A Northern Virginia company has received initial federal approval to form the first U.S.-based low-cost airline that would fly exclusively to international destinations, although it still must clear other regulatory and financial hurdles.
The Department of Transportation has given tentative approval to SkyLink Airways Inc., calling the new venture "fit, willing and able" to operate financially. But the Federal Aviation Administration must still approve its maintenance and safety plans.
The company has told the Transportation Department that it would like to start flying this spring, with flights from Baltimore-Washington International Airport to Stansted Airport outside London.
The airline says it intends to fly wide-body Boeing 767s to as many as 15 countries on four continents.
The company, headed by longtime airline industry executive Kenneth T. Carlson, proposes to sell economy and business-class tickets at fares 15 to 70 percent lower than those offered by traditional carriers, SkyLink said in its filing with the Transportation Department.
SkyLink said it may offer a one-way business-class fare to Europe of $700 instead of the $2,300 to $2,400 charged by larger carriers. The airline said it may offer economy fares as low as $300 one-way, although it did not specify whether that was for the summer peak season. Larger carriers already offer lower fares at times during the year.
Although the Federal Aviation Administration has not taken action on SkyLink's application to begin air service, the Transportation Department's findings on SkyLink said that the FAA believes the airline is "making satisfactory progress in working toward obtaining its FAA certification," and that "the agency knows of no reason why the carrier should not be granted the authority it is seeking."
Some analysts express skepticism
Even if the airline gets off the ground, some analysts are skeptical about its prospects in an industry with large carriers sharply cutting fares to match competitors.
"In this environment, this airline doesn't make much sense," said Anthony F. Cristello, an analyst who follows low-fare carriers for BB&T Capital Markets. "The international markets are the profit centers -- the lifeline -- for a lot of the major airlines. And I think they'd quickly go after their competitors."
Carlson, the new company's chief executive, declined to comment yesterday, saying it was premature to discuss the company's operations.
In addition to Britain, SkyLink Airways has named Aruba, Austria, Belgium, Canada, Chile, Costa Rica, the Czech Republic, the Dominican Republic, France, Germany, Italy, the Netherlands, Slovakia and Taiwan as potential destinations, according to the documents filed with the Transportation Department.
The company said it hopes to partner with U.S. and European airlines, picking up their connecting passengers and sending business to them as well. Stansted Airport, 40 miles north of central London, is a hub for some low-cost carriers that fly within Europe.
SkyLink said it will initially fly out of BWI, an airport that has lower operating costs than many others and has become identified with low-cost carriers such as Southwest Airlines Co. But it did not rule out offering international flights from other U.S. cities.
SkyLink, which has its offices in Dulles, was incorporated in Delaware in November 2003. Carlson was a high-ranking executive with now-defunct Midway Airlines and several other carriers. SkyLink's president is Joshua B. Marks, who has been an airline industry consultant and is former associate director of the George Washington University Aviation Institute. Carlson and Marks each have a 42.5 percent stake in the company, according to filings.
SkyLink reported it has raised more than $15 million from investors and hired the Lehman Brothers financial firm to raise up to $160 million more. It plans to buy its first three 767s from West Dover LLC, a company owned by Lehman Brothers. West Dover will finance the $26.9 million purchase. SkyLink plans to have a fleet of eight wide-body jets by the end of the year.
The company also must pick a new carrier name: It will give up "SkyLink" to avoid a trademark dispute with a Canadian travel firm known as SkyLink Aviation Inc.
Difficult time for aviation industry
The prospect of another low-cost airline comes at a difficult time in the U.S. aviation industry. The parent companies of five carriers -- United Airlines, US Airways, ATA, Aloha and Hawaiian -- are operating under bankruptcy protection. Delta Air Lines Inc. reported a $5.2 billion loss for 2004. And Flyi Inc.'s low-fare carrier, Independence Air, based at Dulles International Airport, has been struggling to pay its bills.
Aaron J. Gellman, a professor and transportation specialist at Northwestern University's Kellogg School of Management, said the new airline may succeed if it can build alliances with other carriers. But he cautioned that low fares alone won't assure success.
Discussing SkyLink's planned fares, Gellman said, "For a business-class fare, that's quite low." But many large corporations, he said, negotiate bulk discounts with large carriers that bring fares down by as much as 50 percent.
BT&T analyst Cristello said he wonders if customers would feel comfortable taking a transatlantic flight on a low-fare start-up.
"You're talking about a six- or seven-hour trip," he said. "People are building [frequent-flier] miles on airlines like Continental or American or Delta. And they are just not going to be as willing to fly that distance on an unknown airline. People think: 'If I can get just as good of a fare on a Delta or a Continental, or at least close, I don't see any reason why I would be willing to give up [earning] my miles.' "
On Jan. 11, the Department of Transportation issued its tentative approval.
"We tentatively conclude that SkyLink has developed a funding plan which, if successful, will provide the applicant with sufficient resources to commence its proposed air transportation operations without posing an undue risk to consumers or their funds," the agency said.
Before making its approval final, the department gave "interested parties" 14 days to show cause why SkyLink should not be certified. A department spokesman said yesterday that the deadline passed on Tuesday with no objections being raised.
