Niche Low Cost Business Class Airline Model RIP

Silverjet threw in the towel today. Ceasing operations after valiantly attempting to stay afloat. They needed but $5 million to keep the operations open but after being refused a lifeline loan and the deal with Viceroy falling through there really was no chance.

There is an old Axiom if you do business in the GCC. An LOI is worth nothing. Only the money in the bank is the ultimate test. As one of our friends put it, precision for a Brit and a Yank is about 90% done. In the GCC it is only about 50%. Clearly this was a lesson that Silverjet’s management had not quite learned. There will be a lot of mad people out there now, individual investors and those who plowed money into it.

The demise of Silverjet follows EOS and Maxjet. Eos actually had quite some months of operation in cash before they needed their injection . But despite everything they knew the situation was hopeless. In the GCC this model could have worked with newer aircraft and a smaller number of seats based on frequency. However the low cost high end airline in Saudi Arabia Al Khayala soldiers on but it is a short haul carrier offering service inside the 3 major cities and erratic service to Dubai. We believe that like its sister company NAS Air it is not making money.

So L’Avion is the last one left. If they have any sense they will seek protection under the wing of Air France. PrivatAir on a ACMI basis seems to be doing just fine.

Alas poor biz class model – we hardly knew thee.

Cheers

Timothy

So Does Predatory Behavior Pay? Let's Ask...

American Introduced JFK-STN services in 2006 specifically to counteract the threat of the new low cost Business Niche players which at the time included EOS, Maxjet and Silverjet. They even went to double daily in 2007. Today they announced the cut back of the service and cancellation of the route effective July 7th. Thus leaving AA with a single gateway for all of London.

I guess they were able to achieve what they wanted. Too bad about the collateral damage.

Eos - final dawn

Eos named after the the Greek Goddess of the Dawn failed yesterday and ran its last flights today.

Jack Williams (ex AA, ex RCCL) while having a fine team and doing a good job of making their numbers were unable to come to conclusion with their funding source and shut down.

There are a lot of lessons here. But the one that should resonate with everyone is that the basic airline model is flawed and is not sustainable in today's economic environment.

This was a great business. It can be once again. The economic reality of the depth and breadth of the recession leaves no margin for errors.

Concorde Gone... and now forgotton - The market for Premium Seats

While some of us bemoan the forced retirement of Concorde there is however a very vibrant market for premium traffic.

If we take the Londont to New York route in Concorde's heyday there were the following flights between London (LHR and LGW) and New York (EWR and JFK):

British Airways 5X - Newark 1, JFK 4 Plus 2 Concorde
American Airlines 4 JFK-LHR
Virgin Atlantic 5 various combos PLUS CO code share
United 3
Continental 2 plus VS code share
Air India 2
Total 21 Flights per day plus 2 Concordes.

Thats a healthy bit of competition.

Fast forward to this summer (using August 12th as the date) and we have even more flights 35 flights daily with premium seat share of the new entrants at a healthy 22% of all premium seats. For clarification a premium seat is a C/J/P/F class seat not premium economy.

With Virgin and BA poised to make an entry into the market we anticipate that the segment will continue to grow. This trend is likely to spread to other markets where already there is premium single plane service on many other sectors including flights offered by Air France, L'Avion, Lufthansa, Swiss International, KLM. We believe that certain other markets will see the introduction of premium service. Even Maxjet filed for one of the US-China frequencies this month.

If general traffic and therefore yields go soft next year as has been predicted (we are still pondering that question) will traffic in the premium plane business also soften? Will the premium traffic take a load of the depressed Coach yields?

Good questions all - stay tuned

Cheers

Note on sources - Source Material is OAG, SeatGuru, IATA and Airlines directly.