SkyEurope looks to put fresh face on low fares

 - February 2, 2007, 5:05 AM

In November, when SkyEurope began serving London and Paris from Budapest, Hungarian media mocked the carrier as fapados, meaning wooden bench–the painfully plain, rickety class of travel from communist days. The names never hurt them. So Hungary tossed regulatory stones at the bare-bones regional to break any advantage over its national carrier, Malev.

“Every delay that could take place did take place,” said SkyEurope’s CEO, 29-year-old Christian Mandl. For its first 10 days from Budapest Ferihegy, SkyEurope suffered 20-minute “technical stopovers” to its home base of Bratislava, Slovakia. Mandl rallied passengers via his airline’s SkyBlue magazine.

“Our entry has been met with a cheerful welcome from the people who wish to travel, but also with some resistance from interest groups trying to defend a high-fare air-service monopoly.” By month end he beat the stopover to sell 100-percent loads point to point. On December 15 SkyEurope added Milan and Zurich, and expects 150,000 Budapest departures this year with seats beginning at €25 ($30). In partnership with Nescafé, it even serves snacks.

Mandl considers his main competitors the car, trains and television. “Rather than stay home and watch a soccer game, SkyEurope’s price is low enough to move people off the couch.”

SkyEurope turns but two years old this month, yet among Slovak carriers it owns 54 percent of the market. With five 30-seat Embraer 120s and three 133-seat 737-500s at a 78.3-percent load, it fills more seats than the next two largest carriers combined. It also has an operational reliability of 90 percent. The low-fare, low-cost regional serves 14 destinations from its headquarters base of Bratislava; its eastern base of Kosice; and Budapest, Hungary.

If its success sounds divine, note that SkyEurope’s passenger list has included His Holiness John Paul II, who became the first Pope to bless a no-frills airline. “If he flew on our low-cost airline,” reasoned Mandl, “we must be safe.”

New Face on Travel
Yet Mandl decided to put a new face on air travel. SkyEurope leveraged Slovakia’s reputation for willowy, stunning women, via home-town girl Adriana Sklena Ikova–
the Wonderbra model. The model’s face was painted on a 737 and christened with perfume. Along with dry company statistics, Sky-Europe listed Adriana’s legs in its press release as “126 centimeters from the top of the hip.”

But Mandl figures heads are turned by the low-cost structure of Slovakia, which will not be a member of the European Union until at least May, and the position of Bratislava M.R. Stefanik Airport. Only 27 nm from Austria’s Vienna Schwechat, and with 13 million residents in four countries within a 108-nm catchment area, Stefanik has a market radius comparable with that of Ryanair and greater London–Mandl calls Bratislava “the Stansted of Vienna.”

With Schwechat having one of the highest fee structures of European airports, Mandl and partner Alain Skowronek targeted Bratislava to found SkyEurope in February 2002. Skowronek was fresh from selling EuroBelgian Airlines to the Virgin Group to become Virgin Express, then managing Belgian low-cost carrier CityBird. The young founders hold 49.9 percent of SkyEurope shares, with the remaining 50.1 percent held by the European Bank for Reconstruction and Development, ABN AMRO, and European Union funds.

Mandl’s catchment area includes portions of the Czech Republic, Hungary, Austria and Slovakia. Despite eased restrictions under possible EU accession, and with free movement guaranteed under the Schengen Agreement, border checks and delays will continue; though only 35 miles, with stops the trip by car takes 90 minutes, making air service competitive.

SkyEurope has pit its own bus connection, SkyShuttle, against private bus lines, taxis and frequent trains linking Vienna with Bratislava. Yet Mandl is banking on customers driving hours for a low fare and offers free, guarded parking at Bratislava. SkyEurope also signed marketing agreements with Hotels. com and Hertz.

The Austrian government regards Bratislava as Vienna’s secondary airport and an alternative to a third runway at Schwechat. But on December 12 it made the commute more inviting with its own express rail service connecting downtown Vienna with Schwechat in eight minutes for e8. Bratislava might still absorb Vienna’s air cargo, having added 60 percent in volume last year with the signing of a Volkswagen plant in Lozorno, and DHL and UPS both increasing frequency along with 200 Slovak courier and messenger companies.

Since Slovakia became independent in 1993, the country has sprouted 18 charter and scheduled airlines serving its eastern spas and former Soviet industrial towns such as Kosice; mountain resorts via the 2,356-foot-elevation Poprad-Tatry Airport; and a dozen general aviation clubs, as well as university training flights at Zilina and Kosice, which feed pilots to SkyEurope. Yet of the 10 central and eastern European candidates for EU accession, Slovakia may have the least developed aviation infrastructure.

Bratislava was designed to process 1.8 million passengers a year, but it sees fewer than 300,000, though it remains profitable enough to subsidize other Slovak airports. Current proposals would repackage the Slovak Airports Authority (SAA) as six state-owned stock companies running the principal Slovak airports as a first step to privatization. This year regional and city administrations in Bratislava and Kosice will inherit the state shares, along with commercial investors, with privatization destined to be complete by 2006.

Potential commercial investors are the subject of speculation in Slovak press, while others decry any loss of state control. Vienna Schwechat is logical. Rumors have spanned the U.S.-based Glenealy International, which is simply an advisor, to Aeropuertos Argentina 2000, which has issued contradictory statements, though Mandl said, “The Argentinian company is not in the game anymore.” Any new owner would face stark upgrade costs. Stefanik Airport needs basic security: its 10 miles of aging wooden fence needs attention, its terminal needs X-ray machines and its fire and rescue needs new engines.

Mandl bristles at suggestions of insufficient standards, with maintenance staff certified to JAR 66 and the organization to JAR 145, training and exams under JAR 147 and ops under JAR OPS 1 and 3. At Bratislava, heavy maintenance is outsourced to KLM Engineering and Maintenance. He emphasizes that his is a low-cost airline based in a low-cost country, and therefore has an advantage over airlines based in Western Europe.

“We produce flight hours in Bratislava, and we’re based on local wages, which means a lower unit cost than Ryanair.” The 60 pilots on SkyEurope payroll earn about $600 a month. Slovakian follows JAR OPS and JAC FCL 1, so SkyEurope requires at least 1,500 hours for Brasilia captains and 2,500 hours for 737 captains.

“Most of our pilots have gained experience abroad, some in Switzerland,” said Mandl. “The Slovakian mentality is to stay at home, and our pilots can live nearby in Bratislava. If salaries go up after the EU accession, that may not be bad for us. There are high numbers of unemployed pilots in Western Europe who would be attracted here by the lower cost of life, and the ability to build hours.”

Besides the 60 pilots, Mandl has surrounded himself with 90 eager young workers, 23 of whom are reservation agents. The staff is outgrowing its former warehouse about one mile from the airport, with the table-tennis room just converted to pilot locker space. SkyEurope is literally growing through the roof–a third floor will be built for more reservations personnel.

“We use local call numbers in each country, and all are routed to Bratislava, where the agent speaks the correct language,” spanning English, French, German, Italian, Hungarian, Slovak and Czech, with the Web site also accessible in each language. Only 15 percent of tickets are sold through agents, with the rest sold direct–55 percent of those via the call center and 45 percent by Internet. There are also no surcharges for credit cards or booking fees–both unusual for a low-cost airline.
The high number of Internet sales is surprising considering that only 519,217, or fewer than 10 percent of, Slovaks have Internet access. Only 50,000 Slovak households earn at least $2,424 per month. Inflation remains high, and even neighboring countries are reluctant to stock the national currency. Nonetheless, Slovaks and foreign nationals alike are buying seats in local currency (Slovakian korunas).

“We have already achieved breakeven. That’s good for such a young airline,” noted Mandl. Advertising is constant via the Internet, fliers and posters. “The traditional airlines use image-based advertising, while low-cost airlines use destination and price,” said Mandl. Admittedly, SkyEurope enjoyed much television play, attracted by Adriana’s long legs.

Austrian Airlines, however, has taken a close look at SkyEurope’s routes. In November it began promoting itself as, “the eastern European specialist,” launching new routes to the Russian oil regions of the River Don and Rostov, Azerbaijan, Baku and destinations in the Balkans, where SkyEurope had enjoyed unchallenged routes to Croatia. “Passengers would prefer to fly direct,” contended Mandl, noting that all such flights from his competitor have a stop in Vienna.

Austrian Airlines has also added flights to Kosice, the milk-and-honey route for SkyEurope. For now, Bratislava is the final frontier airport before the common EU border. After accession, that identity shifts east to Kosice, near Ukraine.