Jason Bitter: Slowing down expansion at SkyEurope

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When Jason Bitter took over from Christian Mandl last June as SkyEurope chief executive he knew exactly what he needed to do to keep the Central European low-cost carrier in business: slow down expansion.

Bratislava-based SkyEurope had piled up losses of $140 million over three years as the carrier's network grew to 93 city pairs across five bases in five countries. "The philosophy was: grow, grow, grow we'll make money later. That wasn't working. The losses were piling up. We've put a big-time brake on it," says Bitter, who first joined SkyEurope in 2005 as chief operating officer.

Since taking over as chief executive, Bitter has dropped 55 of SkyEurope's 93 city pairs and closed its Budapest and Krakow bases. Bitter decided to focus on three bases with "real penetration" - Bratislava, Prague and Vienna.

"We decided to be big in a few places rather than little everywhere," Bitter says. "We used to have a schizophrenic schedule. It was just a mess. It was all over the place. We were trying to do too much. Structurally there was no way we could be low-cost."

Bitter also has slowed fleet expansion, selling two of its new deliveries and deferring most of its future deliveries. It will add only one Boeing 737-700 this year, giving it 15 of the type with five at each base. Under a recently revised delivery schedule SkyEurope will only add three aircraft in 2009 and four in 2010. "The original schedule was 10 next year," Bitter says. "We committed to a growth path that was ridiculous, especially in today's cost environment."

Bitter also has cut staff numbers from 933 to 679. Most of the job cuts were at Budapest, where SkyEurope had a separate subsidiary, SkyEurope Hungary. The Hungarian carrier, which had a separate team of employees including its own chief pilot and chief engineer, was costly and was shut late last year. "We basically had two airlines, two air operator's certificates," Bitter says.

SkyEurope Hungary was launched in 2003, one year after SkyEurope began services in Slovakia, but Bitter says after Hungary joined the European Union in 2004 there was no need for a separate Hungarian carrier. He says corporate taxes were also higher in Hungary and the Budapest market is not as strong as Bratislava, Prague or Vienna.

Hungarians, Bitter says, are not flying as much as Slovakians or Czechs and most of SkyEurope's Budapest flights were filled exclusively with foreigners going on holiday. He adds that fares from Budapest and Prague to Western European cities are similar, but Prague flights are an hour shorter, making them by far a more profitable venture. He says the Slovakian economy is also stronger, growing at 14% annually compared with only 1% in Hungary. "It's night and day."

In Krakow, SkyEurope also discovered few locals flew and there was hardly any business traffic. He says the market was also very competitive, especially on routes to the UK. "Krakow is real hard to make money in."

Bitter says in Prague, SkyEurope faces less competition. He says Czech low-cost carrier SmartWings does not operate on most routes and "CSA is really easy to compete against".

In Bratislava, SkyEurope faces growing competition from Ryanair but Bitter says so far the markets Ryanair has entered have grown so much both carriers have benefited. He says SkyEurope also has an advantage because it is the local carrier: "We're a local airline that speaks Slovak and people that are local appreciate it."

He adds SkyEurope's motto in Slovakian is "low cost with a human face" and "our biggest novelty is not aircraft, it is people".

Bitter claims the biggest challenge in Bratislava is keeping its employees from taking jobs with Ryanair. He says Slovaks are "young and hungry workers," but they often switch jobs and with virtually no unemployment in the country, it is an employee's market. "It's really competitive, much more than in the west. People can walk out the door and be somewhere else the next day. [There's] such a labour shortage."

Bratislava is so close to Vienna, about 35 minutes by car, SkyEurope has one crew base for both cities. Bitter says the Vienna airport is significantly more expensive than Bratislava's airport but SkyEurope has found it must be on the Austrian side of the border to cater to the Austrian market because Viennese refuse to drive across. "Austrians don't see Bratislava as a gateway. There's a mental block. It's close but they think it's far," Bitter says.

Despite the new focus on three strong markets, Bitter acknowledges SkyEurope is not quite profitable. He expects the carrier to halve its losses in its current fiscal year, which ends 30 September 2008, to roughly $15 million.

"If I had last year's fuel price we'd be a profitable airline now. We're not far away. We're closer and it helps not to be growing so fast," Bitter says. "We're not there yet. We've simplified it radically, but we still have work to do."