SkyEurope fleet shrinks as new airline hits Prague

The next few months will bring significant upheaval to the heavily competitive budget airline industry in the Czech Republic, as one Slovak company faces massive debt and a shrinking fleet, while a Hungarian airline readies its entrance into Prague Ruzyně Airport.

On Feb. 19, Hungarian budget airline Wizz Air will begin operating out of Prague, offering flights to six cities in Western Europe, including London and Paris. The arrival of Wizz Air could be a fatal development for SkyEurope, the ailing Bratislava-based airline, which also has a hub in Prague. SkyEurope's fleet of 15 aircraft has shrunk steadily since last autumn amid 59.4 million euros ($78.4 million/1.6 billion Kč) in yearly losses and a 25 million euro loan debt to one of its major stakeholders. Last week, the company returned six planes to the leasing company Gecas, leaving its total fleet with just five planes. But Tomáš Kika, the spokesman for the company, said the smaller fleet has led to no significant change in SkyEurope's services and that Wizz Air won't critically affect the company.

"We have a whole different product compared to Wizz Air," Kika said. "Our major competitors are the major carriers, not the low-cost airlines."

Kika was reluctant to go into details about the loss of planes, but said that no flights have been canceled due to the ending of the lease, as the company has relied on "wet leases," an industry practice of leasing another company's aircraft and crew. SkyEurope is looking into other leasing options to replace the missing aircraft and will purchase three Boeing planes next summer. In the interim, it will continue flying borrowed planes.

 "We stopped cooperation with Gecas and returned the planes. In the media, you see that the reason was late payments, but it's more complicated than that," said Kika. "In fact, this isn't something that changes our services."

Though the outlook for SkyEurope has been tainted by troubling finances, the company's chief executive, Jason Bitter, remained optimistic at a Jan. 14 press conference in Prague. Citing the benefits of lower fuel prices and an inflow of cash from a debtor, Bitter framed the fleet reduction as only a setback for an otherwise successful business.

But fuel costs - which, according to Kika, make up 25 percent to 30 percent of an airline's spending - are only one aspect of the low-cost airline equation. A growing eurozone recession means thriftier travelers in recent months, and the low-cost airline industry has benefited from the change. But, as major airlines begin appealing to frequent flyers' shrinking budgets, there has been increased competition between major carriers and low cost airlines.

"There is a battle for business passengers because they're more cost-conscious now, and they're looking at low-cost possibilities," Kika said.

SkyEurope's financial problems make this an opportune time to enter the Czech market, but Natasa Kázmér, the head of corporate communications at Wizz Air, said that an expansion into Prague is simply the next logical step for the company, which was launched in Hungary and Poland in 2004.

Over the past four years, Wizz Air has expanded into Romania, Bulgaria and Ukraine. Kázmér said that Wizz Air's success thus far has been due to its fares, which are low, even by low-cost airline industry standards. A one-way flight with Wizz Air starts at 9.99 euros, compared with SkyEurope, whose flights start at 19 euros, and Smart Wings at 43 euros. Wizz Air currently has a total fleet of 20 planes, with plans to slowly expand.

"Low fares generate new demand and attract passengers, especially in times of financial crisis, when people are prepared to pay less for their travel," Kázmér said. "We clearly aim at becoming the leading low-cost carrier in the coming years [in the Czech Republic] as in our other home markets."

Wizz Air is able to maintain low costs by flying to secondary airports. While SkyEurope flies to 20 destinations from Prague, Wizz Air will fly to only six, with most flights leaving only four times per week. Though business passengers will find such flight destinations and availability a hindrance, it has been one key to Wizz Air's ability to maintain its competitive pricing.

"Wizz Air is committed to achieving the lowest cost base in the region, and airport choice has a crucial importance to this," said Kázmér. "This is why Wizz Air - where possible - operates to secondary airports."

Wizz will be the 10th low-cost airline operating in the Czech Republic, and its arrival on the market is certain to stir up heavy competition in the crowded industry. Meanwhile, major airlines such as Czech Airlines (ČSA), which operates a low-cost subsidiary, remain unperturbed by the recent developments.

"Czech Airlines is primarily oriented on a different passenger segment than the low-cost airlines - on the business clientele," said Daniela Hupáková, the communications director at the ČSA.

Stephan Delbos can be reached at
sdelbos@praguepost.com