Loss of a Backer Grounds a Business-Class Airline - NY Times 053108

-Here's another example of how energy costs are compacting the airline industry. We watch airlines go out of business, consolidate, cut routes and capacity. As we see the fares go up, we can kiss goodbye to mobility for the declining middle class.- RK


http://www.nytimes.com/2008/05/31/business/worldbusiness/31silverjet.html?scp=1&sq=loss+of+backer&st=nyt

May 31, 2008
Loss of a Backer Grounds a Business-Class Airline
By JULIA WERDIGIER
LONDON — Silverjet, the business-class-only airline, on Friday became the third such carrier to cease operations in the last six months, unable to cope with rising fuel costs or to attract new financing.

The British airline, one of four independent carriers that focused on flying business travelers across the Atlantic, suspended its service after 18 months. Its last flight touched down in London on Friday afternoon.

Silverjet, which flew from London to New York and Dubai, failed to receive a $5 million payment from the investment fund Viceroy Holdings, based in the United Arab Emirates, as part of a loan agreement, forcing about 9,500 people to rebook flights with other airlines.

In a letter to Silverjet customers, chief executive Lawrence Hunt apologized and said he was “working actively with new investors” to restart the service.

But Geoff Van Klaveren, an analyst at Exane BNP Paribas in London, said, “It will be difficult to secure new funding before the oil price comes down.”

He added: “Even airlines with the strongest balance sheets find their cash flow under pressure these days.”

But the appointed administrator for Silverjet, Begbies Traynor, said Friday that “a number of interested parties have already been in contact,” making the company confident that it can find a buyer.

Small business-class-only airlines mushroomed over the last two years, pledging to change the face of air travel by catering to a growing market of business passengers. But competition from larger network carriers and a record oil price that increased more than 40 percent over the last six months meant that airlines without strong financing started to run out of cash.

One Silverjet rival, Maxjet Airways, stopped flying in December and another, Eos Airlines, grounded its planes last month. L’Avion, a French privately owned airline, still flies between Paris and New York.

Andrew Fitchie, an airline analyst at Collins Stewart in London, said it was just a matter of time for the smaller business-class-only carriers to close down because they lack the economy of scale.

“It’s very difficult for the stand-alone operator without a large portfolio of offerings and a strong franchise to pull it off,” Mr. Fitchie said. “The high oil price has just precipitated their problems.”

That does not mean that the business-class-only concept is doomed, he said. Atlantic business class travel is the most lucrative for larger airlines, and as the likes of Silverjet dwindle, larger carriers started to adopt the all-business-class idea. British Airways, one of Europe’s biggest airlines, announced plans in February to start its own business-class-only flight from London to New York next year. Singapore Airlines started a similar service on May 17, and Deutsche Lufthansa operates such flights through a subsidiary.

Larger airlines are not immune to the increase of fuel prices, and some analysts predicted more companies would go out of business. British Airways said this month that higher oil prices were expected to contribute to a “particularly difficult” first quarter, and several carriers announced plans to eliminate routes, retire aircraft and raise fares. American Airlines, the world’s largest carrier, plans to cut thousands of jobs and added a $15 fee to check one bag.

Rising fuel costs also squeezed independent low-cost airlines. Oasis Hong Kong Airlines left thousands of passengers stranded when it ran out of money last month, and American carriers ATA Airlines, Aloha and Skybus Airlines also stopped flying.

Silverjet, based in London’s Luton airport, never made a profit and struggled to stay in business. The company had to suspend its shares from trading a week ago when the money did not arrive.

Mr. Hunt set up Silverjet with the help of his cousin Christopher Foyles of the British bookstore family empire after he had a string of disappointing experiences flying across the Atlantic. With money from an initial public offering, the airline started flying Boeing 767s with 100 flat-bed seats between Newark and London Luton airport in 2007 and added a route to Dubai in December.