Temporary Low Cost Travel Cafe

[attitudetravel]

The economy bites back: no fewer than three airlines have shut down in the United States this week.

The first of the three failures - the collapse of Aloha Airlines (a legacy carrier) in Hawaii might have been predicted sooner or later, but the other two collapses - ATA and Skybus (both low cost airlines) were not foreseen.

In fact, the collapse of Skybus, the newest carrier to join the low cost airlines operating in the USA and the first to adopt to the Ryanair-style bottom-of-the-barrel, no-frills model, comes as nothing less than an enormous shock.
_________________
Alan Lansdowne
Editor, attitudetravel.com

[attitudetravel]

At the beginning of the week, the news that Hawaiian carrier Aloha Airlines had gone out of business was far less of a surpise.

When the Mesa Air low cost subsidiary Go started up in Hawaii in June 2006 and was then joined in February 2007 by low fare rival Pacific Wings Express, it was fairly evident that the Hawaiian skies were overcrowded and either one or both of the budget newcomers would fail, or one of the existing inter-island airlines - either Hawaiian Airlines or Aloha Airlines would be forced out of business.

In retrospect, the only surprise is that it took this until April 2008 for something to give. Apparently Aloha Airlines came very close to shutting down in 2007 not once, but twice.

Here's the story: Judge won't stop Aloha Airlines closure
_________________
Alan Lansdowne
Editor, attitudetravel.com

[attitudetravel]

But that's the kind of story we're used to, right?

Young, thrusting, dynamic, lean, mean low cost airlines make a spectacle of tired, old, shabby legacy carriers which cannot compete and which either:

a) Continue to survive only because of state intervention (see Alitalia).
b) Transform into low fare carriers themselves (see Aer Lingus).
c) Go bust (see Swissair in Switzerland and Sabena in Belgium).

So how does it then transpire that in this same week, following the demise of Aloha Airlines, not only ATA - an established US low cost carrier - but also Skybus - arguably the leanest, meanest no-frills airline operating in the skies above the US - both also went bust?
_________________
Alan Lansdowne
Editor, attitudetravel.com

[attitudetravel]

On Wednesday, April 2nd, ATA Airlines filed for Chapter 11 bankruptcy protection and on Thursday morning, the carrier grounded all of its flights.

Why would such an apparently successful low fare airline suddenly fail without warning?

Peter Pae's article in the LA Times reports that the airline attributed its own collapse to having lost a crucial revenue stream - without which its operations were no longer sustainable.

LA Times: ATA Airlines files for bankruptcy protection

[attitudetravel]

Despite all of this, the real shocker this week was today's news: the end of Skybus.

Skybus was the USA's only example of the new generation of ultra-low-cost airlines - the kind of low cost airline which can fly you for two hours, charge you $30 and still make a profit.

Ryanair created this model by taking the original Southwest Airlines model and then shaving every cost off that it could possibly find - in-flight staff double up as ground-handling staff whenever necessary, non-reclining seats with minimal leg-room double up as in-your-face advertising panels, the planes turn around and take-off again in 20 minutes from remote airports no-one has ever heard of before which pay the airline to fly there and passengers pay extra for such extravagant luxuries as checking in at the airport (rather than online) or wanting to bring hold-luggage with them.

As painful a passenger-experience as it sounds, this model has proven wildly popular. Mostly because, in exchange for a little inconvenience and discomfort, it enables anyone who could afford to fly anyway the luxury of being able to afford to fly almost whenever they want, and - more importantly - it enables those who could afford only to take the bus the luxury of being able to fly for the first time.

Several low cost airlines around the world have adopted this ultra-no-frills model, namely Tiger Airways in Singapore, Viva Aerobus in Mexico and Wizz Air in Poland. Despite everyone who says (every time): "It will never work here," the model has proven itself perennially popular wherever in the world it has been introduced. Other well known budget airlines such as JetStar and transavia may be affordable when compared to legacy airlines... but ultra-low-cost airlines such as Tiger Airways and Ryanair are affordable compared to every other mode of transport available - including the bus.

For this reason, low cost airlines like Viva Aerobus, Wizz Air, Ryanair, Tiger Airways and Skybus are in a league of their own - distinct from the other low cost carriers because rather than competing for market share, they are carving out brand new markets.

Significantly, not one of this pioneering breed of low cost airline has ever failed.

Until now.
_________________
Alan Lansdowne
Editor, attitudetravel.com

[attitudetravel]

Of course, when the Skybus team announced in April 2007 that they planned to launch a Ryanair-style ultra-low cost airline to fly in the skies above the USA, they were greeted with the usual crowd piping up: "It won't work here."

Having seen the naysayers made fools of in Western Europe, Central Europe, Southeast Asia, Mexico and Australia, I was confident not only that Skybus would work, but that it would expand very quickly on the back of an robust business model and end up showing some of the clunkier US-based self-described low cost carriers such as Frontier and US Airways a thing or two about how to really be lean and mean.

At the beginning of this week, in a report by Richard Barron for the News and Record in Greensboro, North Carolina (Skybus' second hub after Columbus, Ohio), a US aviation industry analyst Anthony Tangorra opined that Skybus' approach was fundamentally sound:

Analyst: Skybus strategy not flawed

[attitudetravel]

So, why am I so animated about this...?

Because, just maybe, the "It won't work here crowd" will now seize their chance to crow: "We told you so!"

On the other side of the world, QANTAS executives might breathe a sigh of relief, smile at each and say: "Don't worry, boys, Davis is working on a flawed model. Look what happened to Skybus!"

In Poland, LOT managers might grin and say: "No wonder we couldn't get Centralwings to work. The model doesn't work. We'll let Centralwings fail, there's no need to worry about Wizz Air anymore - Varadzi is working on borrowed time. Look what happened to Skybus!"

And maybe, somewhere in Sub-Saharan Africa or Central America, an entrepreneur who wants to create a not very comfortable, quite inconvenient but nevertheless jaw-droppingly cheap airline may be dissuaded from doing so because "everyone knows what happened to Skybus."

But of course, even if these hypothetical discussions do take place and executives running competitor airlines put their faith in the idea that if oil prices continue to remain so high, it will be the end of ultra-low cost carriers, I think we can still be confident that Wizz Air, Tiger Airways and other ultra-low cost airlines are not going anywhere.

Because it wasn't Skybus' model that failed.

What finished off Skybus was the fact that there were internal disputes at board level, followed by the departure of two of the senior executives, coupled with the fact that in the US aviation sector any airline with powerful political friends can fail any number of times and still be saved from collapse - which doesn't exactly make for an even playing field.

As global recession takes hold and people have less money to fly, I predict they will migrate in ever increasing numbers from high fare all-service airlines to low fare airlines which fly only when and where they can afford to do so and offer nothing extra unless the passenger pays for it.

Quite frankly, I'm astonished that Skybus has failed. But if many more airlines collapse over the next few months I imagine they will have a lot more in common with Aloha Airlines and a lot less in common with the airline from Columbus, Ohio which offered USD 10 flights.
_________________
Alan Lansdowne
Editor, attitudetravel.com

[Konangrit]

I heard that Aloha had gone bust a few days ago, but this is the first I've heard of both ATA and Skybus going bust too.

This is a shame, I expected Skybus to succeed in the US, but I guess they entered at the wrong time with soaring oil prices. As you suggest, this will put off other carriers from starting up in the US with this business model, though I don't think it will concern start ups in other parts of the world too much.

The difference between Skybus and the other airlines you mentioned is bar Wizz, they all had Tony Ryan as a major shareholder. They clearly didn't have the neccessary funding to cope with rising fuel costs.

As for ATA, I'm really more surprised about this, but hearing that they were basically being subsidised by the Pentagon and the loss of that contract put them over the edge explains it.

These "subsidies" are a major part of the dispute between the EU and US over Boeing and Airbus. The US claims EU loans for the development of the A380 are against WTO rules, the EU claims uncompetetive government contracts to Boeing are equivelant to subsidies. I was quite surprised when a massive order for the USAF was recently given to Airbus ahead of Boeing, but not surprised about the uproar, even after the Pentagon said the Airbus planes were better and cheaper. Boeing thought they could charge whatever they wanted and still win the contract. It wouldn't surprise me if they're right and the decision gets overturned.

If I remember correctly ATA were the cheapest way to fly from Hawai to the Continental US, so this is a disappointing development.

[Konangrit]

So, with ATA gone there is no longer any cheap flights between Hawai and the Continental US. Of the three airlines listed in the Hawai section, ATA is defunct, South West no longer fly this route (weren't they code sharing with ATA?) and a one way with US Airways between Honolulu and Los Angeles costs over $800 before tax and extras are added.

WestJet still fly between Canada and Hawai, a search for Honolulu - Vancouver brought up a price of $409 US after tax etc. This will really hurt Hawai unless another airline {South West?) can take ATA's place.

[attitudetravel]

[Konangrit]

Only 2 weeks ago I received this email from Skybus announcing their new routes:

[attitudetravel]

[attitudetravel]

Most of the articles in the Stateside press are taking the line that Skybus failed under pressure from excessively high fuel prices. I think this is partially true, but not the whole story.

Interestingly enough, Richard M. Barron, the same journalist who interviewed Anthony Tangorra at the start of last week, reports that John Weikle, the founder of Skybus is optimistic about re-launching the airline:

[attitudetravel]

Meanwhile, that's not the end of the trouble in America...

Associated Press picks up the story and asks: "Who's next?"

String of airline bankruptcies prompts questions of which carrier could be next
_________________
Alan Lansdowne
Editor, attitudetravel.com

[attitudetravel]

Well it didn't take long to answer that question.

Frontier has just filed for Chapter 11.

Associated Press: Frontier Files for Bankruptcy Protection

Frontier is saying that the failure is due to its credit card processor, First Data Corp, changing the rules of how it deals with the airline, which (somehow?) is supposed to have had a dramatic effect on the carrier's liquidity.

Nevertheless, whatever the reason, that's four low cost airlines down in eight days, with three of the failures in the United States.
_________________
Alan Lansdowne
Editor, attitudetravel.com