Following months of uncertainty it appears Silverjet has finally succumbed to market pressures. In an interview before the airline's demise, Lawrence Hunt told Rob Morris about financial fallouts and battling for survival.
Lawrence Hunt is no stranger to adversity. As Silverjet's CEO, the British entrepreneur has suffered several setbacks since launching the all-business class airline in January 2007.
One of the biggest came last November when the AIM-listed carrier's shares dropped some 50% to GBP38.5p (US$75) from around GBP80p ($155). Global economic instability was instrumental to the financial fallout, but a damning fiscal report also contributed.
In February, a financial analyst said Silverjet's shares were worthless after poring over the airline's books. Mike Stoddart from Daniel Stewart Securities added the carrier - which flies from Luton to Dubai and New York - was "likely to fail", insisting it made little cash and failed to attract passengers.
Never one to back down, Hunt responded by questioning Stoddart's professionalism, competence and accuracy. "He has shown himself up really," Hunt said. "He had an hour's meeting with the company and then produced a 32-page report. He's not an aviation analyst and doesn't understand the business; he doesn't even travel.
"The problem with that [Stoddart's comments] is it becomes self fulfilling. It makes everybody nervous, slows bookings down and leads to suppliers tightening credit terms, so it's extremely unhelpful and very unprofessional."
Ken Livingstone, the former Mayor of London, added to Silverjet's woes after flying with the airline. Last year, the seasoned politician told reporters his flight from Luton to New York was "terrible". Newspapers subsequently attributed Livingstone's comments to Silverjet's service, but Hunt insisted he was referring to delays, following air traffic control problems, and in-flight turbulence. Having read the quotes, Hunt phoned Livingstone and asked him to clarify his comments. The MP allegedly refused, forcing Silverjet's management to take drastic action.
"We've banned him," Hunt said. "It does an enormous amount of damage when the [ex] Mayor of London says he had a nightmare flight with us. The article reflected very badly on us and he refused to get a retraction and say whathe told me, which was he had an excellent flight, thought it was great value for money and he would use us again." Aside from misquoted MPs and stock market setbacks, the widespread confidence crisis among investors has also hit the airline. According to Hunt, the US recession and general economic slowdown is forcing financiers to tighten their collective purse strings. To make matters worse, increased fuel costs are taking their toll as airlines' overheads continue to rise. In recent months, business-class carriers Eos Airlines and Maxjet Airways have gone bust, with analysts predicting a similar fate for Silverjet. "We're in a highly competitive business and we are vulnerable," Hunt said weeks before Silverjet crumbled.
"That affects sentiment and when times are good the appetite is much stronger, unlike now where people don't know what's going to happen. We are a high-risk investment with a new business model." With no economic upturn in sight and other potential backers refusing to help, the airline appeared to be struggling. But Hunt and his team were confident Silverjet was back on track after securing funding for expansion. Indeed, investment fund Viceroy Holdings recently agreed to inject $25 million into the airline, a timely intervention following months of uncertainty - or so Hunt thought.
When going to press, Silverjet issued a statement saying it was still waiting for Viceroy's capital, which included options for a further $75 million. The airline's management added its cash reserves were limited, with additional funds needed "urgently". Amid the cash crisis, Silverjet's shares were suspended from junior stock market AIM, leading to further speculation about the airline's questionable future.
Only days later, the shareholders' fears were confirmed after Silverjet's management grounded all flights. A company announcement said: "Silverjet continues to be in discussions with investors interested in supporting the business of Silverjet, however it has yet to conclude such discussions to its satisfaction. It is with deep regret that the board of Silverjet has therefore decided that it must suspend operations with immediate effect."
The aftermath has seen Silverjet advising passengers with future bookings to seek travel with other carriers. Travellers have also been told they will not be receiving refunds.
Despite the airline's demise, Hunt will most likely refuse to accept defeat. Before the airline entered administration, Hunt insisted his team was determined to strengthen the carrier. The first priority was to increase Silverjet's fleet to five Boeing 767s, with two planes scheduled to arrive in the coming months.
Launching new routes was also on the agenda with several destinations mooted, including Los Angeles, San Francisco and Johannesburg. Additional cities under consideration included Deli and Hong Kong. No date was announced for when new services would start, although Hunt insisted management was keen to implement the strategy soon. He was also determined to find new investors - a critical objective for survival that ultimately proved unobtainable.
Financial troubles may have blighted Silverjet's progress during its 18 month lifespan, but the airline still managed to secure industry recognition before going bust. Last year, the carrier was named best airline at the Sunday Times Awards. It also secured the favourite business only airline, and design and innovations plaudits at last year's Conde Nast Traveller Awards.
Elsewhere, Silverjet's board reported healthy passenger figures in the half year to September 30, 2007, with loads on services between Luton and New York 80% full. During the same period seat revenues increased 38%, while the airline generated GBP14.5 million ($28.2 million) capital. More recently, Silverjet's ongoing financial troubles did little to perturb potential acquirers. As Hunt pointed out, most financiers may have curbed their spending but some are still willing to invest. In April, the airline was rumoured to be in talks with German carrier Lufthansa about a possible sale. Other parties also expressed interest, although Hunt insisted reports of three bidders entering the fray were false.
Unsurprisingly, the British executive refused to name the companies or confirm numbers. But Hunt admitted he was reluctant to sell. Indeed, under stock exchange rules the publicly-listed company has to listen to all offers. Any bid that meets management's valuation then goes to a shareholder vote, although Hunt hoped to retain majority control of the airline - before Silverjet went bust. "Now is the wrong time to sell but if someone puts an offer on the table we have to consider it," he said.
Hunt attributed interest from potential suitors to Silverjet's solid business strategy. He believed the biggest difference between his operation and flagship carriers offering business-class travel was price. Unlike Silverjet, most airlines rely on a small number of business-class passengers subsidising hundreds of economy tickets.
The upshot is legacy carriers charge inflated prices for higher class tickets, while Silverjet sold all seats at the same cost. Charging fixed rates for all Silverjet seats had made business-class travel affordable for a wider market, according to Hunt. "The key was getting the price point to a reasonable level and making Silverjet appealing to a much bigger market. I wanted to get to a price point where the legacy carriers couldn't compete because they have 50-60 business-class seats subsidising 250 economy seats. "The economy passengers won't pay anymore and they won't pay fuel surcharges, so the airlines have nowhere to go when it comes to economy passengers. To get around this, they have to keep business-class tickets high."
Frustration led to Silverjet's birth, with Hunt sick of spending roughly $5000 for some business-class seats while economy travellers paid closer to $500.
The British entrepreneur, who ran other companies before launching the airline, was also dissatisfied with carriers treating him like "a piece of meat". Hunt said he often faced lengthy queues when arriving at an airport, before battling for space in overcrowded departure lounges.
After three years researching the aviation market, Hunt assembled a management team and workforce comprising industry players. He then turned his attention to improving comfort levels for passengers by securing exclusive terminals at Luton, New York and Dubai. Like most business-class lounges, Silverjet's passenger areas provided food and seating in spacious surroundings.
But Hunt believed allowing passengers to relax in the lounge while staff checked in baggage and issued boarding passes was a big draw. The airline executive also pointed to helping passengers avoid Heathrow Airport as another benefit. In recent months, British Airways has been criticised following the disastrous opening of the London hub's newest terminal.
The UK carrier, which will operate exclusively from Terminal 5, was blasted for losing some 30,000 items of luggage, leading to flight delays and cancellations. Silverjet quickly capitalised by issuing a press statement urging passengers to choose Luton over Heathrow. It was an ideal strategy that could have proved lucrative if T5 continued to disappoint.
But Hunt insisted BA's recent woes were a minor concern. Instead, he was interested in securing extra capital to refurbish the Dubai-based Al Majlis Terminal, fine-tune the onboard menu and increase passenger numbers.
"We have a one-in-four repeat customer ratio and passenger numbers are doubling every six months, which is great," he said prior to the airline's crash. "We have been the best performing and punctual airline from Dubai to New York, and plan to improve those ratings while expanding. That's the focus for us."
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