MaxJet Ceases Operations, Files for Chapter 11 Bankruptcy

MaxJet, which ceased trading two weeks ago under a cloud of financial suspicion, filed for Chapter 11 bankruptcy today and ceased all flights. The company tried to secure emergency financing in recent weeks, but unfortunately, failed to make a deal. MaxJet's assets will likely be liquidated in the near future.

MaxJet, which offered business class service with discounted fares, was perhaps the weakest transatlantic premium class carrier. The company failed to attract a significant following, especially as it rapidly expanded. MaxJet flew between New York, Los Angeles, and Las Vegas to London until its collapse, and the company tried to use growth as a tool for gaining market share, a bad strategy when it should have focused on yields instead. The carrier also had an unsuccessful route to Washington DC that was dropped earlier this year. Much of this growth contributed to a decline in service standards, which was evident when the company canceled flights on some days when few passengers were scheduled to fly. Unfortunately, outside of a select group of markets, discount premium class service is not profitable, and MaxJet's focus on building other markets outside of New York contributed to its demise.

Also hurting the carrier was the run-up in fuel prices, which have hurt all carriers, but especially those which operate less fuel-efficient planes. MaxJet purchased used 767-200s, the oldest mass-produced variant of the 767, and these 20-year old planes simply aren't that fuel-efficient. With legacy carrier competitors using newer 767s, as well as the even more fuel-efficient 777, it's increasingly difficult for companies which use less fuel-efficient planes to compete.

Fortunately, I suspect that MaxJet will be the only long-haul premium class carrier to enter Chapter 11, at least for the next year or so. MaxJet's two most similar competitors, Eos and Silverjet, have followed different models, that will enable them to succeed in a tough market. Eos has narrowly focused on the first class market, which makes the carrier very attractive for bankers and other highly-paid business travelers. The airline has had success between New York and London, and appears to have a more loyal following and a better product than MaxJet. Silverjet, on the other hand, offers business class service like MaxJet, but has chosen to expand more conservatively, on routes that will likely produce higher yields. The company has only two routes, between London and New York as well as Dubai, and may add additional routes in the future. However, both of those routes produce high yields and the company is gaining a loyal following. L'Avion, a French company currently offering flights between New York and Paris, a market no other discount premium class carrier has yet targeted, should also be successful in the near future.

The long-haul premium class business model isn't flawed, but can be executed poorly, which is what MaxJet did. The company failed to recognize that outside of New York, and possibly Los Angeles, there isn't a critical mass of business travelers to support such service. Moreover, the challenge that MaxJet faced and that all long-haul premium class carriers will continue to face is that they represent a very small niche in the air travel market, and it will take a great deal of publicity, as well as time, for these carriers to publicize themselves to customers. In the interim, they just have to hang on while their passenger numbers gradually climb and remember that unlike low-cost short-haul carriers, the key to their success isn't rapid expansion, but an effort to increase load factors and build brand loyalty on a few selected routes.