The $9 Airline

Last Updated May 29, 2009 12:24 PM EDT

You probably saw something about this: The founder of the recently deceased SkyBus airlines has launched a new venture: JetAmerica. And where SkyBus tried to make a name for itself with tickets as low as $10, Jet America is going to do that one better, with tickets as low as $9.

The new venture plans to launch in July, connecting Toldeo, Ohio, with Newark, N.J., Lansing, Mich., South Bend, Ind., and Melbourne, Fla.

Is this complete lunacy? Maybe not. Certainly RyanAir has been making good money offering cut-rate deals in Europe. Go to its Web site and you'll see the Irish airline is offering flights for as little as 5 pounds.
JetAmerica seems to be following the RyanAir model pretty closely:

  • Like RyanAir, JetAmerica is cashing in on subsidies from local governments eager to get better air service. JetAmerica is starting out with $1.4 million in government money from various sources, of which $600,000 is coming from the city of Toledo, where officials hope that having direct service to the greater New York area -- specifially Newark -- will help businesses there lower an unhealthy 12.1 percent jobless rate. The airline will also benefit from another $1.9 million in landing fee wavers and grants to underwrite marketing.
But about those $9 tickets; we did a RyanAir case study in business school, and one of the more interesting tidbits was this -- when people are only paying a couple quid for their airfare, they're liable to change their minds last-minute and stay home. The fares -- and the fees, and the taxes -- are non-refundable, but so what? You're only out the price of a movie ticket. With fares this low, we can fly to Florida next weekend.

What that means for RyanAir is that it can overbook with impunity, knowing from experience that X number of passengers won't show up, and they pocket that extra revenue.

In the JetAmerica case, it's only offering nine seats at $9 each -- plus the booking fee, of course. They're no doubt betting that many of those nine passengers will blow off the trip, thus allowing them to turn around to sell the seat again to a full-price passenger, and keeping the revenues from both fares.

So certainly, the model can work. What seems to have killed SkyBus last year was not the business model, but the big spike in fuel prices we saw.

Still, there's plenty of room for skepticism. SkyBus's collapse left a bad taste in a lot of mouths. After reviewing the business and operations plans, this guy named Bret Snyder calls JetAmerica "one of the most disorganized efforts I've seen in a long time." There's a potential issue with the fact that Alaska Air Group owns the rights to the airline name Jet America.

And while we can admire the ingenuity of a shoe-string operator, at the start, JetAmerica's entire fleet will consist of one 737 that it's leasing from somebody else.

"There is lean, and then there is anorexic," writes Tom Barlow at WalletPop.com. "Skybus adopted a finger-down-the-throat business plan, and JetAmerica seems to be flying in its contrail."