European budget airlines failures: SkyEurope, MyAir, who’s next?

Despite all the announcements, most low cost airlines are really feeling the effects of the crisis. This may have come to some as a surprise because of their business model, which allows them to keep attracting passengers by offering “cheaper” flights. In fact, if customers are spending more and more cautiously, they’ll want to try and find cheaper ways of doing it, even if it means that the related experience, in this case, their flight experience could be very disappointing. Now, more than ever, consumers are ready to take that risk.

Looking at these companies’ economic model, it appears to be weaker. Two examples suffice to illustrate my point: SkyEurope and MyAir, two low cost companies have filed for bankruptcy in these past months.

According to Yan Derocles of Oddo Securities, SkyEurope won’t be the only low cost company in trouble next summer: “SkyEurope will not be an isolated case. There will be other low-cost carriers who are going to find it hard to get through the winter.”

Overall, it seems to be a problem of scale for some low cost companies such as Skyeurope or MyAir. As mentioned by the AFP, “the airline had been in trouble for some months, not having the scale of the major low-cost carriers such as Ryanair or easyJet to survive the deepest global downturn since the 1930s”. The analyst adds that “formed in 2002, as the market recovered from the shock of the 9/11 attacks in the United States, SkyEurope, like many of its small rivals, only had limited funding but hoped to cash in on the boom in air traffic in the following years”, and that “at the first shock, they struggled to survive because they had not increased their capital”.

AirBerlin, Germanwings, Flybe, WizzAir, Jet2 and many more could meet the same destiny. What is sure, is that unlike their traditional and established rivals, budget airlines cannot rely on governments to bail them out if they are in trouble.