BY KEITH BENMAN, Times of Northwest Indiana
kbenman@nwitimes.com
Gary/Chicago International Airport is pinning big hopes on a startup airline that operates like no other U.S. carrier. For one thing, the first 10 seats on every Skybus Airlines flight go for $10. Here Skybus CEO Bill Diffenderffer answers questions about Gary, the airline and its business model. He also reveals why you can't just pick up the phone and call them.
Q: Why did you select Gary, Indiana, as a destination?
A: We love airports that are small and convenient, where we can operate highly efficiently but still are close to major population areas. Or areas where people have a strong interest in traveling there as they travel to their destination.
Q: Other airlines at Gary have come and gone. Why do you think Skybus will be successful in Gary?
A: Well, you know, there have been substantial changes over the years in terms of how airports operate. And the big airports -- O'Hare, Kennedy, Atlanta and LaGuardia, because of the large increase in the amount of traffic there in terms of passengers and in terms of air traffic arrivals and departures -- have become harder and harder to navigate. ... Whereas at an airport like Gary, there will be no wait for takeoffs. That makes it highly attractive.
Q: Tickets for Gary flights went on sale January 10. How are they selling?
A: Very well. We've sold thousands of tickets already. ... Whether they've sold from Gary to Greensboro or vice versa, I haven't seen that data yet. We think Gary is going to be terrific for us.
Q: How important is the downtown Chicago market to Skybus?
A: We don't actually try to anticipate where people will be coming from, because what we've discovered is that people will come from 50 or 60 miles away, sometimes 100 miles, to get to these fares. You've seen that our fares are really a lot lower.
Q: This no-frills, all on-line concept has worked with Ryanair in Europe. But will American consumers buy in?
A: You know, that's really one of the funniest questions I get. We have been living in an e-commerce world now for the last 10 years. You don't think about calling Amazon.com. The key is having a Web site and an Internet interaction that is effective. And to do that you have to have a product that is pretty simple.
Q: Airline experts are not exactly enthusiastic about Skybus. One called your business model "stupid." Why is that?
A: That's probably Michael Boyd (president of The Boyd Group Inc., an aviation consulting firm). Michael Boyd by the way has a history of calling everybody else using this model stupid. We're not the only ones he's called stupid. You know, though, the fact of the matter is our business model is different. And a lot of the airline consultants have a vested interest in not changing the status quo. ... The reality is these consultants, who think they know so much, have never even talked to me. They don't even know truly what our cost structure is. And do not truly understand the business model.
Q: Skybus takes a lot of knocks for not having a customer service number. Why don't you have one?
A: Because it raises our costs, which would cause us to raise our prices. Like most e-commerce companies, we believe we can handle all customer service issues from our Web site.
Q: You have already cut back service to some markets, such as Bellingham, Washington. What didn't work there?
A: When oil went from $60 to $90. People hear that and say, well, it was that way for everybody. But for us oil is 35 percent to 40 percent of our cost structure on a flight like that. Now we do have operational advantages with respect to how quickly and efficiently we fly our airplanes, meaning 25-minute turns at airports like Gary, when it can be an hour on the ground and sometimes more at airports like O'Hare. But the operational advantages that we have do not go to purchasing oil.
Q: Skybus raised $160 million in capital on Wall Street for its startup. How did you attract that kind of investment?
A: We told them that we were going to have costs that were one-half of everybody else's. That we were going to fly our airplanes 15 hours a day. That we would fly in and out of smaller airports that did not create the congestion and the inefficiencies of the bigger airports. And that we would have fares that were half of everybody else's. And all those things are true.
Q: Who are your biggest investors?
A: Fidelity, Morgan Stanley and some major hedge funds.
Q: How are you capitalizing your purchase of 65 Airbus A319s?
A: This is one of the great things about the airline industry. We actually have done the financing for the airplanes into the beginning of 2010 (delivery will continue through 2012). So, the aircraft are very highly valued, not just highly expensive. You can do lease financing. You can do asset-based financing. And we did a huge deal, announced previously, with the Bank of China. And they cover really, about 12 airplanes already.
Q: You had a $16 million loss in your first full quarter of operations. When do you expect to be profitable?
A: This summer.
Q: What's the best thing about a Skybus flight? What's the worst thing about a Skybus flight?
The best part of a Skybus flight is you pay half of what you'd pay with other people on a nonstop flight. ... And you are flying a new 150-seat airplane instead of an uncomfortable 50-seat airplane.
Q: And what's the worst part?
A: The worst thing is that we manage our operations very tightly, which you have to do in order to get the fares down. When something does go wrong, whether its bad weather or repairs, unanticipated de-icing, or a mechanical issue, it sort of cascades down through the rest of the day. Because we have no buffers in our schedule. If we start a flight 20 minutes late, we're still flying 20 minutes late at the end of the day.
Q: Will that get better as you get more planes?
A: We plan on keeping it that lean. But what I also want to say is ... as we get the operational kinks out as far as flight times, etc. ... we expect to be on time more. We probably already have canceled fewer flights than anyone.
Q: What would you tell someone from Northwest Indiana who usually flies Southwest out of Midway, but is thinking of giving Skybus out of Gary a shot?
A: I would say look at our fares and look at our destinations. What you'll find is that we actually don't fly against Southwest. We try to not fly against Southwest, because we respect them too much. What we want to fly against are the connections on 50-seat airlines.