The founder of Eos Airlines explains how his first-class-only planes offer the intimacy a traditional airline can’t.

As he made quantum career leaps from biochemical research to management consulting to a senior executive spot at British Airways, David Spurlock was often frustrated by the slow pace of progress in large companies. So, now he sets his own pace as the founder and CEO of Eos, an all-premium airline that started flying between New York JFK and London Stansted in fall 2005, operating luxurious 48-seat 757s for business travelers at bargain fares. Eos promises innovations in seating design, configuration, and in-flight service and comfort as it seeks to skim the cream off the market from much larger competitors.

Tell me about your professional background.

David Spurlock

I started as a biochemist, working in San Francisco for Genentech, the first company to come out with a genetically engineered drug—not the kind of experience that leads you into the airline business. From there, I went to work as a management consultant—taking a leap out of biochemistry into the business world. I found that the research side was just too slow-moving. As good as you felt about the work you did—I worked on a drug that was eventually approved to treat cystic fibrosis—those drugs stay in laboratories for 10 years before they’re approved by the FDA. It didn’t have enough action in it for me.

After the management consulting, I went to graduate school at Stanford to get my MBA. Then I rejoined a management consulting group for two and a half years, and from there, I was hired into British Airways—hired by and reporting to the CEO, another strange leap.

Had the consulting group been working for BA?

We weren’t working for BA, although I had done two airline projects. A mutual acquaintance introduced me to Bob Ayling, who at the time was CEO of BA. Bob and I hit it off. In one meeting, he scrapped an international search to find somebody to think through long-term strategy for BA, and convinced me and my future wife to come from San Francisco to London. I was with BA five years and led a very large restructuring—the de-hubbing of Heathrow and shifting the focus from hub-and-spoke traffic into point-to-point traffic. That included major shifts in the fleet of aircraft, and re-looking at our product specifications—the configurations of each aircraft, the mix of business to leisure seats and so on.

Why did you decide to leave a big, established company to start an untested new venture?

They were separate decisions. As for leaving BA, my wife and I are both Americans, and we wanted to return home for personal and family reasons. But there was a professional reason, no different than during my time as a biochemist: The speed of change inside a large hub-and-spoke airline was nowhere near the pace that I could see was required.

Where did the Eos concept come from?

I was asked a question, more socially than anything, by a partner in a private equity group: “If you started an airline, what would it be?” I had never been asked that question, nor had I thought about it, but without missing a beat, I laid out the concept of Eos. I had never thought of starting an airline, but this individual was convinced that what I described could be financed. That’s a tall order, but he turned out to be correct. And there was something even more integral: My wife determined that this was a match made in heaven, between myself and the challenges of starting an airline. It was those two individuals—it probably took them six months to convince me to drop other pursuits and found Eos.

Didn’t some of these ideas take root during your experience at BA?

What came to me at BA was where the industry had to go, but it was powerless to change, and any airline that tried to buck where consumers were leading the industry was really doomed to failure. That’s the way I think of any issue, any problem—where, in the long run, does this thing need to go? It was clear to me that no airline, BA included, had the capability of moving to the right positioning quickly. Eos was just the articulation of “If I could start this again, how would I?”

Why will premium travelers want to use Eos instead of the front cabins of established airlines, or moving to fractional jet memberships or charters?

Starting with corporate jets—we offer a similar experience in intimacy, privacy and exclusivity, but at a much lower price point, because we are a commercial airline. That means we can offset costs—we can serve more than one passenger at a time. It’s just the difference between a scheduled carrier and true charter services.

Flying longer distances has an exponential relationship with costs; someone flying fractionally in the U.S. or European domestic markets may not even have an aircraft that is transatlantic-capable. To lease a Boeing Business Jet for that transatlantic trip, it could cost $40,000–50,000 to get that feeling of a private jet, where they’re paying a couple of thousand an hour for domestic services. So, we have a powerful economic advantage over fractional jet players for international travel.

As for the front cabins of the major airlines, our perspective is that players who try to be all things to all people usually fail across the board. My analogy is Sears & Roebuck, the epitome of the be-all-things-to-all-people strategy. In the end, the consumer market segments into two groups: People who want a commoditized offering at the lowest price, and people willing to pay for differentiation. My mental image is of a large Sears store going up against a small, beautifully maintained Tiffany store in the jewelry market. Tiffany will outcompete Sears every day of the week selling differentiated jewelry, and it’s not even a fair fight.

How can you compete against the large airlines’ frequent flier programs, feeder networks and global alliances?

The frequent flier programs are very strong because people can earn and burn mileage over vast networks—so even if you’re flying to Topeka, you can go on holiday to Hawaii. That’s a very real value proposition. But it’s getting watered down because the low-cost carriers in major markets are offering very good service to traditional leisure destinations. So, where you used to perceive the value of the free Hawaii trip at $800 a ticket, today you might perceive it at $100 or $150.

There’s a massive amount of cross-subsidy inside a major airline—cross-subsidizing profits and margins from the front cabins to lower the price points in the economy cabin, so they can compete with low-cost carriers that have much more efficient operations. That cross-subsidy doesn’t serve the premium customer base whatsoever. We will be able to innovate faster, invest more behind the premium customer, create better products that fit their needs, and do it efficiently, like Tiffany would run an efficient jewelry store. Their jewelry department isn’t paying for losses in the shampoo department, which is what Sears would do when it’s first attacked by Wal-Mart.

How will your fares compare with the competition?

We will price 20 to 25 percent below today’s business-class fare levels on the Atlantic, with a product spec that exceeds even first-class offerings on other airlines.

When and where will you add new routes?

We’re launching with double-daily service to London. We have not announced our next routes, but we plan to add four aircraft a year. We’re starting with three, and we’re seeking a fourth. From that base, we will add four a year.

Was this a hard sell to investors, given the airline industry’s troubles?

Raising money in the airline industry is difficult under any financial conditions. But the business strategy we put forward found immediate favor. Our ability to prove we could build a business that would take product leadership from day one, and do that inside a new company that was demonstrably more efficient from day one—so that we could build better products at lower cost than our competitors—those two facts were coupled to a jointly held belief that long-haul international travelers, over time, will reward the superior product.

On domestic short-haul routes, going with a product- and service-led strategy is much more challenging, because consumer demand and behavior don’t reward product specification on a one- or two-hour flight: You’re just not in the airplane long enough. The flip side is long-haul international markets. Over 90 percent of North Atlantic flights are overnight redeyes, and I’d say 70 percent of people who get out of a business- or first-class cabin find themselves in a business meeting within two to three hours. In that environment, your product specification—your comfort, your ability to help people “perform and revive”—is highly sought after.

Look at the last 15 years and see how BA performed with product leadership as its core strategy, how Virgin has performed, versus how U.S. carriers performed: The market share followed the product spec. Consumer demand has already proven itself willing to patronize what consumers see as the best product.

How often do you travel on business and how?

I travel on business close to once a week, disproportionately domestically—back and forth to see my investors, or to see how pieces of the airline are coming together—so I’ll visit our airplanes as they’re having their new products placed on board.

What kind of technology do you travel with?

I’m pretty damned hooked to my BlackBerry—it’s a godsend for staying connected to people.

What advice would you give to a prospective entrepreneur?

I would advise them to choose their markets very carefully; to know their markets and their customer base thoroughly—what drives their behavior; and, with that knowledge, build a business around that target customer base.

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jim glab is a contributing editor for Executive Travel. Email Jim at editor@executivetravelmag.com.