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Comments (9)
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Save/ShareSkybus shut down this weekend. The discount airline was less than a year old. It won our hearts by selling $10 early-bird fares.
Ticket-holders are being told to call their credit card companies and file disputes. (See info on how to do that in our post on ATA's demise.)
The Skybus collapse was surprisingly fast. Here are some answers to some key questions:
If you're a stranded ticketholder, what can you do? Call JetBlue and pay only $50 for one-way fares to any JetBlue destination within 100 miles of your original Skybus destination. (The offer is good for departures within the next 7 days.) US Airways is making a similar deal, except that it is adding taxes and fees. (Throughout the weekend, Southwest offered to fly stranded Skybus passengers for free.)
Why did Skybus collapse? While this airline had lost lots of money, most start-up airlines lose money in their first years, and its investors ought to have been prepared to stay for the long haul. In fact, the airline still has plenty of cash on hand, according to some reports. But the investors, including the owner of The Columbus Dispatch, threw their cards in anyway. The high price of oil is the key factor. Skybus had to charge dirt cheap fares to attract a minimum number of passengers to keep its planes full, but the money it earned from those fares wasn't enough to cover its cost of operations. The price of oil has gone up about 50 percent in the past year. Fuel costs account for nearly a third of the cost of flying a plane, on average.
Who's to blame? In part, we all are. I posted a blog post in January titled, "I bet you'll let Skybus fail". Back then, Skybus was still expanding its route map, but I worried that not enough budget travelers were stepping up and buying tickets. Travelers rejoice when a discounter arrives on the scene. They love it because the discounter usually sparks a fare war with the well-known major airline that serves their hometown. But as fares drop, many travelers simply fly the major airline, taking advantage of its lower fares. Few fly the new discounter. Then, the discounter fails because of lack of business. And the major airline hikes its fares back up, hurting consumers.
Which airline will fail next? Frontier and Airtran look shaky. Among the majors: United. That's all according to Fox Business. Admittedly, the major airlines should be doing better because they have hiked their prices in recent months, as fare-watcher Rick Seaney has blogged. But the fare hikes haven't been enough to cover the higher costs of flying planes today, notes Hartford Courant columnist Jeanne Leblanc.
Why do European low-cost carriers succeed while Skybus failed? The difference may be in the route maps and in the public transportation systems. As Jared Blank explained recently on his blog, Skybus had hub airports at medium-sized airports trying to serve other, even-smaller airports. But not enough passengers visited these small airports to keep Skybus planes full. Skybus's costs were thus far higher than those for European success story Ryanair, partly because Ryanair flies most of its flights out of major hub cities, such as London and Rome, with lots of passengers. Of course, Ryanair also flies to some truly out-of-the-way airports, such as Hahn, Germany. But European governments have subsidized public transportation links between many of its smaller airports (such as Hahn) and its largest cities (such as Frankfurt), while the U.S. government hasn't invested in public transportation. For Skybus, this meant that not enough budget-conscious Americans were willing to fly to small airports, such as Punta Gorda, Fla., because they'd have to add a rental car cost into their trip budget--something Europeans fliers have the practical option of skipping.
What's the worst part of the Skybus collapse? Well, no other airline will now likely copy Skybus's signature offer of early-bird fares starting at $10 each way. We also feel bad for the 500-odd folks who have lost their jobs. We feel sad, too, for the taxpayers of Columbus, who spent millions to induce the airline to make their city airport its hub. We also feel bad for Greensboro, another major Skybus gateway, because it probably won't see another discount airline replace Skybus any time soon. As of today, less than 30 percent of seat capacity is flown by low-cost airlines, says the Economist.
Will oil continue to be costly? Most likely. The current oil crisis is a "demand-side" problem, meaning that China, Dubai, and other parts of the world are demanding more and more oil and forcing prices higher. So $80 a barrel oil may be here to stay for a while. If the high prices were instead due to a production problems or hurricanes disrupting deliveries, then there would be a better chance that oil prices would drop once any supply problem was solved. Years ago, it was possible to buy futures contracts on oil and save money by placing bets on the future direction on the price of oil. But that opportunity, which Southwest took advantage of, seems to have passed now.
Can airlines trim their oil usage? There's no workable short-term solution, except the unlikely step of charging overweight passengers an additional fee because of the additional cost it takes to fly them. In the coming years, airlines can buy new planes that are more fuel efficient. Unfortunately, the next 737s may not have enough gains in fuel efficiency, worries the blog Airline Bulletin. Another alternative is to speed up the development of fuel-efficient airships, which we've blogged about before.
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Sean - EXCELLENT article! You really touched on several questions I've had. I've wondered why the European discount carriers have been viable while US carriers fail. So, thanks for answering that.
I know we all want to save money on our flights, but at this point, I'd almost settle for paying the same, but with some slight improvements in service. Is it too much to ask for clean seats? US airlines are becoming embarrassing in comparison to foreign carriers. In the last year I've flown Quantas and Air Tahiti Nui and their service was leaps and bounds better than any US flight service I've had in a long time.
I recently flew AA flights from North Carolina to Hawaii and back and with the exception of one aircraft, the rest were pretty dingy, dirty and dumpy - even in first class.
Posted By Sheila on April 7, 2008, 11:42 AM
Hi, Sheila,
Great point about cleanliness. I was on major carrier in February, flying to St. Lucia, and I wanted to say--"Geez, guys, Buy a vacuum cleaner for goodness' sakes, and use it between flights." Completely different from, say, a transatlantic flight on Lufthansa or Air France.
Regards,
Sean
Posted By Sean on April 7, 2008, 12:47 PM
I know oil prices are going through the roof, but can we please stop using it as a reason why airlines are going out of business. Because quite a few Asian, Latin American, Middle East and European airlines are dealing with the same high prices and maintaining profitability. Conversely, we've seen American carriers (Pan Am, Eastern, and TWA go out of business when oil was $20 a barrell. I blame the unions for gouging the airlines. I think you brought up a great point about smaller European airports being connected to larger cities by an extensive rail systems. There are also a couple of other points I feel are worth mentioning. Most European low cost carriers only fly trips lasting a duration of two hours or less, so they can have multiple trips per day. Also, flying no-frills aircraft is not a new concept for Europeans. Charter airlines have been in operation for years in Europe, so they are used to little leg room and a la carte food and drinks. Just my 2 cents.
Posted By Willis on April 9, 2008, 5:46 PM
I can't believe that you equate Skybus' failure to a lack of customers. The problem had more to do with their moronic business plan. Hmm, let's see, give away seats at $10 a piece. One problem however, how are we going to recoup the cost of hauling these $10 passengers around? We're already in negative yields before accommodating any non-$10 paying customers. What, we can't find enough people to offset the cost of our stupidity. Oh-well, let's go out of business after fleecing the taxpayers of Columbus as well as our incredibly stupid investors. Guess it's time to close up shop until we can find some more gullible investors and government officials to fund Skybus 2 (yes, it's in the works).
The problem with Skybus was not interest, it was stupidity. As for the employees, yes it's sad. They too are victims of this ridiculous plan. As for Skybus the entity, I will not shed a tear.
Another airline that just went out of business is Aloha. In business for more than 60 years, they employed a seasoned, well paid workforce. Aloha was run out of town by Go Jets, an off-shoot of Mesa airlines. Underpaid employees, cheap airplanes, and predatory pricing were the name of the game. Enough people in Hawaii switched to Go from Aloha (just as you hoped would happen with Skybus). As a result, thousands of professional pilots, flights attendants, rampers, and gate agents are out of a job. Maybe they can go work for GO Jets for 20% of their former pay and benefits.
At some point we are going to have to wake-up to the fact that it costs money to travel. It is a luxury. A packed 737 flying New York to LA will burn about $95 in gas per passenger. That's $190 round-trip. Add to this the cost of maintaining the airplane, employing gate agents, reservationists, ramp crew, pilots, flight attendants, and others as well as the cost of insurance and marketing and guess what? Flying isn't cheap.
If you feel the need to "feel bad" and "feel sad" for anyone, feel it for yourself, your neighbors, and your relatives. The Walmartization of America continues and it will catch-up will all of us eventually.
Posted By Ryan on April 9, 2008, 7:53 PM
I found your comments about Frontier and AirTran intersting - especially AirTran -- What do you base your comments on? According to 2 university studies AirTan ranked #1 for ontime performance, baggage handling, customer service etc. their planes are full and their passenger volumes are breaking last year's records. Please explain your comments.
Posted By Catherine on April 10, 2008, 1:52 PM
Catherine,
To respond, I cited a report by Fox Business, so you'll have to address your question to them:
"Frontier and Airtran look shaky. Among the majors: United. That's all according to Fox Business." Here:
http://www.foxbusiness.com/markets/industries/transportation/article/cashstrapped-airlines-whos-fail_548111_8.html
Fox quoted Ray Neidl, an airline analyst with Calyon Securities, who pointed out the importance of having cash on hand to run airplane operations. Because of the credit crunch, banks are not lending money to airlines (or to many other businesses). So airlines have to have a lot of cash on hand to handle the cost of sudden spikes in the cost of doing business, such as jumps in the price of oil or sudden groundings of many of their planes. According to their financial analysis of the airlines Airtran and Frontier do not have as much of a cash buffer to handle possible bumps in the road. Scott McCartney of the WSJ has also put bets down against Frontier, though he left AirTran unmentioned: http://online.wsj.com/article/SB120761638090996823.html?mod=The+Middle+Seat
Thanks for adding your thoughts to the conversation!
--Sean
Blog editor
Posted By Sean on April 10, 2008, 2:59 PM
Just another reason to get the trains back in as they were in the "good ole days." Yes, it would take more time, so let the people who need to get there fast fly. If they don't want to use their new teleconferencing equipment that is. The rest of us can get on the trains and buses, for that matter, to go on vacations. How about campaighning for more vacation time instead of the skimpy two weeks we get compared to Europe for example. And what's wrong with spending our free time seeing the greatness of this country. I know people who go on exotic cruises every year but have never seen the Grand Canyon. You have to be really one up to match that natural wonder. Let's think about slowing down. Perhaps then we wouldn't need to be taking sleeping pills and stress pills and running mental and giving our children, yes our children upteen pills for everything. What we all need is an overdose of common sense. How much do we really need these planes anyhow.
Posted By Clemmieo on April 10, 2008, 4:35 PM
Bravo, on train travel!! Our legislators are deliberately avoiding the Train debate. Lobbyists for the airlines are much more effective than a quasi-public entity such as Amtrak. For so many reasons we need a renaissance for American train travel. Our domestic air transportation is so poor right now that modern trains would in fact BEAT any flights that last 1 1/2hrs of flight time.
Posted By Marty on April 12, 2008, 1:02 PM
Round trip from LAX to Columbus on Skybus:
(( $300 ))
Additional hidden fees:
(( $25 ))
Returning flight canceled; stranded in Columbus ON CHRISTMAS DAY. Staff rude as fu**, no other flight plan offered:
(( - $150 ))
Delta first class one way to LAX:
(( $500 ))
7 hours of additional father son bonding on Christmas Day:
(( PRICELESS 1 ))
4 months later hearing Skybus fails:
(( PRICELESS 2 ))
Posted By Matthew on November 28, 2008, 2:07 AM