Fuel the wild card in Skybus plans

BY KEITH BENMAN, Times of Northwest Indiana
kbenman@nwitimes.com

GARY || Skybus Airlines' Wednesday announcement that it will cut one of two daily flights to Gary has raised questions about what else it will have to do in the face of skyrocketing fuel prices.

Skybus will now have to concentrate on filling seats with passengers who can pay fares high enough to cover the cost of fuel, said Roger King, senior transportation analyst with CreditSights, a provider of independent credit research.

That means the $10 fares for the first 10 seats on every flight may have to go.

"It's a great marketing tool, but a lousy operational tool," King said.

Skybus started flying two daily flights between Greensboro, N.C., and Gary/Chicago International Airport just last week. The morning flight will end April 15, leaving only an afternoon flight.

Skybus operates on an ultra-low fare business model like RyanAir does in Europe. Skybus fares for Gary to Greensboro flights through August range from $10 to $135.

Skybus officials have vowed to keep fares for the first 10 seats on every flight at $10. But they also admit fuel prices are the wild-card in the airline's business plan.

In early January, Chief Operating Officer Bud Sittig said Skybus could survive oil prices of up to $110 per barrel. At the time, oil was trading at $95 per barrel.

Last week, oil breached the $110 mark in trading on futures exchanges.

Skybus is not the only airline taking a belly blow from soaring fuel prices.

ATA Airlines two weeks ago said it was pulling out of Chicago's Midway Airport in response to high fuel prices. The next week, Delta Air Lines announced it would offer voluntary severance to more than half its work force. United Airlines plans to sell planes and it raised fares as much as $50 on some flights to cover its increased fuel costs.

If Skybus raised prices that much, it could start to lose its ultra-low fare shimmer with consumers. But King believes the airline will have little choice.

Skybus began operations only last May and has not been able to hedge fuel purchases at lower prices as Southwest Airlines has done.

On Wednesday, Skybus spokesman Bob Tenenbaum said the logic of this week's schedule changes is to run planes as full as possible. If the airline has run two flights at 60 percent capacity on one route, it now may be able to fill the remaining plane, he said.

It also added three more direct flights to Florida from three different airports.

Small airports are feeling the greatest impact from airline cutbacks in the face of soaring fuel prices, said Gary Airport Director Chris Curry.

"The airport will continue to stick with its plan," Curry said. "We're all in the same boat, all the airlines and all the airports. People still have to fly."

"All these airlines have to find a group of passengers that are willing to pay enough to pay for the cost of oil."