The airline industry has made quite a recovery over the past few years, leading several new carriers to make a move on this market. But starting a new airline requires a lot of planning, money, and luck.
These new carriers each have their own strategies, and I'll look at how each could affect the air travel market.
Eastern Air Lines
Once one of the largest airlines in the U.S., Eastern Air Lines ceased operations in 1991 after facing tough financial times. But a new group of investors has acquired the rights to the Eastern Air Lines name and is moving forward with an effort to relaunch the carrier.
The process of launching a new Eastern Air Lines began in 2011, and since then Eastern Air Lines Group has:
- Filed an application for a Certificate of Public Convenience and Necessity from the U.S. Department of Transportation.
- Ordered 10 Boeing 737-800 aircraft and secured purchase rights for 10 Boeing 737 MAX 8 aircraft.
- Started accepting pilot applications.
The new Eastern plans to be based out of Miami International Airport and use the old Eastern Air Lines control center, which is near the airport. By choosing Miami, the new Eastern will be competing with the networks of many major airlines, but especially with American Airlines Group (NASDAQ:AAL), which uses the airport as a hub.
However, I don't expect Miami to see overcapacity problems, since American Airlines has an interest in keeping capacity levels low and prices elevated while Eastern Air Lines wouldn't have enough resources to add too much extra capacity.
According to Eastern's website, the airline expects aircraft deliveries to begin in late fall of 2014, although no word has been given on when flights will begin.
This airline name wasn't as big as Eastern Air Lines, but it did make a name for itself as a low-cost carrier until it was merged with Continental Airlines, now part of United Continental Holdings, in 1987.
The new PEOPLExpress operates in the eastern U.S. using Newport News/Williamsburg as a hub connecting its Northeast flights with its Southeast ones.
From a pricing perspective, PEOPLExpress operates much like an ultra-discount airline, where fares themselves are low but there are fees for items such as carry-on baggage ($25), advanced seat assignment ($15), coffee or tea ($1), and soft drinks, bottled water, and juice ($2).
With these policies, PEOPLExpress could be a smaller competitor for Spirit Airlines (NYSE:SAVE), another ultra-discount carrier with similar policies. As both of these carriers grow, we will get a better feel for how many new customers ultra-discount airlines can bring to the market.
According to the airline's website, PEOPLExpress has operated 817 flights since it began service on June 30, but service has been temporarily suspended until Oct. 16. As an explanation, the airline cited "[r]ecent aircraft and crew availability and maintenance issues, including an aircraft recently damaged by a vendor's truck, an engine change, and a lack of a planned spare aircraft."
This is definitely a patch of rough air for PEOPLExpress, but the airline is able to process refunds for customers with flights before Oct. 16. This airline has a lot ahead of it, and industry followers should keep an eye on it and how well it can resume flights on Oct. 16.
Baltia Air Lines
Unlike the new versions of Eastern Air Lines and PEOPLExpress, Baltia Air Lines wants to go long-haul international early and use jumbo jet aircraft to fly its routes. Although it has a longer-term goal of becoming a leading carrier flying to European capitals, Baltia intends to begin by operating flights to Polkovo Airport in St. Petersburg, Russia.
Currently, Baltia is waiting for approval from the FAA Air Carrier Certification process, but if it's successful, the airline will have many challenges ahead. Baltia plans to take control of the New York-to-St. Petersburg route by offering non-stop flights taking approximately eight hours, compared with connecting flights from other carriers that take 11 to 30 hours.
The airline's choice of aircraft is also an interesting one. Even as jumbo jets lose popularity with most airlines, Baltia looks poised to use Boeing 747 aircraft for this route. This has an important trade-off. On one hand, the Boeing 747 is losing popularity because of its fuel consumption, but on the other hand, lower demand for these planes makes them cheaper for start-ups like Baltia to finance.
Because of current geopolitical tensions, Baltia also finds itself at risk from the possibility of increased sanctions between the U.S. and Russia. Unlike major U.S. carriers, where flights to Russia only make up a fraction of their routes, Baltia's only planned route relies on access to Russian airports.
Clearly, Baltia has an uphill battle ahead of it, and unlike Eastern Air Lines and PEOPLExpress, which are both private companies, the market is already assigning a valuation to Baltia through its stock traded over the counter. As of this writing, Baltia is being valued at $77 million, making it one of the smallest publicly traded airlines in existence.
Time for takeoff?
Of the three airlines mentioned here, PEOPLExpress is the only one to have operated passenger flights. Eastern Air Lines and Baltia Air Lines are both in the process of getting regulatory approval to begin flying.
Start-up companies are risky by nature, and start-up airlines are even riskier, because of the industry's capital-intensive nature and susceptibility to economic and geopolitical issues. Industry followers should continue to monitor the progress of these start-up carriers to see which ones could carve out a piece of the market for themselves and which existing carriers will be most affected.
Alexander MacLennan owns shares of and has options on American Airlines Group. 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 don't 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.