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 flies 50-seat regional jets on flights of several hours, while Allegiant ( ALGT - Get Report) 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 and Southwest ( LUV - Get Report). 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 - Get Report). 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 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."