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LOW-COST AIRLINE SKYEUROPE MARKS FIRST ANNIVERSARY WITH EXPANSION, INFLUX OF CAPITAL

Sky still flying high

HAVING started with a single 30-seat aeroplane on a shuttle run between Bratislava and the country's second-largest city Košice a year ago, low-cost carrier SkyEurope is now the largest scheduled airline in Slovakia, offering regular service from Bratislava airport to 11 destinations in Slovakia and abroad.
Against the backdrop of increasing costs and anxieties about terrorist attacks, the company has managed to stick to its plans, and it is hoping to expand further in the near future, introducing new cities and increasing frequency to its existing destinations.
The Slovak Spectator recently spoke with SkyEurope CEO Christian Mandl about the company's activities in the last year and what is in store for this year and beyond.


THE AIRLINE hopes to start flights to Stansted or Luton sometime this year.
photo: File photo

HAVING started with a single 30-seat aeroplane on a shuttle run between Bratislava and the country's second-largest city Košice a year ago, low-cost carrier SkyEurope is now the largest scheduled airline in Slovakia, offering regular service from Bratislava airport to 11 destinations in Slovakia and abroad.

Against the backdrop of increasing costs and anxieties about terrorist attacks, the company has managed to stick to its plans, and it is hoping to expand further in the near future, introducing new cities and increasing frequency to its existing destinations.

The Slovak Spectator recently spoke with SkyEurope CEO Christian Mandl about the company's activities in the last year and what is in store for this year and beyond.

The Slovak Spectator (TSS): SkyEurope celebrated its first anniversary on February 13. How has the last year been for your company?

Christian Mandl (CM): In summary, in 2002 we developed a product that answers a need in Slovakia, and we have tried to do it in a way that allows us to achieve a low cost in order to give low fares to our customers. I think we revolutionised air transport in Slovakia by being able to compete with the trains and with other means of transportation, and I think it is also very important for eastern Slovakia to have three flights per day to Bratislava and low-fare flights to Prague.

TSS: Last year you announced plans to expand to London and other destinations in Western Europe. What cities are you planning to add to your list of destinations and when is this going to happen?

CM: We are interested in launching flights not only to London but also to Paris and Brussels and we intend to do this in 2003. But we are also trying to grow at a reasonable speed. That is why we opened regional destinations first and are now increasing the frequency of flights to existing destinations. We want to offer flights to more Western European destinations, but as these will require larger aircraft it is also important to grow our brand on the Austrian market to make sure we fill the capacity.

TSS: Which airports are you looking at in London?

CM: Either Stansted or Luton.

TSS: What kind of demand do you think there is for the Bratislava to London and Paris routes?

CM: I think there is strong demand. For us, a good destination combines three criteria: First is business, second is leisure, and the third is ethnic traffic. And I think both destinations, London and Paris, answer these three criteria for the development of a good route.

TSS: What are the differences between the Slovak and Austrian travel markets?

CM: Slovakia as a country fully justifies the need for an airline. There is no reason why Slovenia should have a successful airline and not Slovakia. Now the cherry on the cake, of course, is the fact that Bratislava is only a few miles away from Vienna and that we are able to attract many Austrian passengers on our routes. So I would say that the target market is a little different in Slovakia than it is in Austria. In Slovakia I think we have a majority of business travellers whereas the Austrian passengers who fly with us are more in the leisure target market, which means that they fly to Milan for a weekend of shopping, to Berlin for some clubbing, or to Split or Zadar. Some Austrians have boats in the marinas there and SkyEurope is the most comfortable way to get there. It is about a one-hour flight instead of a drive of more than 10 hours.

TSS: Have you been taking a lot of market share away from Vienna airport?

CM: I think we are creating a new market. Low-cost airlines in general generate incremental markets. That means that if the fares are low, they create demand. We are able to be complementary to Vienna airport and to the traditional airlines operating out of Vienna because we offer an alternative product at a very affordable price.

TSS: How are you coming along with establishing a "green corridor", whereby customs officers and other officials travel on your shuttle buses that go through the border with Austria?

CM: We have a shuttle bus that departs from the centre of Vienna and goes directly to Bratislava airport. It takes a little bit longer than one hour and is operated by the Austrian Eurolines bus company so it is very reliable. None of our passengers have ever missed a flight because of customs. We are happy with this system as it is.

That said, we would like to improve the situation with customs and the positive thing is that the Austrian side, including the airlines that operate out of Vienna airport, would like to do the same, so we would like to agree on some sort of reciprocity that would be good for Bratislava as well as Vienna. If both sides agree, I think we could get some compromise. Of course it could get complicated because we need to have contact with several Austrian and Slovak institutions. We need to deal with the Finance Ministry for the customs [side of things], the Interior Ministry for the police, and the Foreign Affairs Ministry regarding the cooperation with Austria. Coordination between ministries takes time, but I think that such a "green corridor" should be established.


CEO Christian Mandl (left) launching SkyEurope last year.
photo: File photo

TSS: Low-cost airlines are doing much better than the traditional airlines these days. To what do you attribute their success?

CM: Airlines like Ryanair are able to achieve more than a 25 per cent margin, whereas most of the traditional airlines are not profitable. Low-cost airlines seem to be the only airlines in the world that are making a profit, and this is because the margins are good. We started our investment in 2002 and we have given ourselves a certain amount of time to break even since we are still in the development phase; opening new routes, purchasing new aircraft, and so on.

TSS: How long do you think it will take for you to break even?

CM: We expect to break even by the end of 2003.

TSS: Slovenske Airlinie is restructuring. How will that affect SkyEurope?

CM: Well, we don't have the same business model. They fly mostly charter routes for travel agencies, and we concentrate on the scheduled routes, which is completely different. I don't really understand why the government provided them with a capital contribution in the form of Tupolev aircraft. This is probably the first time that we have seen a government supporting a charter holiday airline. It is not so important for the country. I think it is more important for the country to open up new destinations with daily flights for business people coming to Slovakia and for Slovaks to be able to visit other cities. I think we are doing a good job for the country. We would like to operate in an environment which is similar to what we could find in the EU. So the fact that Slovakia will join the EU is a very good thing because we will be operating in one single aviation area from Bratislava down to Malaga.

TSS: How many low-cost carriers do you think the European market can support?

CM: It is not a matter of how many, it is a matter of how large the total market share of low-cost airlines in Europe will be. Many studies show that while the total market share is 7 to 8 per cent, it could reach 25 to 30 per cent. So there is still a lot of room for development.

On one side you have traditional carriers that have a business model that can be justified in countries like France, Germany, and the UK, where there is a big domestic market with big demand for point-to-point flights. British Airways, Air France, and Lufthansa have a market. Then you have smaller markets like Belgium or Switzerland, where Sabina and Swissair have failed because the domestic market was not large enough. These airlines were obliged to develop a model whereby they were connecting passengers in their hubs, but passengers usually prefer to fly from point to point.

We think we have great market potential in front of us because in central and eastern Europe, people want to fly and they want to have affordable fares. At the moment it is a crazy situation whereby people in London with lots of disposable income have access to very low fares, while people in central and eastern Europe, who have lower incomes, still pay very high fares. For SkyEurope, the strategy is not so much to compete with Ryanair in the west but to explore the markets in the east that are still very much crying out for low fares.

TSS: How has the threat of terrorism affected your business?

CM: SkyEurope and Bratislava airport have been reinforcing security measures, so we are taking this matter very, very seriously. On the other hand, I think the purchasing behaviour of Slovak passengers is not influenced very much by what happened in the US on September 11, 2001. It has had a bigger economic impact on our costs.

TSS: What do you see in the future for SkyEurope?

CM: SkyEurope has some new investors who will allow us to grow. These new investors are extremely strong institutions that include the European Bank for Reconstruction and Development and also a fund of the Dutch bank ABN AMRO. So I would say these renowned investors will help us develop faster and conquer new markets.

This investment is two-fold. On the one hand, the investment is in cash, but it is also an investment in credibility. It raises the credit rating of the airline, which enables us to, in the future, raise some debt which at this moment is difficult to do in Slovakia. We are an airline that is 100 per cent equity financed, which is very good. Now that we have this type of investor, we will be able to have leverage potential, which will enable us to find money on the markets when we need it most.

This is very important for the development of civil aviation in Slovakia. It will be the first time in the history of Slovakia that the country will have a well-capitalised airline company, and that this airline will have a chance to do a professional job and grow. In the past there have been so many attempts to carry out projects that were undercapitalised, and they were very soon stopped in their growth.

TSS: How big is the new investment?

CM: It is a total commitment at this moment of 5 million euro, with a first instalment of 3 million euro. The deal was signed on January 31.

TSS: Where do you think you will be in five years?

CM: We plan to follow our business plan, but we also plan to be very open-minded about opportunities as they arise. It is difficult to say exactly what is going to happen in five years' time, but our objective is to be the leading low-cost carrier of central Europe.

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