Aviation has a way of attracting enthusiastic followers for particular aircraft and airlines, but the task being undertaken by one team may be the biggest show of airline loyalty ever. A group of airline managers is looking to get Eastern Air Lines flying once again. Looking at their progress so far, this relaunched carrier could be taking to the skies in the next few years.
A brief history of Eastern
Eastern Air Lines also notes that it was the first airline to operate the Boeing 727 and Boeing 757, as well as being the first U.S.-based airline customer for Airbus. At its peak, Eastern could easily be considered one of the largest airlines in the U.S.The original Eastern Air Lines was born out of a small aviation company started in 1927, around the same time as the other mainline carriers flying today. Like many other early airlines, Eastern made a good business of flying mail in the 1930s, gradually moving toward passenger transport during the next several years.
But the airline industry is often a turbulent one, and financial troubles began to threaten Eastern Air Lines in the 1980s. Due to a combination of asset transfers, labor problems, and debt issues, the airline eventually ceased operations in 1991, as the Gulf War began.
The new Eastern
When Eastern Air Lines stopped flying, the airline still had many fans from both the airline and the aviation history it was a part of. This group of people started the new version of Eastern Air Lines in 2011, 20 years after the original Eastern ceased operations.
The new company is called Eastern Air Lines Group. Although many people know the company as Eastern Airlines, the words Air and Lines are separate to reflect the original name of Eastern Air Lines. Eastern will now join Delta Air Lines (NYSE:DAL) as one of the few modern airlines with this type of spelling.
The new Eastern has moved its head offices to the old Eastern operations center at Miami International Airport. Besides using the historical operations center, the new Eastern plans to base itself out of Miami for its flight operations.
Although Boeing has long since stopped production of the 727 and 757, the aerospace manufacturer has been tapped to supply the new Eastern with up to 20 Boeing 737-800 aircraft; 10 are firm orders, and 10 are purchase rights.
Routes and competition
Since the old Eastern Air Lines ceased operations, the airline industry has undergone a period of consolidation that has seen the number of competitors drastically shrink. However, the airlines that remain are now both bigger and stronger than the more fragmented carriers of decades past.
In Miami, Eastern will face competition from many airlines, but especially from American Airlines Group (NASDAQ:AAL), which uses Miami as one of its hubs. American Airlines Group is now the world's largest airline since its merger with US Airways, and will be offering a wide selection of routes servicing both the U.S. and the markets of Central and South America.
Although Eastern has yet to announce its routes, the Miami location is well positioned to operate flights to Central and South America, as well as the east coast of the U.S. The airline has already chosen "LatinOnePass" as the name for its frequent flyer program, suggesting the airline may operate some flights to Latin America.
The airline industry has seen a nice rebound since the recession, propelled by both rising demand and industry consolidation. This has led to record profits at American Airlines Group, Delta Air Lines, and Southwest Airlines (NYSE:LUV), as the carriers benefit from disciplined capacity management and higher travel demand.
Despite this improved industry outlook, the road ahead will still be challenging for the new Eastern Air Lines. History is littered with failed airline start-ups from its early beginnings to the present day. However, Eastern Air Lines will have a level of name recognition that most start-ups lack, which may help in collecting media attention and attracting aviation fans.
For existing airlines, the start-up of Eastern is unlikely to have a major impact, at least in the near term. With smaller financial resources, Eastern is unlikely to wage price wars to break into competitive markets, and its smaller fleet will put a limit on how much capacity it can add to the aviation market as a whole. Of all existing carriers, American Airlines would be the most likely to feel pressure due to increased capacity at Miami International; however, investors will have to wait for Eastern's route plans to determine how many routes currently flown by American will see increased capacity from Eastern.
Eastern Air Lines Group filed for its Certificate of Public Convenience and Necessity in January of this year, and has since placed an order for up to 20 Boeing 737-800 aircraft. As always, building a successful airline will be a challenge; but the founders of the new Eastern have chosen the right industry environment to do it in.
If these people are successful, Eastern Air Lines may just become the first legacy carrier to disappear for more than a decade before returning to the skies.
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Alexander MacLennan owns shares of AMERICAN AIRLINES GROUP INC and Delta Air Lines, and has the following options: long January 2015 $17 calls on AMERICAN AIRLINES GROUP INC, long January 2015 $32 calls on AMERICAN AIRLINES GROUP INC, long January 2015 $40 calls on AMERICAN AIRLINES GROUP INC, long January 2015 $22 calls on Delta Air Lines, long January 2015 $25 calls on Delta Air Lines, and long January 2015 $30 calls on Delta Air Lines. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.