The airline industry may well be
the worst possible industry in which to start a new firm.
Plagued by high fixed costs, low profit margins,
and fierce competition,
these factors have created a poor environment for startups.
In fact, the airline industry was deregulated in 1978 and since then,
over 150 new entrants have failed.
Why would SkyBus enter such a competitive industry?
Because despite the perception that
the airline industry was one of the toughest to enter,
SkyBus believe that a window of opportunity was open for
a new airline that offered low fares without frills.
Taking advantage of American West Airlines pulling down its Columbus
Ohio hub, SkyBus's founders started raising capital to start the airline.
Together, we will walk through an analysis of SkyBus Airlines,
as it enters this very competitive industry.
Who is your customer?
This broad question is the first that you must answer.
You might be tempted to say, "Anyone who flies,"
if you're trying to open a new airline in an established airline industry.
But indeed, this is simply too broad.
One needs to narrow down the customer base and decide who really are your customers.
In an industry that's quite established such as the airline industry,
there are many products and services that are too good if you will,
and thus overpriced relative to the value that customers think they are getting.
For example, how many of us wonder how much we're
paying for that stiff rubber chicken that we are being served.
SkyBus decided to eliminate these frills and in an effort to do this,
they started to charge extra for almost everything other than the ticket itself.
Carry on baggage was free,
but checked baggage was extra.
Seating was on a first come first serve basis,
passengers could pay an extra $10 if they wanted to for extra seating.
In order to maximize revenues from other fees such as purchased items,
SkyBus planned to strictly enforce their new food and drink policy,
and sell on the airline itself food and drink.
Many of us would prefer to do that and perhaps
not eat food and drink to get a lower fare.
SkyBus knew that there were many customers out there
who would be willing to buy into their particular business model.
Let us take a moment to review this opportunity.