Skybus starts flying, aims high
05-26-2007 | 09:16 AM
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From: Airbus A320 F/O
Skybus starts flying, aims high
Skybus Aims High on Low-Cost Airfare
By Ted Reed
TheStreet.com Staff Reporter
5/25/2007
URL: http://www.thestreet.com/newsanalysi.../10358787.html
Skybus, which began flying Tuesday, has some unusual ideas about air travel.
At least 10 seats on every flight are sold for $10. Passengers disembark from two doors, cutting turn times to 25 minutes. Every extra, from a soda to early boarding rights, is sold. Aircraft fly 15 hours a day. The seat backs have no magazine pouches, adding legroom. Nearly every flight serves a secondary airport.
And don't try to call Skybus: It lists no phone number. All passenger transactions are done on the Internet. Internet bookings cost just 35 cents to 40 cents a ticket, Skybus says.
It's unclear whether all this will create a profitable airline at a time when analysts are concerned about declining domestic yields due to a slowing economy and increased capacity. Skybus' home base, Columbus, Ohio, is perhaps too small for an airline with no connecting flights. Additionally, legacy carriers have reduced costs and become adept at competing with low-cost carriers.
The scenario has some experts, including industry consultant Mike Boyd, convinced that the Skybus concept lacks staying power. Boyd compares Skybus to ill-fated Independence Air, which charged below-cost fares until it shut down last year.
"Why don't they just file bankruptcy now and avoid the rush later?" he says, calling its executives "total amateurs."
Yet the company was attractive enough to raise about $160 million from 18 institutional investors, including Fidelity, Morgan Stanley, Tiger Management and various hedge funds.
And the airline industry is awash in unusual ideas that have lured financial backing. ExpressJet (XJT) flies 50-seat regional jets on flights of several hours, while Allegiant (ALGT) flies expensive-to-operate MD80 aircraft to small cities such as Belleville, Ill., and Kinston, N.C.
Skybus says its actual model is the Irish carrier Ryanair, which has led the industry in combining discount fares with extra charges for the slightest services and with prominent efforts to sell hotel packages and rental car agreements. Charlie Clifton, a member of the board of managers, spent 16 years at Ryanair.
"The business models have a lot of similarities," says Skybus CFO Mike Hodge, who previously oversaw Tiger Management's Ryanair investment. "The first is the ultra-low-cost model, [which] allows us to charge prices that stimulate demand and get people to take trips they wouldn't otherwise take."
Hodge says Skybus' cost per available seat mile falls below the 6-to-7-cent range of the lowest-cost U.S. carriers, such as AirTran (AAI) and Southwest (LUV) .
The savings start with the airplanes. Skybus is leasing Airbus A319s until late in 2008, when its 65-aircraft order starts to arrive. New planes require limited maintenance, and eschewing hub connections saves time. Skybus' 15-hour utilization compares with about 11 hours a day at American (AMR) . Its quick turns are aided by boarding and disembarking passengers on the ramp, through two doors, cutting seven minutes off the usual, single jetway process.
Seating is not luxurious. Skybus A319s generally have 144 seats, increasing to 156 seats when its own planes arrive. Frontier (FRNT) puts 132 seats in its A319s. Frontier offers a 33-inch pitch, while Skybus offers 28 to 29 inches, although Hodge says taking out magazine pouches adds two inches of legroom.
Skybus uses uncongested, secondary airports, reducing delays. On Tuesday, it scheduled three round-trip flights from Columbus to Burbank, Calif., Kansas City and Portsmouth, N.H. Richmond, Va., flights begin Wednesday. Next week, service begins to Bellingham, Wash., Fort Lauderdale and Greensboro, N.C. Eventually, Skybus will serve about two dozen cities from Columbus.
While Columbus is the airline's focus, it will not have connecting flights. So costs are low, but the customer base is limited to local passengers. That's OK, Hodge said, because about 1.6 million people live in the Columbus area, and nearly 6 million people live within 100 miles. An old adage, Hodge says, is that "people will drive 100 miles to save $100" on an airline ticket.
Response to Skybus' low fares has been strong, Hodge says.
"If I showed you the load factors, you would see the flights are full," he says. "That's the wonderful thing about demand stimulation: If we can get the prices low enough, people will show up."
By Ted Reed
TheStreet.com Staff Reporter
5/25/2007
URL: http://www.thestreet.com/newsanalysi.../10358787.html
Skybus, which began flying Tuesday, has some unusual ideas about air travel.
At least 10 seats on every flight are sold for $10. Passengers disembark from two doors, cutting turn times to 25 minutes. Every extra, from a soda to early boarding rights, is sold. Aircraft fly 15 hours a day. The seat backs have no magazine pouches, adding legroom. Nearly every flight serves a secondary airport.
And don't try to call Skybus: It lists no phone number. All passenger transactions are done on the Internet. Internet bookings cost just 35 cents to 40 cents a ticket, Skybus says.
It's unclear whether all this will create a profitable airline at a time when analysts are concerned about declining domestic yields due to a slowing economy and increased capacity. Skybus' home base, Columbus, Ohio, is perhaps too small for an airline with no connecting flights. Additionally, legacy carriers have reduced costs and become adept at competing with low-cost carriers.
The scenario has some experts, including industry consultant Mike Boyd, convinced that the Skybus concept lacks staying power. Boyd compares Skybus to ill-fated Independence Air, which charged below-cost fares until it shut down last year.
"Why don't they just file bankruptcy now and avoid the rush later?" he says, calling its executives "total amateurs."
Yet the company was attractive enough to raise about $160 million from 18 institutional investors, including Fidelity, Morgan Stanley, Tiger Management and various hedge funds.
And the airline industry is awash in unusual ideas that have lured financial backing. ExpressJet (XJT) flies 50-seat regional jets on flights of several hours, while Allegiant (ALGT) flies expensive-to-operate MD80 aircraft to small cities such as Belleville, Ill., and Kinston, N.C.
Skybus says its actual model is the Irish carrier Ryanair, which has led the industry in combining discount fares with extra charges for the slightest services and with prominent efforts to sell hotel packages and rental car agreements. Charlie Clifton, a member of the board of managers, spent 16 years at Ryanair.
"The business models have a lot of similarities," says Skybus CFO Mike Hodge, who previously oversaw Tiger Management's Ryanair investment. "The first is the ultra-low-cost model, [which] allows us to charge prices that stimulate demand and get people to take trips they wouldn't otherwise take."
Hodge says Skybus' cost per available seat mile falls below the 6-to-7-cent range of the lowest-cost U.S. carriers, such as AirTran (AAI) and Southwest (LUV) .
The savings start with the airplanes. Skybus is leasing Airbus A319s until late in 2008, when its 65-aircraft order starts to arrive. New planes require limited maintenance, and eschewing hub connections saves time. Skybus' 15-hour utilization compares with about 11 hours a day at American (AMR) . Its quick turns are aided by boarding and disembarking passengers on the ramp, through two doors, cutting seven minutes off the usual, single jetway process.
Seating is not luxurious. Skybus A319s generally have 144 seats, increasing to 156 seats when its own planes arrive. Frontier (FRNT) puts 132 seats in its A319s. Frontier offers a 33-inch pitch, while Skybus offers 28 to 29 inches, although Hodge says taking out magazine pouches adds two inches of legroom.
Skybus uses uncongested, secondary airports, reducing delays. On Tuesday, it scheduled three round-trip flights from Columbus to Burbank, Calif., Kansas City and Portsmouth, N.H. Richmond, Va., flights begin Wednesday. Next week, service begins to Bellingham, Wash., Fort Lauderdale and Greensboro, N.C. Eventually, Skybus will serve about two dozen cities from Columbus.
While Columbus is the airline's focus, it will not have connecting flights. So costs are low, but the customer base is limited to local passengers. That's OK, Hodge said, because about 1.6 million people live in the Columbus area, and nearly 6 million people live within 100 miles. An old adage, Hodge says, is that "people will drive 100 miles to save $100" on an airline ticket.
Response to Skybus' low fares has been strong, Hodge says.
"If I showed you the load factors, you would see the flights are full," he says. "That's the wonderful thing about demand stimulation: If we can get the prices low enough, people will show up."
05-26-2007 | 11:20 AM
#2
Chief Jeppesen Updater
Joined: Oct 2005
Posts: 3,080
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From: Executive Transport Driver
It's easy to get somebody to show up when your giving something away. The real trick lies in getting them to come back after they realize that the deal isn't exactly as sweet as they first expected.
05-26-2007 | 05:42 PM
#3
On Reserve
Joined: Feb 2007
Posts: 15
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From: A319 CA
If that were the case how come anyone continues to fly on US Air? Or Delta? Those of us who live in CVG (home of the hightest priced tickets in the country) don't have the ability to have any sweet deals. I mean really $800 to PHL and back, that's robbery at it's finest. To get a deal you have to drive to: DAY, IND, SDF, or LEX to get the deal, if Skybus's fares remain low enough I'll even drive to CMH for the fare and stop getting robbed here in CVG by Delta.
05-27-2007 | 12:13 PM
#4
Asphalt Cowboy
Joined: Dec 2006
Posts: 248
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From: Shotty!!
I can't imagine what it would be like to have to sit on the ground for hours during a ground stop or even in holding with only a 28 inch seat pitchno IFE, not even a sky mall catalog
and he's already talking about how their load factors, they just started a few days ago, basically every team sells out opening day, but only the good ones keep their fans in the seats through the season
and he's already talking about how their load factors, they just started a few days ago, basically every team sells out opening day, but only the good ones keep their fans in the seats through the season
05-28-2007 | 03:51 PM
#6
On Reserve
Joined: Feb 2007
Posts: 15
Likes: 0
From: A319 CA
The seats are a specially made ergonomic Richardo seat. There is also no seat-back pocket. There is actually more room than you may think, I'm 6'2" and my knee's don't touch the seat in front of me, even when fully reclined.
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