7 Things We Can Learn From Skybus

Posted by Mike on

June 9, 2008

Skybus at CMH Skybus Airlines had a short life. They came on the scene quickly and were flying all over the country in no time. Infinitely more abrupt, however, was their decent into closure. On April 5, they simply stopped flying altogether. Employees were told they no longer had a job, and customers were left stranded and scrambling to find alternate transportation. Ultimately, they have gone bankrupt owing a lot of people, banks, and vendors truckloads of money.

No business begins intending to close like that. Some very talented, creative business people with a thorough knowledge of the airline industry tried something new, daring, and exciting. They certainly didn’t want to close; they wanted to revolutionize a defunct industry. They had excellent plans for controlling labor costs and generating revenue. By advertising on the outside of the aircraft and operating gift shops onboard, they were making money in new and inventive ways.

We can learn a lot from such a public failure. Case studies aren’t just for Harvard MBA students. When we see a clear success or failure, we should be asking ourselves what we can learn. I flew Skybus several times out of Pease in Portsmouth. I have also used information from news articles, wikipedia, and the blogosphere to do a brief investigation into what went wrong and what small business owners can learn. The following seven points of failure for Skybus give us insight and help us become better prepared.

Do not undercharge for your product or service. What they did: It seems their biggest problem was that they vastly undercharged for seats on planes. Granted, their 10 seats for 10 dollars was both a marketing campaign and an intentional price-war tactic, but come on! Giving away 10 seats on a every flight was suicide! They needed to charge an appropriate price for every seat on every plane. What we can learn: We need to make sure that whatever pricing strategy we have lines up with what it takes to run our business. Doing new and crazy things is fine, but remember what it costs to actually provide the service or product.
Have a flexible business plan. What they did: Let’s assume that the 10 dollar seat thing was actually viable in early 2007, when they started. Fuel prices went through the roof, and every airline needed to make some big adjustments. Skybus kept right on selling 10 dollar seats until the day they closed their doors. Their costs were rising way beyond their revenues, but they never changed a thing. What we can learn: if anything major changes in our industry, we need to rewrite our business plan right away. We need to come up with a new strategy that will keep customers coming and keep us in the black. Business plans should be constantly updated and refined, especially for new businesses.
Recognize failures early.What they did: They began failing almost immediately, but did not adjust to attempt to actually turn a profit. For example, they were leasing Airbus A319s, a fairly large airplane, from Virgin Air. They were failing to even come close to filling up the planes on many of their flights. They held strong, assuming that through marketing campaigns and cheap seats, eventually they would begin filling every seat. What we can learn: When we try something new, we need to clearly define what success is and what failure is. Clear definitions help us determine when something is or isn’t working. If something isn’t working, we need to begin making adjustments right away.
Focus on the customer. What they did: In their haste to form a revolutionary new airline with tightly controlled costs, the neglected one small thing: the customer. No price is an excuse for poor customer service. They never even had a call center to handle customer concerns. I suppose this would have been fine if they were flawless. As most new businesses do, though, they struggled with many different customer service issues early on, and had no way to handle the complaints. As a result, many would-be-repeat-customers only tried Skybus once. What we can learn: We are in business for our customers, and it is by serving customers that we make money. No matter what our business plan is, it should include listening to the customer! Even the most upset customer can usually be smoothed over if you listen. Websites are great for some feedback, but many times it takes an actual person with ears.
Have an exit strategy. What they did: On April 4, they announced that there would be no more flights. They had no strategy, they simply closed their doors and called their lawyers. As a result, investors, vendors, and employees lost a lot more than they should have. What we can learn: We are responsible to those that help put us in business. Our business plan should have clear definitions of failure. We never want to burn all our bridges by simply cutting everyone off. If running our business requires capital from investors, products from vendors on credit, or even one employee, we need to have plans for what to do if things go terribly wrong. At least with a plan, we show people we are thinking of them and doing our best to pay them what what we owe.
Respect your competition. What they did: Skybus wanted to revolutionize an industry- fine. But they ignored the big airlines and the low-cost carriers in their business model. Specifically, they thought they could get away with selling 10 dollar seats when even the most drastic discounters sold seats at 35 dollars. They seemed to think their idea was above what those who had gone before had already discovered. What we can learn: We should study our competitors. if something isn’t working for someone else, don’t simply assume we have the brains to pull it off. We need to constantly learn from everyone in our industry, and seek the advice of others.
In a price war, nobody wins What they did: Their 10 dollar seats were more than just a marketing gimmick. It was an intentional tactic to go to war with other discount airlines. For example, Jet Blue had to pull out of columbus because of the cutthroat prices, and Maine customers lost a good choice to get to central ohio. Everyone lost- customers, competitors, and, ultimately, Skybus itself. What we can learn: Price wars are downright dangerous. We should beat our competitors on everything else- value, quality, customer service, convenience- anything but price. Prices should be competitive and honest