This really shouldn’t be a surprise given the state of the industry, but Silverjet’s miraculous funding has apparently disappeared. This shouldn’t be too much of a shock, but it’s terrible news for the 400 or so people now losing their jobs.
Category Archives: Silverjet
Beyond all logic and reason, it looks like Silverjet will be re-launching in the next couple of weeks. The airline has received an investment from an Irish group and, assuming all the papers gets signed etc etc etc, they hope to be flying once again from London Luton to Newark & Dubai.
(On a side note, the Tripmela side of our business is looking to raise some funding right now, and we’re finding it to be not as easy as we had hoped. Yet some group in Ireland thought to themselves, “Gee, an airline seems to be a great investment.” I’m going to go bang my head against the wall for a while. Oh, and if you are interested in investing in an Indian travel publisher, let me know.)
It looks like you can’t put Silverjet in a corner: Despite all logic to the contrary, Silverjet has announced that it has received two offers to purchase the carrier and re-start it as a premium airline (go figure). One of those offers is from Lawrence Hunt, who ran the airline (he’s teamed up with an investment firm). Does it seem strange that while he ran the airline it went out of business and he can now purchase it for very little? Maybe not. In any case, this would be a remarkable turn of events.
I was off by a couple of days…Silverjet shut down operations today blaming the usual mix of fuel and blah blah blah. They’ve been doomed for a while, and when a recently announced bit of financing fell through it was all over. If you’re booked on them, give your credit card company a call.
In only slightly related news, if you care about Eos’ bankruptcy, it’s worth noting according to this bankruptcy filing that as they were running out of cash, they managed to give a number of their execs bonuses of more than $200,000 in December ’07 and January ’08. Good stuff.
I thought it might be useful/depressing to pass along a quick overview of the horrible/annoying/depressing things we’ve seen happen since the fuel hike:
Northwest/Delta merger (less service + higher fares = unhappy flyers in Minot)
American’s $15 first bag fee
Everyone else’s $25 second bag fee
US Airways removes snacks from domestic flights
American cuts domestic capacity 12% and decimates San Juan hub
Eos, MAXjet, Aloha, Skybus, Champion and ATA shut down. Mesa, SilverJet and ExpressJet poised to shut down.
jetBlue defers 21 a320s
jetBlue defers launching LAX service
US Airways, after begging for China route, begs to delay Beijing launch
$100 antler fee on Frontier (damn you, Frontier!)
Return of the Saturday Night stay
Airlines attempt to raise fares 16 times.
Ticket changes cost $150.
And there you go…the state of the industry. I’m going to bed.
Shares in SilverJet were suspended today as the airline announced that it did not receive the Middle East funding it had announced a couple of weeks ago (basically what happened to Eos). The business class carrier was expecting a $5 million to keep themselves afloat, but the cash never arrived in their account (the old check-is-in-the-mail issue). That their shares aren’t trading is a terrible sign, and I would expect them to announce shutdown in the next couple of days.
(Thanks to Sean for the heads up…)
Silverjet, which many predicted would be shutting down shortly, says that they have signed an agreement for a $100 million investment ($25 million now, $75 million later) from an unnamed source in the United Arab Emirates (the UAE is so flush with cash that people there think it’s a great idea to throw $100 million at the airline industry right now). I’m guessing that Silverjet’s finances look something like Eos’ finances before their shutdown, so that $25 million will last them through, oh, the end of the summer.
Unlike its previous pronouncements that everything is just perfectly A-OK, their chief executive admitted that they were running out of cash and that if this deal falls through they would need to seek “alternative means of funding as a matter of urgency” (ie, we have no money.)
A bit of a post-mortem on Eos:
Most of the articles about the bankruptcy have mentioned either oil prices or something related to the credit meltdown (Eos had additional financing lined up, but it fell through), but to suggest the airline failed because of either of those things is missing a far larger issue: Eos was never, ever, ever close to succeeding.
Sure, the airline put out announcements about how great everything was going, including this now-laughable note after MAXjet went under: “Industry failures, rising oil prices, a weakened economy and planned reductions in corporate travel have neither diminished travelers’ enthusiasm for Eos … nor hindered the company’s march toward becoming an unqualified business success…” Right.
And various media continued to print that type of nonsense without bothering to do the small amount of online research necessary to see that they were burning through cash at an impressive rate. As I wrote back in January, under all the hype lay an operation that was burning through about $5 million in cash each month. They hit investors up for more cash a few times (in total for about $200 million), but each $50 million infusion would last less than a year — and that cash burn never really diminished. They were down to $9 million in cash midway through last year before they received $50 million from investors. The business was never close to succeeding.
Why? Let me throw a few reasons out there:
- An all-business class airline that flies between New York and London has a major drawback: during a sizable chunk of the year, traffic falls off a cliff. Wayyyyy off a cliff. And with no coach (or premium economy seats) to offer, those 48 cushy lie-flat seats aren’t very attractive to leisure travelers. And in the airline industry, especially as a start-up, you can’t afford the cash drop off that comes with slow business travel periods. No cash means your fixed costs are burning through that $50 million investment.
- They were never able to get fares close to where they needed to be to succeed. Even before American Airlines introduced their purely evil JFK-Stansted service, Eos couldn’t get fares high enough. Once AA came along (and everyone else lowered their business class fares), they had no chance. Their business plan did not allow them to sell 40 seats at $1200 each way. Yet that’s what they were left with. With AA’s flight it was all over.
- The New York to London market looks incredibly attractive for startups (ie, MAXjet and SilverJet) because it’s the largest international business class market. So every start up will make the point that if they only generate 2% market share, they’ll be profitable, blah blah blah. If only it were that simple. So much of that traffic is locked up in corporate deals that the huge New York-London pie is more crumbs than pie. Eos didn’t make inroads in the corporate market (in part because they shunned travel agents at first) and in part because they underestimated the difficulty of getting people to switch due to their frequent flyer affinity. Those corporate deals are also at fares well below where the airline needed to be to make any money.
- I know they tried very, very hard to market their product, but they never succeeded: they never managed to explain how Eos differed from flying first class on BA or Upper Class on Virgin. In fact, that was an interesting problem from the start: consumers are pretty happy with BA and Virgin’s business class products. How do you convince people that they really aren’t happy with it and that they should try a new service? One way you do that is by not going through advertising agencies like Spinal Tap through drummers. Another is by having marketing staff actually flies the airline once in a while. Et cetera. If the company could never succinctly tell the story of why they were better, they had no chance of convincing people to switch.
And on and on. There’s so much more here — maybe this won’t be my last post on the subject.
In short, fares that are too low + marketing that is too weak + competition that is too brutal = disaster.
On a final note, after Skybus shut down I wrote a little blurb about SourceSpeed, the small company that ran the airline’s website and how they were owed $250,000 at the time of the shutdown. I knew them because they also ran Eos’ website and were a great group of guys. Sadly, they were listed as creditors for $127,000 in Eos’ bankruptcy filing. This is a brutal industry, and today I thought a lot about the 450 people out of work and how Geoff from Sourcespeed will absorb $375,000 in unpaid invoices. It’s still going to get worse before it gets better.
Silverjet Deathwatch Update: Silverjet is now in talks with Lufthansa to purchase the struggling business class airline. Lufthansa would theoretically be interested in Silverjet as a way to compete with BA’s Openskies, which will fly from cities in Europe to the US. I’m not sure why Lufthansa would be interested in purchasing Silverjet, but that’s what the article says. Lufthansa has done perfectly well by working with Privatair to offer a similar service. This will go nowhere.
Silverjet deathwatch odds of shutdown: 85%
SilverJet, the struggling all-business class airline, is apparently up for sale. The company’s shares shot up 43% on word that the carrier is in talks to be acquired. I cannot agree more with the analyst who summed up the situation thusly: “If any prospective bidder does proper due diligence we see a strong probability that they will decide not to bid.” Ouch.
The largest hunk of b.s. in the story comes from a fund manager who just happens to manage SilverJet shares and notes, “It would be a shame if just as the company gets within a hair’s breadth of proving the model somebody came out and managed to get it at a low price…” Hair’s breadth? If they were a month from profitability, wouldn’t that be evident in the due diligence process? Wouldn’t people be jumping at the chance of picking up a profitable company for a song? And why would management be looking to sell the airline for nothing even though it’s ever-so-close to profitability? Shouldn’t shareholders be revolting?
All signs point toward this fact: If they don’t get bought, and that’s not looking likely, we will see a couple of hundred people stuck in Luton trying to get back to Dubai and New York.