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.

Who says all Chapter 11 Airlines die? Maxjet is back

Interestingly as a charter airline for sports teams.

Check out the website: www.maxjet.com

Cheers

Timothy

PS Thanks Addison

Maxjet RIP - Does this mean Premium Niche is dead?

Maxjet after struggling for the last month to find new sources of credit to keep the airline afloat succumbed on Christmas Eve and grounded all flights.

Our assessment...

Not enough capital, too much competition and not a good enough product. The official reasons were "Anemic Credit Market" and "Skyrocketing Fuel Costs". We believe that the management must also take some blame for not focusing on developing a core market fast enough and also misjudging the consumer in what they want.

Under capitalizing the airline meant that normal features that business folk want (eg InSeat power was not offered). For flights on the routes they flew - STN-JFK, LAS, LAX and IAD the business person was mostly king yet the product did not match up. I flew Maxjet LAX-STN and the service product was at best mediocre. The focus on inflight amenities such as video and food rather than the core product did not make the investor community feel good.

So what finally killed Maxjet?

AA's 2 nonstops a day JFK-STN and the credit crunch. Basically they ran out of money.

Let this be a lesson to Silverjet, L'avion and to EOS. You need to have a better product in order to compete. Business folk can accommodate a clunky old 767-200 if they get what they want to do business. With massive competition coming in March of 2008 from the US airlines coming into LHR - the survivors better start looking for making their product a little better.

Sadly the purple planes will grace the skies no more.

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.