This morning's news started with the latest grim proof of overdevelopment in a tough sector: SkyBus Airlines shut down, less than year from when it started. Never heard of Skybus? Not surprising; they chose to focus on trips from Ohio to the West Coast for ridiculously low fares. Yes, you read that right: the airlines' unique niche was that they focused on trips from Ohio.
Was air travel such an amazingly profitable business that we needed that much segmentation and focus? Of course not. A year ago, when Skybus was just getting off the ground (har har), fuel costs were at an all time high. United was still in bankruptcy; Delta, a fellow airline with a major hub in Ohio, was just exiting Chapter 11. And yet, "irrational exuberance" led investors like Nationwide Mutual Capital, Huntington Capital Investment Co., and Battelle Services Co. to ignore the obvious signs of risk, and dive into what was a dubious investment. Today, they, and the passengers who were lured by low fares, and the workers lured by the chance to try something new, are all grounded and scrambling.
This is the latest in a string of "should see it coming" moves among business. This week alone has been absolute carnage for the airline sector: earlier this week, Aloha Airlines ceased service after 60 years, and ATA Airlines took a permanent vacation. In the case of Aloha, it was a case of musical chairs on inter-island travel that did them in, as they fought to compete against the better financed go! Airline, along with their historical rivals, Hawaiian Air and United. Add the new low cost Hawaii Superferry, and the writing was on the wall. ATA was different, as they tried to carve out a niche in the low-cost vacation travel routes, while underwriting by providing the military with charter flights. With the recession, vacation travel drops off, fuel costs rise, the military contract ends...and ATA falls. What's worse, this is not the first time ATA has fallen: it had previously been bankrupt.
It's not just the airlines, either. The Sharper Image, the iconic symbol of 1980's retail, is in Chapter 11, betting their entire exit on cost reductions and sales of a bizarre $600 laser synthesizer; if there was a way to bet that this strategy is fraught with peril, I'd put it all down on Chapter 11 going to Chapter 7, with savvy online retailers just bidding on the brand name. RedEnvelope, the niche online gifts retailer, who grew up from their playful 911 Gifts start, also ceased operations this week. Once considered a darling of the new e-commerce business, they pushed through over $100 million in venture capital, and never turned a profit. With periodic re-invention, they managed to convince everyone that change was always right around the corner, but last week, the doors were closed and hundreds of people were out of work.
So, now the question is: who's next? My bet, which you are all welcome to wager on, is Circuit City. Best Buy is eating their lunch, internet retailers like ZipZoomFly and Newegg are nipping at their heels, and the best they can come up with is a new store format? Sorry, no way. Who do you think is next?