Battle of the Big Wings
But after pressure from SkyEurope, airline sources said, Marriott moved the Wizz Air conference to the original high-rise Marriott in central Warsaw. Both SkyEurope and Wizz Air lay claim to the skirmish that took place last Wednesday as the first symbolic victory of a war that, in the words of firebrand Ryanair CEO Michael O'Leary, will become "a bloodbath."
Varadi adds that O'Leary's remark, originally intended to refer to Western Europe, "is true of Central Europe. The airlines you see today will not be seen in two years' time."
But just half an hour before Jozsef Varadi announced Wizz Air's new Warsaw-London route, SkyEurope CEO Christian Mandl told the Business Journal, "If Wizz chose to fly Warsaw-London that would be the greatest news - because it will kill them."
"We are ahead of them. We are doubling frequency to London," Mandl said. "We will compete with seats at one złoty or for free - whatever it takes." Mandl cites the example of Austrian Airlines attempting to compete with them in Bratislava, SkyEurope's home base: "We distributed tickets for free to all passengers flying with Austrian Airlines. We now have load rates of 90 percent, whereas they now have load rates of 35 percent."
But gutsy Jozsef Varadi believes Wizz Air can fight and win. In response to the idea that Wizz will have to compete with a SkyEurope offering free tickets to passengers between London and Warsaw, Varadi said, "SkyEurope doesn't have the money to do that, and they don't even have the cost structure."
Varadi argues that SkyEurope's costs are higher because its airplanes are up to 15 years old. "You can't keep those aircraft in the air as long as you'd wish to spread your fixed costs," he said. "If I can put my new aircraft in the air for 13 hours per day, they can do it for eight to nine hours. That's a huge difference."
A key element of Western European low-cost philosophy is flight frequency. If one aircraft can take off and land several times a day, it logically induces more ticket sales. This has been used to explain why Ryanair, for example, does not fly further than two hours away from their efficient (often purpose-built) low-cost bases.
"I have simplicity of cost structure by having only one aircraft type," Varadi added, "whereas SkyEurope flies two types of aircraft. Their crews and spare parts are split in two. There is not a single proven low-cost business model anywhere in the world with multiple aircraft types."
Yet Christian Mandl believes it is Wizz Air that is using the wrong aircraft. "Wizz flies from Katowice with 180-seat planes. There is not enough demand to justify that number of seats on that route. It is wasteful and costly."
Mandl argues that it is his business model that is tailored for the Central European region that has indeed been proven across the last three years since foundation. "It takes time to reach maturity, operationally and in financial terms," he said. "A company which has three years of [experience] has completely different access to the financial market than a start-up."
In the event of a price war, both CEOs accept that they may have to call on investors to finance it. "We are 100 percent equity financed but we have the possibility of going to the debt market if we need to," said Mandl. "We have the possibility of a listing in the future."
"Wizz have announced that they have signed a letter of intent for more finance but after that you still need due diligence and legal documentation," he added. "I doubt they'll close the deal in the summer. So they're running a very dangerous [operation] because they are financing themselves with the passengers' money."
But when questioned about whether future finance was guaranteed, Wizz Air's Varadi was upbeat. "Wizz Air is going to be the best-funded airline in all of Europe ever in history. Nobody has started with 40-50 million euros," he said. "The real game is for capital at this point in time. Wizz Air is in the most advanced situation on that and everybody else is lagging behind."
While accepting that this figure of e40-50 million is not a closed or binding agreement with financers, Varadi argued that all low-cost airlines - Wizz Air and SkyEurope included - depend on revenue stream, i.e. ticket sales, to survive.
In a price war scenario in which revenue stream is reduced to zero, the first airline to go will be the one which is forced to seek new finance first due to higher costs, or is unable to access new sources of finance.
Varadi thinks that Wizz Air can hold out the longest. "In the next fiscal year, when our operation is full-fledged, we can break even below 60 percent of our aircraft's seats being filled," Varadi said. "That is because we have such low unit costs - around half of SkyEurope's. If you compare our Airbus A-320 with their Boeing 737-500, the sheer design of the aircraft is giving us a 25 to 30 percent cost advantage."
"We have more weapons to compete with than anybody else: an experienced team, a brand, and we have the money and the aircraft we need," summed up SkyEurope's Christian Mandl. "We are ready for a challenge, and we will enjoy it."
"This region is only big enough for one of us," concluded Wizz Air's Jozsef Varadi. "I enjoy the fight, because I've got the fundamentals to win."
With each CEO seemingly as convinced and resolute as the other that they've got the golden gloves, this fight looks set to last every round to knock-out. Book your seats.
Varadi adds that O'Leary's remark, originally intended to refer to Western Europe, "is true of Central Europe. The airlines you see today will not be seen in two years' time."
But just half an hour before Jozsef Varadi announced Wizz Air's new Warsaw-London route, SkyEurope CEO Christian Mandl told the Business Journal, "If Wizz chose to fly Warsaw-London that would be the greatest news - because it will kill them."
"We are ahead of them. We are doubling frequency to London," Mandl said. "We will compete with seats at one złoty or for free - whatever it takes." Mandl cites the example of Austrian Airlines attempting to compete with them in Bratislava, SkyEurope's home base: "We distributed tickets for free to all passengers flying with Austrian Airlines. We now have load rates of 90 percent, whereas they now have load rates of 35 percent."
But gutsy Jozsef Varadi believes Wizz Air can fight and win. In response to the idea that Wizz will have to compete with a SkyEurope offering free tickets to passengers between London and Warsaw, Varadi said, "SkyEurope doesn't have the money to do that, and they don't even have the cost structure."
Varadi argues that SkyEurope's costs are higher because its airplanes are up to 15 years old. "You can't keep those aircraft in the air as long as you'd wish to spread your fixed costs," he said. "If I can put my new aircraft in the air for 13 hours per day, they can do it for eight to nine hours. That's a huge difference."
A key element of Western European low-cost philosophy is flight frequency. If one aircraft can take off and land several times a day, it logically induces more ticket sales. This has been used to explain why Ryanair, for example, does not fly further than two hours away from their efficient (often purpose-built) low-cost bases.
"I have simplicity of cost structure by having only one aircraft type," Varadi added, "whereas SkyEurope flies two types of aircraft. Their crews and spare parts are split in two. There is not a single proven low-cost business model anywhere in the world with multiple aircraft types."
Yet Christian Mandl believes it is Wizz Air that is using the wrong aircraft. "Wizz flies from Katowice with 180-seat planes. There is not enough demand to justify that number of seats on that route. It is wasteful and costly."
Mandl argues that it is his business model that is tailored for the Central European region that has indeed been proven across the last three years since foundation. "It takes time to reach maturity, operationally and in financial terms," he said. "A company which has three years of [experience] has completely different access to the financial market than a start-up."
In the event of a price war, both CEOs accept that they may have to call on investors to finance it. "We are 100 percent equity financed but we have the possibility of going to the debt market if we need to," said Mandl. "We have the possibility of a listing in the future."
"Wizz have announced that they have signed a letter of intent for more finance but after that you still need due diligence and legal documentation," he added. "I doubt they'll close the deal in the summer. So they're running a very dangerous [operation] because they are financing themselves with the passengers' money."
But when questioned about whether future finance was guaranteed, Wizz Air's Varadi was upbeat. "Wizz Air is going to be the best-funded airline in all of Europe ever in history. Nobody has started with 40-50 million euros," he said. "The real game is for capital at this point in time. Wizz Air is in the most advanced situation on that and everybody else is lagging behind."
While accepting that this figure of e40-50 million is not a closed or binding agreement with financers, Varadi argued that all low-cost airlines - Wizz Air and SkyEurope included - depend on revenue stream, i.e. ticket sales, to survive.
In a price war scenario in which revenue stream is reduced to zero, the first airline to go will be the one which is forced to seek new finance first due to higher costs, or is unable to access new sources of finance.
Varadi thinks that Wizz Air can hold out the longest. "In the next fiscal year, when our operation is full-fledged, we can break even below 60 percent of our aircraft's seats being filled," Varadi said. "That is because we have such low unit costs - around half of SkyEurope's. If you compare our Airbus A-320 with their Boeing 737-500, the sheer design of the aircraft is giving us a 25 to 30 percent cost advantage."
"We have more weapons to compete with than anybody else: an experienced team, a brand, and we have the money and the aircraft we need," summed up SkyEurope's Christian Mandl. "We are ready for a challenge, and we will enjoy it."
"This region is only big enough for one of us," concluded Wizz Air's Jozsef Varadi. "I enjoy the fight, because I've got the fundamentals to win."
With each CEO seemingly as convinced and resolute as the other that they've got the golden gloves, this fight looks set to last every round to knock-out. Book your seats.
