The Sordid Tale That Led to SkyMall’s Bankruptcy Filing, and What Happens Next

The AP’s Scott Mayerowitz goes for the easy opener on news of Skymall’s bankruptcy.

Apparently, airline passengers aren’t buying enough garden gnomes, superhero pajamas and heated cat shelters.

Sales dropped nearly in half year over year and by three quarters over the past four years. The company believes people flipped through the magazine less and less and personal electronic devices became more common. In addition, gogo inflight internet even allows some free browsing of online shopping sites.

The magazine paid the airlines to carry it, in an amount which increased in recent years as fuel costs rose (since paper is heavy). They charged other companies for ads in that magazine, and took a commission on sales, because they in turn provided access to airline passengers which are an upscale demographic and captive (and presumably bored) during flight.

The company’s bankruptcy lists debts to several airlines:

  • American Airlines for $1.6 million
  • Delta Air Lines for $1.5 million
  • Southwest Airlines for $400,000
  • United Airlines for $300,000

Delta stopped carrying Skymall in November.

Skymall intends to sell the magazine, hopefully by March, though no buyers are linted up yet. The bankruptcy filing lists up to $10 million in assets.

Increased costs notwithstanding, it has seemed like a bankruptcy waiting to happen for quite some time.

The entity actually filing for bankruptcy is Xhibit Corp. Skymall merged with Xhibit in May 2013.

Except here’s the problem. Skymall is by all accounts a reasonably successful company with $130 million in annual revenue, a differentiated offering, a well known brand, and at least some happy customers. Xhibit on the other hand, appears to be a company with dubious sources of revenue, a very thin competitive advantage, and more hype than substance.

The Xhibit Corporation went public via a “reverse takeover” of a shell company in 2012. Earlier, in 2011, the individuals behind the company acquired a shell company called NB Manufacturing for $350K, and voila, Xhibit was able to become a publicly traded company. The SEC warns that investors should be wary of putting their money in companies that become public this way

At the time of the merger, most of Xhibit’s revenues were generated by “five employees from the sales of a weight loss product, colon cleanser and green coffee supplement…”

Its banks wouldn’t even release the proceeds of credit card sales, because they were viewed as especially high risk.

I do not know the inside story of why Skymall chose to merge with this entity, but it seemed clear from the get go that this wasn’t a long-term play.


About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

More articles by Gary Leff »

Comments

  1. I don’t know how sordid this tale is/was. I did notice no Skymall on my Delta flight last week though. In their heyday they charged outrageous fees for a company to advertise in the book. You had to have very high margins to pull it off. You would think some shopping entities would figure some good business models using gogo internet. I have seen free shopping on eBay or amazon and a few other brands but something more interesting than that.

  2. Also people that fly are a very high demographic. That is why the airline credit cards seek us. People who travel: spend more on their cards, higher credit ratings, higher incomes, etc etc etc. You have to realize that some people rarely fly if ever.

  3. Uber is next to file for bankruptcy. When Goldman Sachs coughs up 1.6 Billion USD for a software worm on phones, you know this is going to be a disaster. Notwithstanding the other billion it got from Fidelity and Blackrock that has just fizzled up.

  4. @ED, when you say “next to file for bankruptcy”, do you have an over / under date in mind for Uber’s filing?

  5. “weight loss product, colon cleanser and green coffee supplement” …do you suppose these are really just ONE product?

  6. Thee is more to this story than any of this “reporting” has covered. Saying SkyMall is “by all accounts a relatively successful company” couldn’t be farther from accurate. Rare is it that s company with a 75% decline in revenue is considered “successful.”

    If you really want to learn more, the first step would to be to look at what transpired between SkyMall and their lenders and the labor union representing certain SkyMall employees. Start there and follow the trail…

    Maybe report back once some further work has been done?

  7. @Billy I don’t think I’m suggesting they were relatively successful, I was quoting someone else only for the piece about the squirrely merger from 2013. But if you have some insight please share !

  8. I haven’t looked into this deal at all, but generally the reason for these reverse takeovers with shell companies is to allow the “real” company to sell shares in a secondary offering, rather than having to go through the more rigorous requirements of an initial public offering. This deal was most likely an attempt to raise capital by selling shares to the public in order to prop up the balance sheet or a way for the owners to try to cash out before it collapsed.

  9. Does anyone else remember when SkyMall became a public company during the internet bubble? It was briefly worth a gazillion dollars, even though it’s prospects looked quite limited. I immediately knew they weren’t going to be Amazon. I never did get around to shorting the stock, though. Oh, well.

Leave a Reply

Your email address will not be published. Required fields are marked *