Jason Bitter, SkyEurope's new CEO, has sent a letter to his firm's employees yesterday in which he explains his motives behind the radical shift in the carrier's policy and abandoning the bases in Krakow and Budapest. As the complete text you can easily find on the internet right now, there should be no issue with citing it here as well.
Dear fellow SkyEuropeans,
Today is a difficult day as we have to inform you that we have made our decision to close our bases in both Krakow and Budapest effective with the winter schedule (October 28). This decision was not taken lightly and was debated within the board right up until the final decision was made this week. Our People team is putting together offers for those of you who wish to re-locate to one of our other bases. We have also spoken with other companies who are interested in employing some of our staff, particularly cabin crew. We will be providing further information on this quickly. This decision in no way reflects on the efforts of our people in Budapest or Krakow as you have all been delivering an excellent product we are all proud of; this is strictly an economic decision and is one of many being made to allow us to reach our mission of profitability.
I will now explain why we made this decision and what this means for our staff currently located in these bases.
1.) With our current fleet of 14 aircraft it is inefficient for us to be spread thinly across our region with small bases and we have made a strategic decision that it is better to be strong in a few places rather than weak in many places;
2.) We see a lot of progress being made in our performance in the past 5 months as we have improved significantly over last year in both revenues and costs, but we still need more;
3.) We have identified multiple ways we will save costs by simplifying our operation by reducing the number of bases and the number of companies we have. Our operation has been too complex and these complexities add cost. By eliminating complexities, we will reduce our cost base and also make our operation run more smoothly as it becomes more concentrated;
4.) We have decided after much research that our best chance of achieving long-term success is to build our operation around Slovakia, the Czech Republic, and Vienna. The short and long-term potential of these markets is significant and we know we have a superior cost base and product than our main competitors in Prague and Vienna. These markets have a good mix of both leisure and business traffic and are growing rapidly with very healthy national economies and most importantly, they have a less pronounced seasonality as their winter season is not as poor as in Krakow and Budapest.
5.) Prague and Bratislava/Vienna are also better located physically than Budapest and Krakow. For example our flight time from Prague to Amsterdam is approximately 1 hour less than from Budapest, yet the fare people are willing to pay is similar. We can achieve more production in these bases as there are more short-sector possibilities than in Krakow or Budapest where the sectors are longer and we can only fly 6 sectors a day, while in others we can do 8. These extra 2 sectors per day make a significant difference in revenue generation. Moreover, we will be able to have a much more stable and consistent roster for our crews with the new schedules we have developed for these bases;
6.) One of the major problems we have experienced with both Krakow and Budapest is the strong effect of seasonality. We do very well in these markets in the summer months and at Christmas time, while the rest of the year the market is weak. Simply put: it is difficult to make up the money lost in 40 weeks in the 12 weeks when the traffic is strong.
7.) There are other problems associated specifically with Budapest surrounding the economic conditions in Hungary. Our current passenger mix has very few Hungarians flying. This is the same for every airline flying in Budapest. Our primary market on Budapest flights has become incoming traffic and we cannot sustain this. We have clearly seen a reduction in Hungarian passengers as the economic condition in Hungary has continued to get worse. The excessive taxation in Hungary has left Hungarians with low disposable income to be able to afford a trip abroad when compared to the people in Czech Republic, Slovakia and especially Austria where disposable income is rising significantly. We know that if the economy in Hungary were different, our results in Budapest would be different. The tax regime in Hungary also makes it difficult to compete with our cost base as a Slovak company where the taxes are much lower.
8.) In Krakow we have many problems that negatively effect our operation that we cannot afford any longer. The airport is significantly below an operational readiness stage for a commercial airline base. There is only a Category 1 runway in one direction, the airport is built in an area where fog and strong tailwinds are common thus causing a lot of diversions every winter, there is no hangar at all for maintenance and most importantly the costs are far too high for such an airport.
There are many more reasons why we have taken this decision. One of these is our cost base at these airports in relation to our other bases. For example, our costs per departure in Krakow are more than 30% higher than in Prague and 52% higher than in Bratislava!!! To put this in perspective, it is cheaper to operate in Barcelona, Rome, and Milan than in Krakow. We tried to negotiate a reduction in charges in Krakow in order to remain with a base there. Unfortunately the offer we received was not enough to make a difference to overcome all of the costs and issues we have in staying in Krakow.
In Budapest, although cheaper than Krakow, we encountered a similar problem where we tried unsuccessfully to lower our costs. As with Krakow, the offer made by the airport was too low for us to be able to remain in Budapest and still realistically have a chance of reaching our target of profitability in our next fiscal year.
We believe that our agreements and locked-in low-cost base in Bratislava, Prague and Vienna ensures that we will be able to grow significantly in these bases without sacrificing profitability. Moreover, we firmly believe in the philosophy that we are better served to be a major player in fewer markets as we can benefit from the scale we can achieve this way.
We are not ruling out a return to these bases and will continue to serve Krakow this winter with flights from Vienna. We would dearly like to fly from Budapest, but under the current economic conditions, this does not work for us. When things change in Hungary, we will evaluate a return, but we have decided that we cannot continue to invest in markets that cannot be profitable for us in the short and even medium-term.
I hope many people choose to relocate and continue to be a part of the SkyEurope team in another base.
Sincerely,
Jason Bitter
Well, an interesting piece of reading. I think Krakow should reconsider its policy concerning the charges and fees. Surely, it's a very attractive destination for tourists from all over Europe, but b
eing greedy doesn't pay. They could have lured one of the major players to create a base there to fill the gap, but if they weren't able to make any real concessions while negotiating with, say, Ryanair, they didn't have a real chance, unfortunately.