January 15, 2008 / 4:23 PM / 12 years ago

WRAPUP 1-Business airlines say not "doomed to fail"

LONDON, Jan 15 (Reuters) - Business class-only airlines defended their strategies on Tuesday after one of their peers collapsed last month and a brokerage said a second was “doomed to fail”.

MAXjet MAXJ.L, Silverjet SILJ.L and Eos were all launched in recent years to compete on the lucrative transatlantic business market.

But last month MAXjet filed for bankruptcy protection after being hit by rising fuel costs, weakening business traffic and tough competition from the likes of British Airways BAY.L and American Airlines AMR.N.

UK brokerage Daniel Stewart questioned Silverjet’s business model on Monday and said its shares would be worthless within a year because it would run out of cash.

But Silverjet Chief Executive Lawrence Hunt told Reuters on Tuesday the airline was on track to enter profit by the end of March, had just had a record week of U.S. bookings and was nearing its target of charging 1,100 pounds ($2,157) per seat.

Hunt said weakness in the U.S. economy might be helping Silverjet by forcing corporations to look for cheaper alternatives to traditional business-class travel.

“We had a record sales week last week in the U.S.,” he said. “We’ve seen a massive increase in corporate enquiries by companies looking to cut costs.”

Analysts at Blue Oar Securities said the demise of MAXjet should help Silverjet gain customers.

“Hardly a risk-free investment, but after yesterday’s fall to 35p, the shares are below net asset value of 48p a share and the possibility of an approach from one of BA’s European rivals should not be ruled out,” they added.

Eos operates at the top end of the business-class market with just 48 seats on each of its four Boeing 757s rather than the maximum of around 200, so is less likely to feel the benefit of business travellers trading down from the traditional carriers.

But Eos Chief Executive Jack Williams told Reuters January had started well, with planes 70 percent full.

“We’ve seen a pretty good bounce-back since the New Year,” he said. “We’re not running at full corporate break-even, but we are covering the flight variable costs.”

Williams said the tough competition that MAXjet had complained of had come as no surprise.

“You need to be careful when you enter a rich, premium market like London to New York,” he said. “We expected a competitive response, and we can compete with anybody.”

One London analyst said that while both Silverjet and Eos had strong business models, new routes would often take 18 months to build up profitable passenger volumes.

“You can burn through a lot of cash waiting for that,” he added. “These companies’ biggest enemy is time.” (Reporting by Pete Harrison; Editing by Paul Bolding)

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