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All-business class MAXjet to file for bankruptcy

MAXjet Airways ceased operations on Monday — leaving jets on tarmacs and stranding passengers on Christmas Eve — as the all-business class airline said it would file for bankruptcy protection.
/ Source: The Associated Press

MAXjet Airways ceased operations on Monday — leaving jets on tarmacs and stranding passengers on Christmas Eve — as the all-business class airline said it would file for bankruptcy protection.

MAXjet cited soaring fuel prices and the deteriorating credit market for what it called a “drastic measure.” But analysts said the company’s failure may raise questions about the viability of all-business class airlines.

The company also announced the immediate resignations of its non-executive chairman, Ken Woolley, and directors Paul Kehoe and Roger Flynn.

MAXjet launched in 2005 and offered “all-premium” flights between Stansted, New York, Las Vegas and Los Angeles. But analysts said it couldn’t compete with deeper-pocketed AMR Corp.’s American Airlines business class.

“High fuel prices were a contributing factor, but American’s inauguration in October of (service between New York’s John F. Kennedy International Airport and London’s Stansted Airport) ... was the coup de grace,” said Robert Mann, an airline consultant in Port Washington, N.Y.

While business class service can be very profitable to airlines, it’s also a very “thin” market, Mann said, serving, typically, “40 to 70 seats per flight, depending on the route and aircraft.” Any loss of market share to a competitor can be devastating, particularly to an all business-class carrier like MAXjet that didn’t have revenue from economy passengers — or a robust route system — to fall back on.

“They could not get the current premium class passengers away from major carriers,” said Mike Boyd, president of The Boyd Group, an Evergreen, Colo., airline consultancy.

MAXjet’s decision to cease operations forced the carrier to reserve hotel rooms for stranded holiday passengers who had booked return flights between New York and London. MAXjet said it was working with rival all-business class Eos Airlines to find alternative routes. Meanwhile, Continental Airlines and Silverjet Aviation Ltd., another all-business class carrier, said they would honor limited numbers of MAXjet tickets.

MAXjet operated five Boeing 767’s configured to seat 102 passengers, and flew 74,760 passengers this year through the end of November.

MAXjet did not return calls seeking comment, but in a message posted on the Dulles, Va.-based airline’s Web site, president and chief executive William Stockbridge apologized.

“With today’s fuel prices and the resulting impact on the credit climate for airlines, we are forced to take this drastic measure,” Stockbridge said. “We are extremely saddened to discontinue a service that we so passionately believe in, and we thank our loyal flyers.”

Analysts suggest that flyer loyalty — to bigger carriers — makes the model followed by MAXjet, Eos and Silverjet difficult to sustain.

“The business class challenge is that there’s strong brand loyalty (frequent flyer programs), plus there’s likely some corporate deals that major carriers offer,” Boyd said. “These off-brand all-premium carriers will struggle.”

Eos and Silverjet issued statements Monday that touted their own success in the competitive market for business travelers.

“We are confident our business model works and this sets us apart from other early stage companies,” said Jack Williams, Eos’ president and CEO.

MAXjet’s failure was due, in part, to the airline’s inability to raise cash. The company attributed that failure to a “substantial deterioration in financial market confidence” driven by concerns about rising fuel and operating costs, “competitive pressure and (a) decline in consumer spending.”

Yet both Silverjet and Eos have raised additional capital in recent months to help fund operations. Eos was attractive to investors because it has a more upscale market niche and operates more fuel-efficient aircraft, Mann said. Silverjet serves more airports and offers more routes than MAXjet, he said.

Lawrence Hunt, CEO of Silverjet, said MAXjet’s issues shouldn’t be applied to the rest of the all-business class segment. Silverjet generates about three times as much revenue per plane as MAXjet, for planes of comparable size and configuration, Hunt said. Also, Silverjet has been able to keep its fuel costs nearly 40 percent below MAXjet’s, Hunt said.

“We’re rapidly approaching cash-positive (operational status),” Hunt said.

MAXjet advised customers who had booked tickets to seek refunds from their travel agency or credit card company.

MAXjet said trading in its shares on the London Stock Exchange’s Alternative Investment Market — halted earlier this month “pending clarification of its financial position” — would remain suspended. MAXjet shares last traded at 73.5 pence ($1.45).

Hotel rooms were being booked in London, New York, Las Vegas and Los Angeles through early January 2008.