the side and suddenly you’ve got a very credible product."