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SkyEurope Airlines goes out of business

PRAGUE - After battling steadily waning passenger numbers and a critical lack of cash for most of the past year, SkyEurope Airlines AS, the operating unit of Vienna-listed SkyEurope Holding AG, Tuesda

SkyEurope Airlines goes out of business

PRAGUE – After battling steadily waning passenger numbers and a critical lack of cash for most of the past year, SkyEurope Airlines AS, the operating unit of Vienna-listed SkyEurope Holding AG, Tuesday ceased all operations while the holding company initiated bankruptcy proceedings.

The Bratislava-based airline – the first low-cost carrier in central Europe when it started eight years ago in the run-up to expansion of the European Union in 2004 – canceled all flights from its hubs in Bratislava, Vienna and Prague, leaving passengers stranded across Europe.

It was unclear how many passengers were affected. SkyEurope couldn’t be reached for comment.

A slew of low-fare airlines including easyJet PLC, Ryanair Holdings PLC and Wizz Air PLC Tuesday offered stranded SkyEurope passengers discounted flight tickets.

The discounted tickets followed Czech state-owned airline CSA Czech Airlines and privately held, Prague-based low-cost airline Smart Wings, which both late Monday offered SkyEurope’s passengers alternative flights at discounted prices.

The SkyEurope bankruptcy comes the same day that the International Air Transport Association, or IATA, announced that the airline industry lost more than $6 billion in the first half of the year.

Amid the recession and following a sharp expansion of airlines and routes in central Europe in recent years, it’s unlikely SkyEurope’s competitors will try to take over many SkyEurope routes.

“There’s been surplus capacity in this economic climate, and the airlines that are still around will look to fill seats, but I don’t expect any major changes,” said John Strickland, director at U.K.-based aviation consultancy JLS Consulting Ltd.

The bankruptcy adds to the urgency of the consolidation of Europe’s airlines, analysts said. Last month two Spanish budget carriers finished their tie up, while Deutsche Lufthansa AG is finalizing its acquisition of Austrian Airlines.

The Czech government is also trying to sell its 91.5% stake in Czech Airlines.

SkyEurope was a niche airline with routes that most larger European peers found unattractive, according to Andras Zboray, an aviation consultant in central Europe and former operations director at SkyEurope.

“It is survival of the fittest, so when a weak player drops out, there’s a bit more breathing room for fitter players but not a lot of relief,” he said.

The airline’s failure, which is the first major collapse in Europe this year, will be felt most in Prague, where SkyEurope, with four aircraft, generated more than one-third of the airport’s budget airline net revenue and about 20% of overall flight activity revenue.

Only Budapest-based Wizz Air, which has been increasing its activity in central Europe and recently launched hub operations out of Prague, and SmartWings, both privately held, said they would increase their frequency of flights at the Prague airport as a result of SkyEurope’s failure.

Wizz Air, SmartWings and Ryanair, all of which fly out of Prague, can pick up additional traffic without having to change the shape of their networks, Strickland added.

SkyEurope, which was founded in 2001 and first took to the skies in February, 2002, had never turned a profit and the bankruptcy was long coming, according to industry analysts. In the second fiscal quarter of this year, SkyEurope posted a net loss of EUR18.4 million, following a 2008 net loss of EUR17.2 million.

The airline flew to 33 cities in 16 European countries in a fleet that peaked at 14 jets.

The company was able to raise EUR120 million of equity capital after going public in 2005, and in late July SkyEurope said Austrian group Focus Equity was willing to invest up to EUR16.5 million on the condition of a successful restructuring, which followed a Slovak court granting the airline protection from creditors in June.

However, the cash never appeared because the airline was unable to stay afloat long enough to restructure its business and pay back overdue debts.

The Vienna Stock Exchange stopped all trade of the SkyEurope Holding’s shares Tuesday, which closed Monday worth EUR0.25 each, well below the peak of over EUR6 per share in 2007.

SkyEurope had been denied all services at the Vienna airport earlier this month for failure to pay its bills, and then Prague and Bratislava airports followed suit Monday.

Earlier this summer, airports across Europe held onto SkyEurope’s planes as collateral to force the airline to pay its bills.