Maxjet: the first of many more problems?

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Maxjet's bankrupty is a warning sign for the industry of the problems airlines are finding increasingly harder to battle. Maxjet's decision to file for Chapter 11 makes apparent the difficulties of sustaining yields. Passenger volumes are not a problem, unlike yields, which continue to taunt airlines managers.

The carrier filed Chapter 11 bankruptcy protection on 24 December 2007 citing intense competition and high fuel prices. “With today’s fuel prices and the resulting impact on the credit climate for airlines, we are forced to take this drastic measure,” says president and CEO Bill Stockbridge.

So here comes the winter with low load factors, the price of oil touching $100 a barrel and, as always, yields proving difficult: Will the other premium operators be able to survive?

The news must have delighted the other all-transatlantic operators and one of them has been particularly vocal. UK all-premium operator Silverjet says passenger numbers continue to exceed expectations and forward bookings remain strong. Silverjet’s CEO Lawrence Hunt says: “Silverjet has already seen a 20% increase in bookings since MAXjet's shares were suspended.”

The carrier reported that its passenger load factor during the summer was a whopping 80% but for the month of December 2007, the carrier claimed a 52.8% load factor. (Maxjet claimed a 69% load factor in November.)

As it approaches its first year of launch, Silverjet is almost on the same yields. In the first six months of operations, Silverjet’s revenues per flown passenger were £890 per rotation, while Maxjet was £802. Still one can book a ticket for £1,022 return (saver fare) compared to £999 quoted as the launch fare a year ago. Silverjet says its yields continue to strengthen. The carrier’s average fare for forward bookings is now at £1,150. French all business carrier L’Avion has promotional fares at €1,100 at the moment while, when it launched operations a year ago, it offered tickets at €999 return. On Eos Airlines, one can book a ticket at $2,194 return ticket between New York and London-Stansted.

Silverjet insists that its financial position is healthier than that of rival Maxjet before it filed for bankruptcy protection. It posted an £18.17m ($36.3m) pre-tax loss for the year-ended 31 March 2007 and for the six-month period to 30 September it reported a £13.1 million pre-tax loss.

Last year, Silverjet raised £25m in a flotation on the London market. Silverjet is listed in the London Alternative Investment Market (AIM) and over the past 12 months its share has dropped 58% in value. In the December month alone, the share has gone down 22.5% to £48.44. The airline recently raised an additional £22m to fund further expansion plans and anticipates that it will report profits within the financial year ending March 2008.

Eos Airlines secured last August $50 million in equity capital from institutional and private sources and says it is in a strong financial position.

L’Avion is capitalised at capitalised at €25m ($32m) and has said it has no intention to raise further capital.

All carriers are well capitalised but so was Maxjet. Last June, it raised $93.7 million on the London’s AIM through a share placement. The problem is none of these carriers are running profitably and in the current environment, securing another round of funding might not be easy anymore.