Spirit Airlines Pilots Strike

On Saturday, the pilots of Spirit Airlines took to the picket lines to protest inadequate contract offers from management. Though the deal on the table included a 30% raise, a $3000 signing bonus, and 4-day breaks between trips, pilots felt that this was too little. And in fairness to the pilots, they are probably right. Granted, Spirit pilots are not as productive as pilots from other LCCs, and fly fewer hours. As part of the new contract, Spirit's pilots will work more hours, but for only slightly more pay on a per hour basis--hardly a raise from the pilots' perspective. Nevertheless, Spirit's pilots are some of the lowest-paid in the industry (given that they fly larger, mainline aircraft), and the pay increase would only bring them to at or slightly above what pilots at other LCCs make. For instance, first-year captains piloting Spirit's A319 aircraft earn $65 an hour, whereas first year captains for JetBlue who fly slightly larger A320 aircraft earn $138 an hour. Though the pay gap narrows over time, after five years, pilots at JetBlue still make $29 an hour more than the Spirit pilots.

While many airlines have contingency plans in place which enable the carriers to keep operating if lower-skilled workers such as gate agents or flight attendants strike, a pilot strike is a bit different. Managers and other strike-breakers cannot easily be trained to replace the pilots--their jobs require years of training and experience and can't easily be replaced by someone going through a six-week course as with flight attendants. As a result, Spirit has shut down for the time being, and there is no clear sign of when this dispute may end. Moreover, customers are in a bit of a bind because Spirit lacks interline agreements with other carriers, so Spirit's tickets cannot be used for travel on other airlines during this strike. As a result, Spirit customers who need to travel must purchase a new ticket on a different airline.

Spirit has canceled all their flights until at least Wednesday June 16th. If you are a Spirit Airlines customer, the company has information online about how you can get a refund or travel credit. Customers who opt for a credit towards future flights will receive the amount of their ticket purchase plus an additional $100 for their loyalty.

While at this stage, the story is pretty-clear cut, there is a bit of analysis I want to add. The airline industry has been hit by myriad storms in the past decade, and it has only been within the past year or two that airlines appear able to consistently profit again. But as a consequence of industry downsizing and associated salary cuts, airline staff in all job categories have seen their paychecks go down or lost their livelihoods entirely, and unions are fighting back to keep their members happy. Pilots have taken some of the steepest cuts in recent years, which may be justified by the fact that they typically receive the highest non-management salaries at airlines, and a 10% pay cut for a pilot hurts less than a 10% cut for a lower-paid flight attendant or mechanic. Pilots can, and should continue to fight for better pay and work rules that they have sacrificed to help minimize cuts to other employee groups.

But it is important to remember what they are up against. As we saw in 2008, when fuel prices spiked, panicked airlines became even more aggressive with their cost-cutting and revenue-raising measures. Fortunately for the airlines, oil did not stay at $140 a barrel for more than a month or two. But in the not-too-distant future, oil is likely to increase in price. It is an increasingly rare commodity and global production is likely to decrease soon, if it hasn't already. This would especially be the case if the BP disaster discourages other governments from deepwater drilling, which is necessary for accessing many of the latest discoveries. And though oil is already the biggest expense for airlines, price increases are likely to make it an even greater share of airline's budgets. And unfortunately, few technologies seem to be ready and able to reduce these burdens. Airlines are starting to make early investments in biofuels, but these are likely to comprise a very small share of aviation's fuel supplies for a long time. At the same time, the fuel-efficient 787, which is supposed to revolutionize air travel, only reduces fuel costs by an estimated 20%. That isn't a bad reduction, but if fuel prices increase by 50-100%, which would happen if fuel prices returned to mid-2008 levels, the gains from the 787 would be minimal compared to the added cost. And while several of America's legacy carriers have purchased these new aircraft, the bulk of their fleets are going to be composed of conventional aircraft for the time being. And LCCs, including Spirit, are not likely to see any technological miracles on the horizon until the last years of the decade, if not later, Bombardier's smaller C-Series aircraft notwithstanding. But even those aircraft are not expected to reduce fuel burn more than the 787 on a per-seat-mile basis.

Unions are seeing black on airline's balance sheets for the first time in years, prompting a desire to go back towards the days before 2001 when airline employees received solid, middle-class wages and benefits. The unions' desire is understandable, but I fear that the inability of airlines to control fuel prices will only put further pressure on airlines' other great cost-driver, wages, which airlines have more control over. The pilots at Spirit and other airlines that have contracts up for renewal in the next year or two may win their battles, but the long-run future for these work groups is not bright. Air travel demand is projected to increase significantly around the world by 2030, but fuel prices are the great unknown that I believe has the power to stifle this demand and further shrink the industry. Time will tell whether I am right or not. But the bottom line is that airlines and aircraft manufacturers cannot be looking for technologies that reduce fuel consumption by 15-20% and expect the industry to flourish. Only technologies that dramatically reduce fuel costs, such as blended-wing-body aircraft, or better yet, airships, are going to be viable in the long-term, and I happen to believe this day will come much sooner (within the next 10-20 years) than optimists expect.

Trends & Predictions for 2010: Part II

As promised, here is the second part of Airline Bulletin's discussion of trends and predictions to examine in the coming year.

Prediction #1: Industry Consolidation, Especially Abroad
While U.S. carriers have made efforts to reduce their capacity and form strategic partnerships with other carriers, it does not appear likely that we will see a full-fledged merger or buyout in the U.S. in the coming year. This is not to say that such consolidation is impossible, rather that it's simply unlikely. There aren't a lot of perennially weak airlines left to consolidate. Frontier (which has recently showed signs of strength) and Midwest have been combined, Sun Country, to my amazement, seems to be hanging on, and small LCCs like Spirit and Allegiant that have defined business models and solid market niches don't appear to be losing buckets of money either. That being said, anyone is a possible takeover target or buyer. Even Southwest, which has historically avoided growth by acquisition (with a few exceptions), has signaled of late that it is open to potential mergers.

US Airways Deals?
One carrier that still mystifies me is US Airways. The airline has been very aggressive in implementing ancillary revenue-generating programs and cutting costs/capacity. CEO Doug Parker seems to know what he's doing in this regard. But, US Airways may not be very poised for future business travel growth. It operates by far the smallest international route network of any of the 5 legacy carriers in the States, and has actually cut some of its European routes recently due to poor loads. Growth in Asia has taken something of a hiatus, as US Airways let its Philadelphia-Beijing route authority expire after the airline wanted to avoid opening the route due to the recession. And the carrier's position in Star Alliance has been weakened due to Continental's recent entry, and due to the announcement of a strengthening of reciprocity between United and Continental frequent flyer programs. The conventional wisdom has been that American would make a bid for US Airways, since American has avoided much of the consolidation activity within the past 7-8 years, and as a result, has watched its market share decline, while US Airways needs an available suitor. But American and US Airways have almost no fleet compatibility--American is mostly Boeing, US Airways is mostly Airbus. And another merger would only further complicate the labor troubles that have hampered US Airways recently, particularly with its pilots union having trouble integrating seniority between old US Airways pilots and former America West pilots. On the plus side, the route networks of American and US Airways would align somewhat, with US Airways having hubs in the Southwest, Southeast, and Northeast, all regions where American lacks hubs (American's Miami hub, mostly geared towards traffic to/from Florida or Latin America notwithstanding). However, both carriers are relatively weak in Asia and the Middle East, areas where they will need to ramp up capacity if they hope to compete in these increasingly important business markets.

What seems to be a more plausible idea, actually, is a buyout of Spirit by US Airways. US Airways as noted above has been very aggressive, perhaps the most aggressive of any legacy carrier in seeking out new ancillary revenue opportunities, and transforming itself into an LCC which can effectively compete against the likes of Southwest, JetBlue, and AirTran on the ultra-competitive routes along the eastern seaboard. A buyout of Spirit would have very strong fleet complementarities--both carriers fly A319 and A321 aircraft, as well as strong route network complementarities. US Airways tried a few years ago to open a mini-hub in Fort Lauderdale--Spirit's biggest base, with routes to Caribbean destinations, but was fended off in part due to Spirit's competition. There is clearly money to be made on these routes, but US Airways lacked the cost structure several years back to adequately compete. Now the carrier has realigned its costs, and a buyout of Spirit would make accessing such routes much easier.

It would also do something else which is pretty important. The two slot swap deals announced earlier this year, which (if approved) will strengthen legacy carriers at slot congested airports while helping to keep out low-cost competitors. US Airways, even though they are starting to act like a low-cost carrier, is not a low-fare carrier, unless it is forced to be through competition. US Airways would rather stifle demand with higher fares (and higher profits) than lower fares which stimulates demand but reduces yields, which is what Southwest tends to do. Keeping slots in the legacy carrier "family" prevents potential low-cost competition at slot-congested airports (see also Prediction #2). Spirit is one of the few LCCs to have slots at both LaGuardia and Washington National (even though it has relatively few slots in both). A buyout of Spirit would help diminish low-fare competition at these airports, and allow legacies to charge higher fares to business customers. However, I still think that this deal is somewhat improbable, only because Spirit is presumably a money-making carrier with a good market niche, while US Airways is a money-losing carrier with lots of problems that could make a merger tricky. It could be an easy buyout, or it could just be an obstacle to US Airways doing what it needs to do to revamp itself to compete against LCCs while expanding its international network.

European Consolidation
In Europe, the picture is much simpler. I don't anticipate many state carriers to go out of business, however I do imagine that governments will work even harder in the next year to privatize or revamp the following state carriers, named yesterday in Part I:
CSA Czech Airlines
Croatia Airlines
LOT Polish Airways
MALEV Hungarian Airlines
TAROM Romanian Airlines

After additional research, I also want to add the following carriers' names to this watch list:
Aer Lingus¹
Air Malta²
Bulgaria Air

Given the obligation of these governments to maintain positive images, it appears extremely unlikely that they will suddenly pull the plug on these carriers' operations, stranding passengers (voters) and angering the public, a la the recent FlyGlobespan fiasco. However, such airlines are definitely at risk of being purchased by larger airline conglomerates or of being privatized. 

Notes:
1. Aer Lingus may be at risk for another Ryanair takeover attempt in the new year. The carrier has struggled to compete against Ryanair, and has gotten push-back from its unions as management tries to contain costs. Efforts have been made to diversify the carrier away from Ireland, opening new routes from London Gatwick. While the carrier may avoid a Ryanair takeover, serious reforms are needed to make the company profitable once again, and these do not appear forthcoming.
2. Air Malta may also be in need of further reform due to the recent arrival of LCCs in Malta after the airport lowered passenger charges. Air Malta had effectively been protected from LCC competition due to these high charges, but this is no longer the case. As a result, the carrier must find ways to diversify and compete. But since the vast majority of Malta traffic is holiday-oriented, and thus, price-sensitive, it appears unlikely that unless Air Malta can turn itself into a bare-bones LCC, the carrier could face extinction. Another possibility would be a buyout, perhaps by another LCC like easyJet, which would reform the carrier, much as it did with GB Airways, while maintaining most of the its routes.

In terms of LCCs, there are simply too many out there, and too few of them have such well-defended market niches that they can't be attacked by market leaders easyJet, Ryanair, Wizz Air, and Norwegian. I believe that the following carriers are in trouble, and are at risk of potential sudden shutdown. As a traveler, I would do some research before booking with them, and then only with a credit card:
bmiBaby_³
Cimber Sterling⁴
Niki
SmartWings
Vueling⁵
Windjet⁶

3. bmiBaby is unlikely to engage in a sudden shutdown, now that the carrier is owned by Lufthansa. If bmiBaby is closed, it will likely be in a controlled fashion, or if it is sudden, passengers should anticipate far fewer inconveniences than when FlyGlobespan shut down (ie. Lufthansa will likely offer alternate flights, etc.). However, bmiBaby is under heavy competition from easyJet and Ryanair. And while the carrier is growing--it recently expanded at East Midlands which easyJet vacated due to poor yields--it is unclear whether the airline, with relatively old, inefficient planes and infrequent service on many of its international routes, will thrive in the coming years. Lufthansa may use its recent acquisition of British Midland mostly for its aircraft and slots at Heathrow, taking the airline's good routes and using British Midland to help feed into Lufthansa's long-haul routes, while scrapping much of the rest of the company. As British Midland's low-cost subsidiary, bmiBaby doesn't have very much to offer Lufthansa, and a sale or suspension of services appears likely.
4. Who knows what's going on with Cimber Sterling? The carrier seems bereft of a coherent strategy, flying both business and leisure routes with a bizarre mixture of aircraft. Most of Sterling's core routes were taken over by Norwegian and Transavia immediately after that carrier's demise, and Sterling's new namesake has been left with relatively thin routes and little room to grow. I see Cimber as extremely vulnerable to shutdown.
5. Vueling is probably not going to shut down immediately, but will be increasingly vulnerable to competition from easyJet and Ryanair in Barcelona and Madrid. It is unclear whether the combination of Vueling and Clickair has really made the company more financially stable, and due to this lack of information, I am concerned about the carrier's future. However, Vueling has potential to thrive and grow within the coming years. It has a large fleet, a relatively low cost structure, and by operating from primary airports, including Heathrow, can attract higher-yielding business travelers. Thus, it is less vulnerable than most of the other carriers named on this list, but is vulnerable nevertheless.
6. Same issue as with Cimber. It's hard to know what's going on with this carrier. It's privately owned, not discussed much in the press, and it seems hard to believe that they have a real competitive advantage in the marketplace. Now maybe they're like Spirit Air in the U.S., and have a relatively undisturbed market niche on thin routes to/from Sicily. And given Ryanair's recent announcement that it may close domestic routes within Italy, WindJet may benefit through expansion of services. But without clear evidence that WindJet is a profitable LCC with competent management, I have to place them in the same category as Cimber--extremely vulnerable to shutdown.

Prediction #2: Continued LCC Growth
As the economy continues to suffer, expect more businesses to shop around for travel, and send employees on LCCs when necessary. LCCs will try to respond to this growing demand. In the U.S. in particular, LCCs will likely make more efforts to enter or expand services at airports that are dominated by legacy carriers and which are the few remaining bastions of high fares in the U.S. While virtually every large metro area in the U.S. has low-fare airline service, many large, primary airports in these metro areas lack much low-fare service. Examples include Dallas Fort-Worth, Miami, Chicago O'Hare, Newark, Washington National, Cincinnati, Charlotte, Houston Intercontinental, and Atlanta (obviously, AirTran has a large hub here, which keeps fares lower than they otherwise would be, nevertheless, the lack of Southwest, JetBlue, or other LCCs in the Atlanta area at all is problematic and allows a Delta/AirTran duopoly to set prices). Although some of these airports are more congested and delay-prone, they are often preferable for business travelers, as they are easier to access, are located closer to where companies are situated, have better facilities and connections to other airlines, etc. In the coming year, expect expanded service from AirTran, Southwest, and JetBlue to the airports above. While new leisure-focused service will be added, particularly to/from the Caribbean, don't count out future expansions at these key airports for business travelers. Leisure demand has actually held up better than business demand, and so while LCCs will do well in leisure markets, because they are already strong in California, Florida, and the Caribbean, less of the growth in their operations is likely to be concentrated in those regions, since little added LCC capacity is needed to handle this traffic.

In Europe, while it may seem like business routes would also see expansions in service, this does not seem to be the case. Ryanair has announced minimal service of late that will be attractive to business travelers, mostly because it is concentrated in very distant and inconvenient airports. EasyJet, which has aimed to take business customers away from BA and other full-service carriers, has instead recently announced that it will add new service to a host of leisure destinations next summer, mostly in Turkey. Such moves seem to place easyJet and Ryanair in closer competition with European charter carriers such as Monarch than legacy carriers like BA. It will be interesting to see whether carriers like Wizz Air, Norwegian, and Air Berlin follow suit and concentrate growth mostly on leisure routes, but that would be somewhat counterintuitive, given the growing demand of businesses to trim travel costs.

Prediction #3: Increasing Focus on the Environment
While there are other interesting predictions to be discussed, it's getting a bit late and I need to get this out. So I'll conclude with my third prediction, which is something that will be of increasing importance not just in 2010 but in the coming decade. Expect more airlines to highlight their "green" credentials whenever possible, through marketing campaigns, press releases highlighting environmental initiatives (such as this recent announcement highlighting airline participation in a jet biofuel scheme), and programs to offset emissions. Such efforts will be reinforced as Boeing delivers the fuel-efficient 787 Dreamliner to its first customers next year, and as the U.S. Senate debates a cap-and-trade bill to combat climate change. Although we're in a recession and customers are price-sensitive, more and more consumers are going to make what they perceive to be environmentally-friendly choices, given growing awareness of environmental concerns. While airline efforts to address the issue are mostly greenwashing, since the benefits of getting customers to recycle soda cans on the plane or powering one engine with 50% biofuels aren't diddly squat compared to the effects of contrails fully-loaded commercial jets spew out at high altitudes, such efforts will likely succeed at winning customers over since most people don't know any better. What we won't see, however, are serious efforts to make the industry more environmentally-friendly through new technologies. V-shaped aircraft ("flying wings") or better yet, high-altitude airships would radically alter the airline industry as we know it, but they would also make a substantial dent in the industry's pollution levels. But because such technologies aren't compatible with current air transport infrastructure, are not seen by consumers or regulators as safe, and in some cases are slower than conventional aircraft, don't expect Boeing to announce production of such aircraft anytime in the near future. This is not to say that such technology won't be commercialized, but significant steps aren't likely to be taken within the next year due to the recent air travel slowdown and manufacturers' focus on the latest generation of fuel-efficient planes.

In 2010, as the airline industry globally continues to struggle, it will likely once again continue to make headlines as it tends to do, and Airline Bulletin will be here, whenever possible, to offer commentary on these events. Until then, have a wonderful new year!

How Short-Sighted Management has Seriously Damaged the Industry (and some solutions on how to remedy this).

Editor's Note: I've been a bad blogger lately, and I apologize to my loyal readers. I haven't had a substantive post since May, and now we've reached August. How time flies! While I hope to post more often, the nice weather might prevent me from getting more work done on the computer, so posts may be less frequent than desired for the next few weeks. Also, I hope to post selected pictures of my Ecuador trip soon.

The airline industry has problems that no other industry does. For some reason, the airline industry has difficulty adequately matching capacity with demand, and as a result, business cycles and unexpected turns of events seem to hit the airlines much harder than other sectors. There are many reasons for why this may be true. But first and foremost, airlines offer a product that is both essential to the economy, and is one that is constantly in greater demand. Low-fare carriers have succeeded because they have been able to reduce the cost of air travel for those who otherwise couldn't afford it. Ryanair, which has succeeded in reducing fares more than any other carrier, has seen extraordinary growth, because people simply cannot get enough of air travel. After purchasing one car or cell phone, a consumer may have all he or she needs of those products for several years. It's much harder to increase milk sales by lowering prices than it is for airline tickets.

Consumers have limitless opportunities to fly, and airlines have succeeded in convincing them that it's a good use of money, partly because it's more convenient and comfortable than other forms of transport. Nevertheless, as costs rise, this myth will be shattered. Americans will still want to fly, but it will require more and more money. What airlines will hopefully realize is that they will be more profitable companies by offering fewer flights, targeting business travelers and those who are willing to pay for it. Capacity reductions are already starting to come into place that would help achieve this, but it could be too little, too late. Fuel prices have reached such stratospheric levels that most major US airlines will likely burn through their cash reserves in the next few years.

As legacies are at a substantial cost disadvantage with the hedging Southwest, instead of targeting their core customer base, their most frequent flyers, and improving their service, legacies have eliminated many of the perks that these travelers have come to expect, in the name of revenue generation. Known as "unbundling" it's a strategy that Ryanair has perfected (to the ire of much of Europe's flying public), by charging for many services that airlines offer, aside from the flight itself. Charging for checked bags, food, pillows and blankets, and anything else that isn't bolted to the cabin, seems to be the trend. In fact US Airways' new policy is to charge for all beverages onboard. This will even keep free water out of the hands of passengers, except in cases of medical emergency; bottled water and sodas onboard now cost $2.

Yet the fact of the matter is, some of these charges are overreaching, offering airlines far more in bad press than new revenues. Airlines need to maintain their reputations, and they need to maintain low fares. This is the dilemma that carriers face. Yet if carriers adopted a better yield management system, I suspect it could generate just as much, if not more than some of these extra charges. That means offering more deals at the last-minute to fill seats (but making them restrictive enough to prevent their usage by business travelers, whom the airlines need to pay full fare). If airlines aggressively move to fill seats on less popular flights, targeting flights individually, and ensuring that the plane will be as full as possible, additional revenues can be created. It also means further reducing frequent flyer award seats on popular flights, to allow more room for paying clientele. Moreover, increased overbooking, when possible, should be practiced to better fill seats. All these moves will likely be bad for passengers, but they won't deliver the continuous negative publicity that these fees seem to generate. They also will not interrupt the onboard service experience that passengers demand. Airlines are already working these angles, but let's face it, filling one additional seat on a plane at $100 could cover 50 $2 soda sales; they can do more.

Some might argue that the "unbundled" strategy airlines are adopting is what customers want. I don't buy that. Skybus' demise proved that the completely unbundled model cannot work in the US, at least with the high fixed costs that airlines currently face. Yet that seems to be the model many legacies are now replicating. There are services many airlines used to offer (and that a few still do) that weren't being effectively utilized by customers, and there was a great deal of waste. Some examples were airline meals and restrictions enabling customers to check two or even three pieces of checked luggage free of charge. Everyone was paying hidden costs in their ticket prices for services that a select group of customers was taking full advantage of. These are services that should be charged for. By most accounts, after US carriers started offering buy-on-board meals, fewer people ate onboard, but the food was of a better quality.

However, other services, including one free checked bag, snacks and drinks onboard, and free booking of award tickets (without some of the surcharges that certain carriers have recently imposed) should be things that all US legacies offer. These are basic comfort and service amenities that airlines need to retain loyal customers. Frequent flyer award tickets are hardly free if customers must pay to redeem the miles. Spirit and Allegiant will always be the deep-discounters in their respective markets, and charge for everything, but those carriers that are shooting for higher yields need to offer more services included within the ticket price.

True, airlines have yet to impose many of these charges on their most loyal customers, with high elite status or those paying full-fare. But it's not merely the charges themselves, but rather the impression they create to customers, that may hurt loyalty, even with customers unaffected by the charges. Continental, for instance, has resisted adding fees for a number of services. This is in part because of the company's concerns that they could disrupt operations, both on the ground, and in the air, as those passengers affected by the fees resist the changes, causing potential delays or turmoil in the cabin, affecting everyone's experience.

The ability of airlines to cut costs in this environment is rather minimal, without shrinking the size of their businesses. Instead, airlines need to focus on better yield generation. That does include some of the charges being proposed, but it also includes fare increases, and a concentrated effort to fill planes during less-traveled periods. The unbundled strategy has gone too far, and the reputation damage has been done. Airlines need to be extremely cautious going forward about adding additional charges, because discretionary air travel will decrease if the experience becomes too painful, and business travelers will be more willing to consider other options of transport (or conducting meetings).

Low-Cost Carriers Making Cuts To Deal With Record Fuel Prices

Yesterday, you heard about the steps that legacy carriers may take to reduce fuel costs. Low-cost carriers have a business model that's predicated on growth, and so unlike legacy carriers, which are essentially shifting capacity, but not growing, or even slightly shrinking their respective companies, AirTran, Southwest, and JetBlue are all looking to grow, but at reduced rates. Moreover, all seem to be working on additional revenue sources in order to pay for higher fuel costs. Southwest has added its Business Select fares within the past year, offering business travelers increased flexibility and amenities for a price. JetBlue announced yesterday that it would charge $10 to $20 more for seats with greater legroom. But the larger LCCs in the US aren't looking to add some of the charges that LCCs abroad are offering, including charges for all checked luggage, airport check-in, and assigned seating/priority boarding. Unfortunately, many LCCs in the US don't have the ability to do what they really need to do which is to diversify their operations and make themselves into carriers that can serve more types of passengers on higher-yielding routes.

Of all US LCCs, JetBlue is by far the best positioned to do this. The carrier, with a recent investment from Lufthansa, has access to strategic partnerships with foreign carriers that many other LCCs don't, due in part to JetBlue's dominant position at JFK. While the second phase of the Open Skies treaty may dilute this advantage, as foreign carriers may not need to rely as much on JetBlue to offer feeder services, since they'll be able to offer US domestic service themselves, for the time being, this position allows JetBlue to potentially increase its revenue with interline booking arrangements. Moreover, JetBlue is working on expanding its own international routes, especially in Central and South America. The carrier announced yesterday that Orlando would become a focus city, and this will help facilitate JetBlue's expansion to Colombia, as well as additional Caribbean islands. JetBlue will offer serious competition to American and Spirit in the region, and allow the airline to get a greater share of the growing, and profitable Latin American and Caribbean markets. Southwest and AirTran are also examining the possibility of international flights, but these carriers seem to be less positioned to offer extensive international service right now. Both of these carriers will likely offer international service soon, but probably to a lesser extent than JetBlue or Spirit.

Finally, unlike any other US LCC, except perhaps Frontier, JetBlue can command a small price premium for its product, because the carrier has an attractive brand with many amenities and high-quality service, allowing the company a little wiggle room in terms of costs that other carriers lack because they can't sell their product above the market rate. Even a $5 or $10 premium on tickets can make give JetBlue a tremendous financial advantage over competitors in this market.

While JetBlue may be in an advantageous position, Skybus is not. While Skybus will also be reducing its growth rate, that carrier also plans to shift its capacity and growth to routes with shorter flight times, higher load factors, and higher yields. Skybus has had difficulty of late because high fuel prices and low passenger numbers. As a result, the carrier is delaying its expansion, cutting some loss-making routes like Chattanooga, Tennessee, as well as planning to announce its new focus city next year instead of later this year, and focusing on high-traffic markets such as Florida. While this author disagrees with much of Skybus's strategy, the carrier is making some of the right corrections it needs to. However, this may be too little too late, and Skybus could run out of money to fund its operations if it doesn't change its business model to a system that allows the company to charge higher fares. Skybus lacks any sort of pricing power, and must price its fares below those of other low-cost carriers as well as legacy carriers, because the company offers fewer amenities and a higher level of risk to consumers if their flight is canceled or delayed. With rising fuel costs, the cost discrepancies between a carrier like Skybus and a carrier like Frontier are shrinking, as airport, labor, and amenities costs, all of which Skybus has trimmed, become a smaller portion of a typical airline's cost base. Both Skybus and Frontier have to pay roughly the same price for fuel, but rapidly-rising fuel costs make up a greater portion of Skybus's costs than Frontier's, yet the value that customers receive from one carrier is very different from the value they receive from the other. Skybus will need to remedy this by offering additional amenities if it wants to continue to survive.

However, Skybus is not the only carrier that will need to make changes. In the coming months, additional LCCs will likely add more ancillary revenue programs in order to help offset fuel costs. LCCs are not in the advantageous position they were a few years ago, in many ways, they are currently at a disadvantage to legacy carriers, and as evidenced by some of the changes Southwest has already made, even the stalwarts are feeling pressure to change in order to survive.

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How to Get $10 Seats on Skybus

Several readers have asked me the best way to get $10 seats on Skybus, so here is a quick primer about getting the best deal on Skybus.

The first thing travelers typically think of when they hear the name Skybus are the $10 seats that the carrier sells on each flight. But, the supply of those fares is very limited, and often travelers are unable to find any deeply-discounted seats.

Does Skybus actually offer $10 fares, or is this just a myth?
Yes, in fact Skybus actually offers 10 seats on every flight for $10 each way excluding taxes and all the extra fees the airline charges for services such as checked luggage, food, and priority boarding.

What extra fees, you mean there's a catch to this?
Well in fact, Skybus charges the same fees to passengers regardless of the ticket type they purchase, so a $10 ticket holder would pay the same fees as a $200 ticket holder. Skybus charges passengers for many services that would be complementary on other carriers, such as checked baggage ($5 for the 1st and 2nd bags and $50 for each additional bag) and priority boarding ($10 per one-way flight). Also, if you want any food or beverages on the flight, you'll need to pay for them. However, none of these fees are mandatory. If you only bring carry-on luggage, don't purchase priority boarding, and don't purchase any food on the plane, you can avoid paying those charges.

How does one get $10 seats? I'm sure they sell out fast.
In fact, they sell out very quickly, often within hours of Skybus offering them. The best strategy is to sign up for Skybus's newsletter which alerts travelers with updates when the carrier announces new destinations or extends the period when seats are for sale, therefore adding many $10 seats on existing routes that were previously unbookable. Once you receive this email, you need to book your seats as soon as possible. Once you get to Skybus's Web site, the $10 fares on the best days may have already been snatched up (though typically, there are other low fares, from $25-75 available). Because there are a limited supply of $10 seats, dithering allows other travelers to snatch up those fares. It's as simple as that.

Is Skybus for real? Can I trust this airline?
Skybus is a relatively new carrier, but unlike other deep-discount airlines that have started up in recent years, this one is not a fly-by-night operation. The airline, extremely well capitalized with $160 million in start-up financing, is not disappearing anytime very soon. However, some analysts (including myself) doubt the long-term viability of the carrier, because the company is facing high fuel costs and has had trouble generating strong yields.

What about these alternate airports? How will that add to my travel costs?
In many cities, Skybus uses alternate airports, which are typically farther away from city centers and less well-served by public transit. Examples include Portsmouth, New Hampshire for Boston and St. Augustine, Florida for Jacksonville. There are advantages and disadvantages to using these alternate airports. Because alternate airports are typically underutilized, there is a lower risk of delays than at larger, busier airports, and it requires far less time to check in and walk to the gate. However, if the alternate airport is not in a convenient location, then you could spend a considerable amount of money to drive to the airport and pay for parking, all of which add up and need to be considered when calculating total travel cost.

What if something goes wrong? Will Skybus accommodate me?
Like many ultra-low-cost carriers, Skybus will do very little if your flight is canceled. Because the airline lacks reciprocity agreements with other airlines, you could be stranded if your flight is canceled. Skybus will typically only offer you a ticket on its next available flight, or a refund (which doesn't do much good if you only paid $10 for your ticket in the first place). And since there is little airline service from many of the airports that Skybus services, even if you try to purchase a new ticket on a different airline, you could be out of luck unless you go to a different airport. While Skybus is typically reliable, you should have a backup plan in case something goes wrong.

Are there other carriers like Skybus? Can I get $10 fares elsewhere?
The US carrier most similar to Skybus is Spirit Airlines, which offers most of its service from Fort Lauderdale to points along the Eastern Seaboard, the Caribbean, and Latin America. Unlike with Skybus, Spirit will only offer its very lowest fares on certain days, typically those with lower demand that are unlikely to have full flights. Spirit will sometimes even offer negative fares (where Spirit will pay a small portion of the taxes and fees associated with the trip, but still leaving customers with a bill for the remainder of the taxes and fees). But, there is a catch to this as well. Spirit typically offers these fares exclusively to members of its $9 Fare Club, which for an annual fee permits travelers to purchase deeply-discounted fares from Spirit, including free or virtually free tickets. If you don't want to pay the annual fee, Spirit still offers a range of low fares, as low as $1 in some cases. Like with Skybus, the best way to find out about Spirit's deals is to subscribe to their email newsletter, which alerts you to which routes and days have extra-low fares. Finally, if you see a great fare on Spirit, book it right away before someone else does.

How Low-Cost Carriers Should Approach the Impending Consolidation

While much of the attention surrounding the merger frenzy in the industry right now has centered on legacy carriers and their many possible combinations, low-cost carriers are also very much in the fray, and could be important instigators of consolidation. There are several reasons for this. The first is that many LCCs are seeing their costs rise after years of solid cost containment. Older aircraft, more senior employees, as well as rapidly rising fuel costs are challenging LCCs. At the same time, many of these carriers recognize that there is relatively little "fat" to trim. These carriers have minimized staffing, fuel, airport, and other costs, and unfortunately, unless they were to convert to a Skybus-style business model (which, even then, doesn't yield tremendous cost savings), can't pare their costs much more.

Second, many of these carriers are smaller than the legacy carriers they compete with (with the notable exception of Southwest). Smaller carriers often lack the economies of scale that larger carriers have, and the even larger legacy carriers that could be created after a merger frenzy will have economies of scale that LCCs will simply be unable to match.

Third, many of these LCCs recognize that their business model has limited growth opportunities. Point-to-point domestic routes simply don't cut it anymore. To attract travelers and keep expanding, airlines need to offer connectivity with smaller aircraft (such as with Frontier's Lynx operation, or Alaska's longstanding partner Horizon Air), or they need to offer additional international service (as JetBlue and Spirit are doing in the Caribbean). Legacy carriers will continue to expand the diversity of their networks, and low-cost carriers, with their obvious fleet and cost constraints, will struggle to match them.

At a time when international growth, not domestic growth, will lead to higher profits, many low-cost carriers need to seriously think about how to offer more service options to customers. Spirit and JetBlue are looking towards Central and South America, Frontier towards Canada and Mexico, and Southwest towards unnamed international destinations. But even with this expansion, it misses the big prizes of Europe and Asia, which LCCs, in their current form, will be unable to serve.

The question is, though, whether a low-cost carrier would merely get bought out by a legacy carrier, as is quite possible, given that certain legacy carriers could otherwise get left out of the consolidation frenzy (like American and US Airways), or whether two low-cost carriers would merge together. I would suggest that the latter option is less likely, but possible. Since many LCCs have distinctive cultures and brands that they want to maintain, as well as a low cost base, it would be challenging to find a pairing of low-cost carriers that fit together very nicely. While there are certain scenarios that would be possible in this regard, they are limited in scope.

One brief example: I think Aloha Airlines is good takeover bait for Southwest or even Alaska, since both Southwest and Alaska are interested in Hawaii expansion, all three carriers operate 737-700s, and both Southwest and Alaska offer considerable service to the continental US from the smaller West Coast airports that Aloha serves, such as Sacramento, Oakland, and Orange County. However, Aloha is a relatively small carrier, and the acquisition of it by Southwest or Alaska would do very little to reduce either company's costs and instead be more centered about expansion.

A buyout of a low-cost carrier by a legacy carrier, would, however, be a way to add capacity to the network of a legacy carrier, even though it could destroy the brand of the bought carrier. This scenario is imperfect as well, since legacy carriers are focused mainly on improving efficiencies and yields on international routes, not the domestic ones where LCCs chiefly fly. The acquisition of a low-cost carrier would be to a legacy carriers' minimal advantage, unless that low-cost carrier had a certain degree of market share or pricing power in a key market.

For instance, while neither of these scenarios are in any way likely, a buyout of Frontier by United would give United an even greater degree of pricing power in Denver. The same would be true with a Delta buyout of AirTran, again, an unlikely possibility. Moreover, both these scenarios raise certain regulatory issues, since the Department of Justice is active in trying to prevent significant market power by one airline in any given market. However, I would argue that certain markets are large enough such that this wouldn't be a significant issue. Moreover, the unification of both carriers could create benefits for the customers of both companies by expanding route networks and flight schedules.

But if legacy carriers are focused on international growth, why would they want to expand their domestic networks, which would be inevitable with the takeover of an LCC? The main reason is to increase market share, particularly in critical markets of strategic importance to the company, where there are large concentrations of higher-yield travelers. Is there a merger that would do these things? I know of at least one, between United and JetBlue, which is detailed in this post. This is not to suggest that other merger scenarios are unthinkable, for all low-cost carriers are quietly discussing various merger scenarios and how they want to play a role in the upcoming consolidation, but I would suggest that the most attractive merger scenario involving a low-cost carrier is between United and JetBlue.

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JetBlue Looks to Latin America

JetBlue recently filed for authority to fly between Orlando and Bogota, Colombia, as well as Fort Lauderdale and Bogota. The daily flights, which JetBlue hopes to start next April for the Orlando route and next October (in just under a year) for the Fort Lauderdale route, would represent a change in the airline’s strategy, which has been to avoid the Latin America market. While JetBlue has expanded its presence in the Caribbean, offerings flights between New York and more than a half dozen destinations in the Caribbean, JetBlue hasn't made the leap to Central or South America, save for a daily flight or two to Cancun. JetBlue has done that in part because not only is Latin America a difficult region to break into, but the carrier that dominates traffic between the US and Latin America, American Airlines, is one that has a very significant presence in key JetBlue markets: New York and South Florida. American has near-monopoly status on many Latin American routes, and as a result, has been able to charge very high fares and drive away competition. However, with low-cost carriers searching for ways to diversify themselves, American will face a new round of competition on some of its Latin American routes. For example, American has been recently pressured by Spirit Airlines, which has discounted fares considerably on routes between South Florida and the Caribbean and Latin America.

JetBlue recognizes that a significant market opportunity exists to offer an intermediate standard between American and Spirit. JetBlue would offer lower fare service than American but with more amenities (though perhaps not with the generous loyalty program and other features that business travelers demand). Many businesss travelers would continue to fly American, but JetBlue could attract a significant share of the leisure market. If JetBlue is able to get the requisite slots, it could be a major boon for South Florida residents, who don't want to have to choose between Spirit's ultra-low-fare and even lower quality service or American's sky-high prices.  However, there are issues stemming from whether JetBlue can get the necessary authority, due to the fact that American holds the rights to some slots which it has chosen not to exercise until recently, and so it's not a sure thing that JetBlue will be able to fly these routes.

However, even if JetBlue doesn't get the necessary authority, this move signals that the company is serious about expanding into Latin America, and will likely continue to take more stabs at the idea in the future. If not Colombia, then Costa Rica, Panama, Ecuador, Peru, and even Brazil are definite possibilities for JetBlue, as these are all relatively high-yield markets dominated by American. American and Spirit will fight hard to keep JetBlue out of Latin America for as long as possible, and could likely succeed in the short term, but if JetBlue is able to enter these markets, it will enable the carrier to make substantial profits while diversifying itself away from lower-yield, competitive routes along the East Coast.

JetBlue and AirTran Gear Up for Lucrative, Risky Winter Season

JetBlue announced a significant expansion of its Fort Lauderdale routes today, with three new routes from the city to Richmond, Raleigh, and Charlotte. These routes, to be operated seasonally on a once daily basis, will help expand the attractiveness of JetBlue in these respective markets, where JetBlue has been reticent to expand beyond routes to New York and Boston.

But more importantly, these new routes will help the airline do battle against a key foe, AirTran. AirTran and JetBlue are planning on expanding more conservatively in the next few years, and that means that both carriers will be increasingly competing on similar routes. The carriers would rather avoid competing with each other, because each has much to lose. As a result, these carriers may try to announce routes where they don’t directly compete, though competition will be inevitable. For example, AirTran recently announced seasonal service between Boston and West Palm Beach, a route that JetBlue currently operates.

The Northeast/Mid-Atlantic-Florida market is lucrative for carriers since the yields low but steadily rising, and the demand is incredibly high. AirTran and JetBlue are likely to add more Florida routes in the coming weeks in preparation for the peak winter season, and this was a smart route announcement by JetBlue because AirTran is unlikely to match it. Moreover, there is certainly a need for these three routes for consumers in Richmond, Raleigh, and Charlotte, as one or two carriers currently dominate those routes.

AirTran and JetBlue will continue to stake out their respective routes in the coming week, in time for the biggest winter travel season Florida has experienced. Both carriers should succeed because the market is so large, but both carriers will need to be prudent about the fares they charge because the consumers are more prudent than ever when it comes to finding the best price and ultra low-cost carriers like Spirit will keep yields low. Moreover, customer service is going to be a bigger issue for consumers than it has been in the past.

Even a minor slipup by JetBlue could do serious damage to that airline’s brand. Many customers understood JetBlue’s mistakes the first time, this past February when the airline suffered its now infamous Valentine’s Day meltdown. But they will not be so forgiving if it happens again, and JetBlue could have serious difficulty containing the fallout. But what is more threatening for JetBlue is the possibility that a major customer service gaffe by another low-cost carrier will stain the LCC segment of the industry.

If AirTran has a customer service meltdown sometime this winter, not only will it hurt that carrier, but it will also reflect poorly on all airlines, but especially low-cost carriers such as JetBlue, Southwest, Spirit, and even US Airways. As a result, carriers will have to execute a delicate balance between keeping fares low and ensuring a steady profit, while maintaining enough customer service staff on the ground to handle potential calamities. Otherwise, if customers get the message that flying is likely to be a hassle and a pain, which could happen if a publicized meltdown occurs, then demand on leisure routes could soften in 2008 onward, giving the industry one more problem it doesn’t need.

Will Skybus's Launch Provoke Other Airlines to Add Fees?

Skybus's launch has been getting a lot of attention in the past few days by a range of national media (such as this column in USA Today). But much of the coverage has not centered on Skybus's new routes or the opportunities it presents for smaller, underutilized airports. Rather, many news outlets have focused on what Skybus is not providing, at least, not for free. Skybus plans to charge for virtually any extra passengers need, short of using the restroom. And since this is a revolutionary idea in the States, it is picking up a lot of media coverage. But it begs the question: Will other carriers consider adding more a la carte amenities in a bid to raise revenues? If fares continue to remain relatively low, LCCs will need to find more ways to make money, and ancillary revenue streams are the easiest, cheapest, least risky way to accomplish that goal. Low-cost carriers have seen their costs rise in recent years. Many of them have new fleets which are now getting older and which require more costly maintenance. Also, many LCCs have labor agreements that are becoming more expensive to maintain, since many employee groups are looking for higher wages and more profit-sharing. When airlines first start out, employees typically get paid quite little relative to their counterparts at other airlines. But as they gain experience and seniority in the company, many employees receive pay increases, and that costs LCCs more and more money each year.

And with fares increasing very little, airlines are trying to figure out how to raise more revenues. Food and beverage sales is one idea that hasn't been fully exploited by LCCs, something Skybus will try. It's probable that other LCCs will start cracking down on some of the free snacks they are handing to customers, and may charge customers for the treats. Also, some LCCs may start charging customers for beverages, a move that could be very profitable, since beverages typically can be sold at high profit margins and many passengers find themselves dehydrated inflight. Moreover, most US LCCs have excess baggage fees that are similar to legacy carriers. Only Spirit has taken steps to remedy that, but even that carrier still allows customers to check one bag for free (although this will soon change, and customers will need to pay for all checked bags for reservations made after June 19). LCCs, especially those aiming to have a tighter grip on their costs, including Southwest and AirTran, may crack down on their checked baggage policies. While most US LCCs offer hotel and car rental reservations on their Web sites, and collect commissions from sales, they don't advertise these outlets very well on their sites and airlines don't appear to be focused on offering customers a good value for all their travel needs. Airlines typically make it difficult to purchase a flight, hotel, and car rental in one search, since hotel and car rental reservations are often kept on separate pages on US LCC sites. And many of the hotel and car rental partners airlines contract with offer lower rates at their respective Web sites, and if airlines want customers to book hotels and car rentals through them, they need to ensure that customers are receiving the best deal. Also, Allegiant and Skybus are the only two LCCs to charge for the privilege of boarding early. Allegiant offers advance seat assignments for an additional fee, and Skybus offers early boarding with no seat assignments. The revenue from these services costs very little to obtain, and if it improves a customer's comfort level on a given flight, people will pay it. Other LCCs, including Southwest and AirTran may charge for early boarding in the future. It's an extremely profitable and easy-to-implement revenue stream, more so than any other ancillary revenue stream, and LCCs would be foolish not to utilize it with LCCs so desperate to raise revenues. LCCs may also add fees for the use of their in-flight entertainment systems. AirTran, for example, offers customers satellite radio at every seat, and customers can hook up to it for free (assuming they have their own headset). However, AirTran would be an ideal airline to charge customers for the use of that entertainment because it doesn't market itself primarily based on entertainment like JetBlue and Frontier do. Even if customers were only charged $2 or $3 on a flight, that could still raise hundreds in revenue that AirTran otherwise wouldn't receive.

Even though customers prefer airlines that provide free amenities, it simply doesn't make sense for LCCs to do that in a stagnant revenue environment where legacy carriers are much more cost-competitive than they were several years ago. LCCs need to find ways to raise additional revenue, and in the wake of Skybus charging for many of these previously free services, the airline has paved the way for many other LCCs to start doing the same. As customers get used to paying for checked luggage, seat assignments, or in-flight sodas on Skybus, then other airlines will have fewer difficulties getting customers to accept these new fees. LCCs that market themselves primarily on the basis of low fares, such as Southwest, AirTran, Spirit, and Alaska (which, to be quite honest, is hard to classify as either an LCC or a legacy carrier), are the most likely candidates to implement these new fees. LCCs that attract customers less on the basis of fares, and more on the basis of their amenities, including JetBlue and Frontier, will be less likely to adopt some of these ancillary revenue streams because they could hurt their brand and discourage airline loyalty. While more fees may be one more hassle customers will need to deal with when flying, greater adoption of more ancillary revenue streams, including fees as well as commissions, may enable many LCCs to continue making money in the face of higher costs and marginally increasing fares.

More Questions Raised About Skybus's Viability

As Skybus prepares to launch service tomorrow, many questions linger about the long-term viability of the airline. While the company is well-capitalized and well-aware of the competitive landscape it faces, it seems to be headed for trouble. History is littered with airlines that have overestimated the viability of certain markets, and I think Skybus will soon be one of them as I doubt that Greensboro, Richmond, Kansas City, and Bellingham have the traffic necessary to support profitable service. Skybus is trying to avoid markets with a lot of competition with its expansion. Fair enough, but in an extremely competitive marketplace, there are very few viable markets where there is little competition, especially since Skybus is launching services from a city – Columbus, Ohio - served by Southwest Airlines. The markets left with little competition carry greater risks, and may not have enough traffic to support a daily flight on a 150-seat plane. Skybus may be able to sell all the $10 tickets it wants to on these routes, but the measure of a successful airline isn't by the number of loss-leading tickets sold, but by the number of profitable tickets sold. And I suspect that Skybus will fail to impress on this measure.

Unfortunately for Skybus, Columbus is simply too small a market to fly from, especially given the amount of service already supplied by Southwest and Delta. Perhaps Skybus will be able to lower fares enough so customers from other markets will find Columbus attractive, but given the distance between Columbus and other markets, that might be a bit of a stretch. Cincinnati is one of the closest major markets to Columbus, and it's 110 miles away. Granted, Cincinnati has some of the highest airfares in the nation, so some customers might find a switch to low-cost Columbus attractive, but how many business travelers or others with time-sensitive plans will be willing to make that trek? If Skybus were to open new bases of operation in Burbank and Portsmouth, which may occur in the not-too-distant future, then those might be more successful because those airports have more populous catchment areas. Until then, I have serious questions about the viability of the Skybus business plan.

Much of what the plan is based on is this notion that people will fly to anywhere if it's cheap enough. According to CEO Bill Diffenderffer, people will fly from "nowhere to nowhere" for the right price (taken from this Columbus Dispatch article about Skybus's launch). Ryanair has been able to market dozens of smaller cities as attractive destinations because the flights are so cheap. That may make sense in Europe, where many of these destinations are popular vacation spots, but most of Skybus's cities, especially its weaker markets, aren't. Moreover, Ryanair has a huge base of people in London to support its flights; Columbus has far fewer people to support flights with similar-size aircraft. Yes, low fares will help stimulate traffic: For example, many people plan on using Skybus's low fares to visit family members. But families visiting each other don't fill planes. Vacationers do, and on most of its flights, Skybus won't be transporting primarily vacationers. Another element of Skybus's dilemma is the number of tickets that it plans to sell as the last minute. Typically, tickets purchased at the last minute are bought by business travelers who need to fly quickly. Business travelers have historically been averse to Ryanair, and I suspect that they will be to Skybus as well, especially given Skybus's menu of far-flung alternate airports. If Skybus offers punctual, friendly service, then I suspect some business travelers will fly the airline and purchase pricey last minute tickets, even with the drawbacks surrounding alternate airports. But if Skybus offers the American service equivalent of Ryanair, all bets are off. Without a good base of business travelers, it's unclear whether Skybus will have the necessary load factors and yields to make money.

But another issue stems from Skybus's use of ancillary revenues to subsidize the cost of flights. Skybus doesn't plan to generate as much of its total revenues from ancillary sources as Ryanair does. Skybus has the challenge of being the only US airline to charge for all checked bags. While Spirit has tightened their policies in recent months, the carrier still allows customers to check one free bag. Not Skybus, which will charge $5 for the first two bags, and $50 for each one thereafter. It sounds like extortion to me, and I think customers who aren't used to the idea will be turned off. Moreover, Skybus may have difficulty enforcing its policy on food. The airline prohibits customers from bringing outside food or drink onto aircraft in a bid to force more customers to pay for pricey onboard refreshments. However, if that policy is enforced, the airline could be faced with a mob of incredulous customers; even Ryanair doesn't prohibit onboard food or drink just yet.

Skybus has started advertising on planes through a partnership with Nationwide Financial, but Skybus's aircraft advertising program will need further development in order to make it a more important and viable component of the airline's ancillary revenues. However, Skybus's biggest ancillary revenue problem is that the airline hasn't promoted its outside hotel and car rental vendors on its Web site as much as it should. Ryanair has demonstrated that hotel and car rental commissions can add a meaningful amount to the bottom line. But many Ryanair travelers fly to vacation getaways and need hotel rooms and car rentals for their vacations. Skybus doesn't have many vacation destinations on its route map, and consequently won't be able to collect the commissions Ryanair does.

If Skybus wants to succeed, the airline needs to focus on marketing itself. For a new airline, marketing is key, especially given the competitive nature of the business. Skybus is adding a lot of capacity to an already crowded market, and if it can't fill planes, it can't make money. I'm not so concerned about Skybus's fares, since the airline seems to have their fare structure well thought out for profitability, but that strategy will mean nothing unless those tickets are sold. Also, Skybus needs to rethink how it is targeting its ancillary revenue streams, and focus more on hotel and car rental commissions. But that may not come until Skybus's route map is restructured with more leisure destinations. Finally, Skybus needs to diversify its routes away from Columbus. Not in a year, because it may be too late by then. Skybus needs to open new bases in some of its secondary airports (such as Burbank, Portsmouth, Oakland, or Fort Lauderdale) very quickly. If Skybus can do those things, it might have a chance. But otherwise, it will be stormy skies ahead for the startup.