Air travel: Low-cost pie in the sky
2 September 2009
The collapse of SkyEurope is yet another proof of the fragility of low-cost airlines, which are often founded by enthusiastic but inexperienced entrepreneurs, and lack the sufficient size and capital to take on the competition, reports De Standaard.
On the website of low-cost airline SkyEurope, two smiling hostesses still point to a message that says "Your best value in the sky." But below the optimistic banner comes the announcement "SkyEurope suspends its operations". As hundreds of stranded passengers have found to their cost, the Austrian-Slovak company filed for bankruptcy on 31 August.
SkyEurope, which ran regular services to Vienna and Prague from Brussels, had been in financial difficulty for months. In mid-August, the company was banned from taking off at Vienna because it was unable to pay its debts to airport authorities. Two months earlier, it had appealed for protection from its creditors. For aviation specialist, Eddy Vande Voorde of the University of Antwerp, there is no doubt but "the patient was in the terminal phase."
SkyEurope was founded in 2001 by two Belgians, Christian Mandl and Alain Skowronek. The latter of the two had considerable experience in the business, having begun his career with the Belgian airline EBA, which was later absorbed by Virgin Express. Thereafter, he had been appointed boss of City Bird, which filed for bankruptcy in the year when SkyEurope was established.
The airline sector has been severely affected by the financial crisis. Another low-cost company, Italy's MyAir went out of business at the end of July, and more airlines are expected to collapse in the coming months. "Those who do not have sufficient cash reserves or a reliable source of credit will go under," warns Vande Voorde.
At first glance, it might appear contradictory, but low-cost companies are particularly vulnerable in times of financial crisis. In most cases, they are small companies who have not been in business for a long time, and their financial fundamentals are not always sound. Hoping to follow in the footsteps of success stories like Southwest Airlines in the United States and Ireland's Ryanair, large numbers of low-cost companies have entered the business in recent years, and many of these – Budget Air, Flying Finn, Basic Air and Goodjet to name but a few – only survived for a few short seasons before they were definitely grounded.
All too often, a passion for aircraft is the main motive for launching an airline – a potential weakness in judgement, which does not affect the CEO of Ryanair, Michael O’Leary, who has reportedly said that he has nothing to fear from competitors who get excited at the sight of a plane. "A passion for flying is not enough," says Vande Voorde. "Too many amateurs have been entering the business, and many countries make it too easy to start an airline. What is the point of allowing people to launch companies that won't survive for more than six months?"
Even companies that are well prepared have to enter the low-cost sector have to contend with cut-throat competition, and traditional airlines are also joining the price wars. After a few months in operation, they realize that "the simple fact of flying actually costs money," and that survival depends on their ability to sell other services – an art at which Ryanair excels.