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A Pair of Flying Leaps
No-Frills Skybus and Low-Fare Virgin America Enter a Daunting Field

By Del Quentin Wilber
Washington Post Staff Writer
Friday, May 4, 2007

The airline industry is littered with the corpses of failed start-ups.

But that doesn't deter Bill Diffenderffer and his fellow executives at Skybus Airlines. They are launching a new airline just as the industry is recovering from a tough downturn that helped force United and Northwest airlines into bankruptcy and contributed to the demise of local low-cost carrier Independence Air.

Diffenderffer concedes that he wondered about the wisdom of starting a no-frills airline when so many carriers were losing money. A former lawyer for long-defunct Eastern Airlines and a vice president at IBM, Diffenderffer said he couldn't resist Skybus's business plan, which is based on the successful approach of low-cost European airline Ryanair. The new airline is expected to start service from its base in Columbus, Ohio, in coming weeks and fly to eight other cities, including Richmond.

Skybus will be joined by another new airline in the market this summer. Virgin America, also brushing aside the history of airline start-ups, plans to begin operations and proposes to eventually serve Washington Dulles International Airport.

Despite the skepticism of some analysts and airline executives, Diffenderffer said he sees opportunity in tapping what he describes as a horde of Midwest residents eager for cheap fares and a willingness to fly to secondary airports. The strategy has helped him raise $160 million in capital, the airline says.

But Diffenderffer says he isn't shaping his battle plan only like a business executive. He also thinks like a samurai.

"The airline industry keeps growing, and the dominant players are essentially weak," said Diffenderffer, 56, author of the book "The Samurai Leader: Winning Business Battles With the Wisdom, Honor and Courage of the Samurai Code."

"Put those things together," he added. "What if you are given $100 million and a blank piece of paper? What would you do differently? That's what we are doing."

Skybus will have a tiny payroll -- mostly pilots, flight attendants and some managers, executives said. It will contract out everything else. The carrier has no customer service agents or even a number for passengers to call with questions; passengers must book their tickets online.

The airline will sell advertising on the sides of its planes and inside the cabin to boost revenue. If you want to check a bag or get a soda, get out your wallet. Like Southwest, it will have no assigned seats. For an additional $10 you can board the plane before anyone else.

The planes will have no in-flight entertainment, which can be expensive to keep up. "Bring a book," Diffenderffer said.

To generate buzz, Skybus is offering 10 seats on each plane for $10 each. The rest of its fares will be about 50 percent lower than the competition, Diffenderffer said.

To simplify operations, the carrier won't even allow customers departing from its eight other cities to book tickets to anywhere other than Columbus, although executives have said that some passengers have figured out ways to get from, say, Richmond to Boston through Columbus -- if they are willing to spend the night in Ohio. Diffenderffer and other executives defend that plan, saying that the Columbus market is actually massive, with more than 6 million people living within 100 miles of the city.

"People will drive 100 miles to save $100," Diffenderffer said, adding that there are thousands of college students in the Columbus area, home to Ohio State University.

Academics, former executives and analysts point out that the airline is relying heavily on a mid-size market's population. Although Skybus said it selected destinations that have little nonstop service from Columbus, it will be battling two established low-cost rivals -- Southwest and JetBlue -- that serve more destinations with connections.

"I wonder if they can sustain and maintain a cost structure that enables them to compete and make money, particularly if they get Southwest's attention," said Dan Petree, dean of the college of business at Embry-Riddle Aeronautical University in Florida. "It is an extraordinarily difficult and challenging business."

On the opposite end of the low-cost scale is Virgin America, which will be piggybacking on the hip brand of Virgin Atlantic. The airline, seen as an extension of Richard Branson's global business empire, has gotten millions in loan and investment dollars from the billionaire's Virgin Group. It is based in San Francisco and will link to five other cities, including Washington.

It applied to the Department of Transportation in late 2005 to begin service. In December, the department agreed with critics who said the airline was controlled by Branson, a Briton, and other foreigners in violation of U.S. law.

After the lawyers reworked contracts and loan agreements, the department reversed course in March, giving the airline preliminary approval to offer service under certain conditions. Among the remaining issues is whether Virgin America must get rid of its chief executive, whom regulators worried was too close to Branson.

Gareth Edmondson-Jones, an airline spokesman, would not comment on potential routes or the airline's fare structure, saying he must wait to talk until the final approval is granted.

On its Web site, the airline describes planes offering first-class leather seats that provide automated massages. Its coach seats will also be leather. All will have sophisticated in-flight entertainment systems. The cabins will have mood lighting and offer free refreshments in refrigerators stored in the galleys.

Analysts say that Virgin America may have a better chance of surviving than Skybus, if only because Branson wants to expand his brand and has the cash to back up his investment.

"He is in it for the long haul," said Doug Abbey, an analyst with the Velocity Group. "This is a long-term investment for the Virgin brand."

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