Christian Mandl: State has unique chance with SkyEurope

Slovakia's air industry is considerably lagging behind that of its regional neighbours. Only 16% of Bratislava airport's capacity is currently used. This at a time when the country is trying to promote itself abroad as an investment destination, and drive its economy.
The air industry, many have said, could contribute to this if more developed.
A change in the situation might be seen, though, with the launching of a new airline, SkyEurope, which has ambitions to start scheduled flights from Bratislava to main European destinations as early as summer this year.

SkyEurope CEO Christian Mandl believes there is potential for the Slovak air industry.
photo: Ján Svrček

"There is a need for direct flights out of Bratislava. We think that there is a market potential of 6.5 million people in the Bratislava-Györ-Vienna triangle and that this region will develop."

CEO of SkyEurope Christian Mandl

Slovakia's air industry is considerably lagging behind that of its regional neighbours. Only 16% of Bratislava airport's capacity is currently used. This at a time when the country is trying to promote itself abroad as an investment destination, and drive its economy.

The air industry, many have said, could contribute to this if more developed.

A change in the situation might be seen, though, with the launching of a new airline, SkyEurope, which has ambitions to start scheduled flights from Bratislava to main European destinations as early as summer this year.

The Slovak Spectator spoke with Sky Europe's CEO Christian Mandl on January 11, to get some details on his company's business plans in Slovakia, and SkyEurope's viewpoint on the current state of the Slovak air industry.

The Slovak Spectator [TSS]: Can you tell our readers some basic information about SkyEurope and why it decided to come to Slovakia?

Christian Mandl [CM]: Slovakia is probably the only country in Europe which doesn't have direct schedule flights to main European destinations. With the development of foreign direct investment in Slovakia recently, we believe that there is a need for direct flights out of Bratislava.

We also think that there is a market potential of 6.5 million people in the Bratislava-Gyor-Vienna triangle and that this region will develop. When we consider that about 300,000 Slovak passengers every year fly out of Vienna there is strong potential for us. Moreover, infrastructure connecting Bratislava airport with the rest of the region is also good.

The country is in a situation when its people have to pay airport taxes in Vienna and the tourism industry is losing money. We want to bring a solution to this problem.

The only way to compete with Vienna, says Mandl, is to offer something cheaper to Schwechat.
photo: Ján Svrček

TSS: What routes will you launch and when, and what services will you provide?

CM: It's a combination of what the market wants and what is technically feasible in terms of getting the landing slots at the airports. We have already received some slots at major European airports. We will begin with three destinations in which certainly Paris and London will be included and we would like to start with them in summer this year. Sky Europe will fly Boeing 737s.

As far as services go we want to offer value for money to business travellers, but also leisure travellers, students and expats. Booking will be convenient with travel agencies able to make reservations on SkyEurope and we will also promote direct booking via our call centre and the Internet.

Preparations are in the final stage, we have already applied for an air operator certificate (AOC) at the Slovak Civil Aviation Authority, and we are confident. We have been working on this for almost two years.

TSS: How often will you fly?

CM: Each route daily.

TSS: How big is your investment and how profitable do you expect it to be when Vienna airport is only 60 kilometres from Bratislava?

CM: SkyEurope's investment is $20 million. We believe that one of the reasons why there are no strong air carriers in Slovakia today is the fact that existing carriers are undercapitalised. Therefore, from the beginning we want to have a strong financial background.

We will run scheduled flights, and that's why it will take us longer to see profits - the reason for the strong financial background. We estimate that we will break even after three years.

SkyEurope will run lower cost operations than Vienna airport. There is no reason why Slovak customers with lower salaries have to pay very expensive mechanics [costs] in Vienna. Our low cost operations will also be reflected in the fares offered to our passengers. SkyEurope will always be cheaper on the same routes than flights out of Vienna. The percentage may vary, but on average, at the same time and day we'll be at least 30% cheaper than traditional airlines.

If one wants to fly to London on Tuesday and come back on Thursday. Fares proposed by airlines applying the Sunday rule are extremely expensive. With SkyEurope this won't exist. We will offer low fares throughout the year on an average route whereas other airlines will offer that price only for 10 seats on an average aircraft.

We will operate on the principle of the low-cost airline, which itself has existed in the United States for more than 30 years with airlines such as Southwest Airlines. There are also very successful models of low cost airlines in western Europe including Easy Jet and Ryanair. These airlines are more profitable than traditional airlines.

So this is not a completely new concept, but it's new for this region, and Slovakia will be the first country in central Europe to have a low-cost airline characterised by higher productivity, and not by lower quality.

TSS: Why do you think Slovak air traffic volumes are behind regional neighbours?

CM: Some mistakes have been made. The former government tried to launch a national airline, and had big ambitions for it. They wanted to develop a traditional product, which already exists at Vienna airport. This means a traditional national carrier offering economy and business class.

We believe that this doesn't make any sense becasue Vienna airport will always offer flights to more destinations, and obviously with a higher frequency. So with the same product, Bratislava will never be able to compete with Vienna.

A different product, such as a low-cost and low-fare airline, has to be offered. The only way to compete with Vienna is to be cheaper than Vienna.

Another thing that was probably missing when launching airlines in Slovakia was strong marketing, and understanding that to run an airline it is not enough to have an aircraft or two, but also to fill that aircraft with passengers. Our main focus will be very strong marketing, not only for us, but also for the country. Slovakia today has either no image or very often a negative image abroad.

TSS: How does SkyEurope see the future of the Slovak air industry and its role in a regional context?

CM: Slovakia is located in the centre of Europe. Vienna airport is a very strong airport in terms of connecting eastern Europe with western Europe. But from a geographical point of view, there is no reason why Bratislava couldn't grow too.

In future we expect co-operation and distribution between the two airports, according to the different types of product. It might be that Bratislava airport will develop more charter flights than Vienna airport, even for Austrian passengers. It might also develop cargo business as it is very close to the highways and the Danube river. So it might become a very important distribution and logistics centre in central Europe.

TSS: Slovak Airlines always complains that Slovakia is one of the few countries where the government doesn't want to be involved in a national air carrier and support development of air traffic in the country. What do you think this involvement should be and what should the government's role be in supporting Slovakia's air traffic?

CM: As for any other business in the country, the role of the state is to create the best possible conditions for development of that business. The role of the Slovak government should be to improve the business environment for civil aviation in Slovakia, and there are problems regarding this that need to be solved.

It is basically a question of changing some things which are blocking the development of civil aviation in Slovakia, something that can be done quite easily. There is no need for heavy state investments in civil aviation, contrary to let's say the development of rail and road infrastructure.

One kilometre of highway costs a fortune, but just to change a few conditions to authorise airlines to operate normally should not be a big deal for the government.

What both SkyEurope and other Slovak carriers want is to operate in Slovakia under the same circumstances as in the rest of Europe, and especially in the European Union. It is not logical, on the one hand to try hard to join the EU and thus the European common aviation area, and on the other hand have implemented restrictions which don't exist in the Union.

TSS: What restrictions are we talking about?

CM: For example value added tax on the import of aircrafts and spare parts. This tax is not applicable on aircraft in Austria, and given the geographical proximity this discriminates against Slovak carriers based in Bratislava. The same with landing fees, which are higher in Bratislava than, for example, in Paris. This is a bit strange...

TSS: Aside from these problems, consumption taxes have to be paid for fuel, which makes Bratislava one of the most expensive [airports] in Europe. How much of a problem is this for SkyEurope?

CM: Well, it certainly is a problem, but we are negotiating with authorities about moving these kinds of barriers. I think that the success of air carriers depends on the creation of adequate conditions for doing business here.

Before Christmas SkyEurope's representatives had a meeting with Mr. Mikloš [Deputy Prime Minister for Economy], during which we explained to him how these barriers harm the economy. We hope that the relevant authorities will understand that we want to operate in a similar legal environment to the EU. Nothing less, nothing more.

TSS: How committed is the government to creating adequate conditions by breaking these barriers that you are talking about?

CM: If our business concept is the right one, and according to many experts it is, then our costs have to be lower in Bratislava than in Vienna. But if there are so many barriers which make the operational costs higher here than in Vienna then it makes no sense to create a low-fare airline flying out of Bratislava because it cannot be low-fare when it isn't low-cost.

This business concept will work if we make sure that Bratislava is cheaper than Vienna, that means fees at the airport, the fuel price, maintenance cost, all this has to be cheaper. For example, the VAT on aircraft is stopping Slovak carriers from importing modern equipment here.

TSS: It probably won't work with all these fees and taxes that have to be paid. So, will you need the government's help here?

CH: From an economic point of view, operating costs have to be lower in Bratislava than in Vienna because of the wage differential. If they are not it is only because of fiscal and legal barriers which are counter productive because the potential income from Slovak passengers goes to Austria rather than Slovakia.

The government now has a unique chance to offer a perfect service to its citizens by supporting companies like us, and also has a chance to improve the countryşs economy by doing something positive. The preliminary reaction seems to be very positive, so we expect that it will also be transformed into concrete steps to be taken.

Our managment believes that Bratislava is the right place to start a new airline, but I need to persuade our shareholders that this is the place where they can get the highest return of investment. Opportunities to do this kind of business don't exist only in Bratislava, but also elsewhere in central Europe.

TSS: So in other words, if the government isn't willing to change the current status by decreasing or even cancelling these high fees and taxes it might well be that companies like SkyEurope will move to other countries where conditions set by the government are better.

CH: Of course. The business model is good. It can be applied to Bratislava, as well as to other countries. If conditions here enable us to satisfy our shareholders then there is no reason why we should go elsewhere.

TSS: How patient are your shareholders?

CM: Things should move fast because currently there are no scheduled flights out of the country to EU countries which is negative for the Slovak economy.

TSS: Will you qualify for incentives such as a tax holiday?

CM: We expect to qualify for a tax holiday. We bear all the risks on our shoulders - the government isn't risking anything. Moreover we are investing $20 million into a sector that is of tremendous importance for Slovakia. We certainly qualify for these incentives.

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