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.

MaxJet Applies for Seattle-Shanghai Service

In a surprising move, MaxJet, the all-business class airline currently operating routes between London and JFK, Washington DC, and Las Vegas, announced that it has applied for the rights to serve Shanghai with nonstop service from Seattle/Tacoma and one-stop service from Los Angeles starting March 25, 2009. If approved, the service would be the only nonstop service between the Pacific Northwest and Mainland China. Given the increasing trade ties between the two regions, it was only a matter of time before an airline announced that it would apply for new service in the market. However, it's interesting that MaxJet would apply for this route, instead of a more secure route to another Asian business capital like Tokyo, given that this would be its first trans-Pacific route. Moreover, the fact that MaxJet would choose to operate the Seattle-Shanghai route nonstop instead of the Los Angeles-Shanghai route, which is larger, and has more premium traffic is puzzling at first. But one possible reason MaxJet wants to operate from Seattle instead of Los Angeles is because the 767-200 ER planes that the company operates may have insufficient range to safely make the journey nonstop between LA and China. However, operating the trip from Seattle would shave an hour or two off the projected flying time, which could make the difference between enabling MaxJet to safely operate the route nonstop or not.

MaxJet may have reasoned that even though the circumstances aren't ideal, since Seattle cannot necessarily support the levels of premium traffic that MaxJet needs to be profitable (even with a fair number of companies that do business with China in the region), it's best to try to get in on China routes as soon as possible, so when the company acquires aircraft that can handle longer journeys, MaxJet will already be an experienced airline with service to China which could help its chances in winning additional China routes. Currently, the DOT is interested in helping cities that lack nonstop service to China by US airlines gain China service. Seattle is one of the largest and most significant US markets that currently lacks nonstop service to China, so even though MaxJet will only offer business class service on the route, it could still be attractive from the DOT's perspective, as the agency tries to cater to the needs of the business community in Seattle which has been hankering for nonstop service to China for many years now.

Unfortunately for Seattle-area residents like myself, I think nonstop service to China will have to wait a bit longer. While the MaxJet proposal does open up a new market, there are a number of drawbacks that I think will kill the proposal. MaxJet isn't large enough to facilitate connections through Seattle that other legacy carriers can (although this could change if MaxJet develops specific partnerships with low-cost carriers at the airport, such as Alaska). Moreover, the company doesn't have a lot of operating experience, and is still considered by some to be a fly-by-night operation in part due to their inconsistencies in operating their Washington Dulles route, where flights were often canceled or rerouted and service was eventually suspended this past winter. MaxJet will need a few more years of solid operating experience with no major breakdowns to change this perception. Finally, the carrier won't offer the variety of service to China that people need. Not everyone wants to fly on business class, and legacy carriers can offer a variety of service standards to customers, unlike dedicated business class carriers like MaxJet. I think it's possible that MaxJet could get the route, but I think other legacy carriers stand a better chance this time around.

I'll be writing more on the recent flurry of China proposals in the coming days, so stay tuned!