You’ve no doubt heard by now that on Dec. 24, all-Business Class carrier MAXjet Airways, which flew to London/Stansted from Las Vegas, Los Angeles, New York, and Washington/Dulles, filed for Chapter 11 bankruptcy protection and halted operations, leaving travelers on both sides of the pond scrambling to find return tickets. The Christmas Eve shutdown was the end of what had been a very turbulent flight over the past two years. (For information on obtaining refunds visit: maxjet.com.)

In retrospect, the writing was on the bulkhead ever since Dec. 7, when MAXjet suspended trading of its stock, which had fallen to roughly half its summer 2007 IPO value. A farewell letter on maxjet.com cites “today’s fuel prices and the resulting impact on the credit climate for airlines” as the factors contributing to its demise. Certainly just as damaging was increased competition, particularly from American Airlines, which recently launched service to Stansted from New York.

But there are deeper lessons here than oil prices and credit climate, chief among them that a new carrier cannot compete in the Mass Market Carrier (MMC) space on fares. That was Maxjet’s selling point—Business Class at a deep discount—and it fell victim to the big carriers’ ability to slash fares at the drop of a hat. As soon as American came out with a new Business Class seat, it first put it on the New York-Stansted route and lowered fares. Once the fares were comparable, and with American’s better product, there was no way an AAdvantage member was going to forgo miles (or the bonus miles American was offering) for the novelty of flying a new carrier. (The only mystery is why it took American so long to act.) The lesson for new carriers—and maybe even legacy ones—is that you compete by offering a unique customer experience.

Does the fall of MAXjet portend tur

bulent times for the other all-Business Class carriers? An Eos press release addressing the post-MAX climate boasts of a 64% booking surge over 2006 and announces plans for expansion in 2008. In a Silverjet release offering to “rescue MAXjet customers,” the carrier crows about a 20% increase in bookings since MAXjet’s stock tanked. Beware, though, of press release proclamations: just weeks ago, MAXjet’s CEO said, “We look forward to serving our customers during the busy Christmas season, in 2008 and beyond.”

MAXjet’s passing will surely benefit Eos and Silverjet to a degree, but that loftier—and pricier—stratum wasn’t really its niche. MAXjet sought to be the “low-cost” airline for the Business Class traveler. MMCs are more likely to inherit that crowd.

MAXjet should be recognized for its innovation. Its arrival in 2005 forced trans-Atlantic carriers to re-examine the price and value of their international Business Class offerings, and to offer more comfort and better service at more reasonable fares. But the majors committed their deep pockets to improving, MAXjet had little left to offer: Its Business Class seats could have been much better; its routes were limited; and it didn’t have a dazzling frequent-flyer program to ensure repeat business.

The big remaining question is: Will Silverjet and Eos stay aloft?

Silverjet’s Scenario

Silverjet might seem to be in a strong position because it flies from less competitive airports, London’s Luton and New York’s Newark. But all it will take is a simple gang up by Continental (based in Newark) and Virgin (already offering flights from Newark) with American to tag team Silverjet into oblivion.

Like MAXjet, Silverjet isn’t offering a unique in-flight experience. Okay, its ground experience is remarkable, but its seat (much more important) is indistinguishable from American’s new seat and on par with Continental’s 777. It trails Virgin’s and BA’s substantially. The carrier is also having fare problems, as evidenced by its launching one fare sale after another, the last of which it even called “unprecedented.” Not a good sign. Its recent new route from London to Dubai isn’t going to produce rapid growth. I give Silverjet only a 50-50 chance of surviving.

The Future of Eos

From day one, Eos fares have come down. It launched with the thinking that it could get $6,000 on every ticket—that’s why it didn’t offer competitive “leisure fares.” That proved naive and it quickly came out with a 50-day advance fare of $3,000, essentially matching the fares of the two Premium Service Carriers (British Airways and Virgin), which fly above the Mass Market Carriers, and therefore don’t resort to offering $2,000 fares. Since then, Eos has made fares as low as $1,900 the norm (a great deal by the way). In fear, and forgetting its essence, Eos is trying to compete on price. With high startup costs there’s no way it can thrive on such low margins.

True to form, Virgin Atlantic isn’t playing the match game. It’s holding out for $3,700. And why not? The carrier’s value proposition is a unique customer experience. Virgin won’t go out of business with these kinds of margins. In fact, it’s letting American and the other carriers do its dirty work, while it remains true to its business plan—premium/full service. British Airways has come off its tradition of doing what it can to maintain higher fare levels. It got a bit nervous, too, helping its Oneworld partner American against MAXjet.

If you see Eos fares remain below $2,000 for long, it will mean the airline is in trouble. It needs to regain its confidence and play to its strength. Don’t compete on price, Eos. Don’t blink.

For more on the Mass Market Paradigm, see Nov. 2007’s First Class Flyer, page 2.