VILNIUS, Lithuania—Before its bankruptcy, Small Planet Airlines steadily increased revenue year over year—growing its top line 800% in eight years—from €52 million ($57.9 million) in 2011 to €400 million in 2018. However, on “the profit side, the story was much more volatile,” says former CEO Vytautas Kaikaris.
In 2017 it posted €320 million revenue and €6.2 million EBIT (earnings before Interest and tax), but in posted a loss of €31 million EBIT in the first nine months of 2018, he adds. Since the airline’s collapse, Kaikaris has had time to analyze what went wrong.
In summary, “Small Planet was killed by too much growth,” says Kaikaris, speaking at Aviation Week Network’s MRO Baltics, Eastern Europe and Russia event.
Small Planet — a charter airline serving Europe (Lithuania, Poland, Germany, France and the UK) in the summer and Saudi Arabia, India and Cambodia in the winter — had an opportunity to expand in Germany after airBerlin’s collapse in 2017.
While Small Plant evaluated typical growth constraints such as aircraft, money and crew availability, it did not consider the soft constraints such as whether the core team was engaged, if risk owners are experienced or if the organization is running smoothly, he says. In Small Planet’s case, none of those three “soft factors” were working well. “Overall, the organization was not functioning very smoothly between the different countries,” he says, specifically noting maintenance, which was “very unpredictable.” He adds that he never had a comfortable relationship with maintenance.
He also identified the airline’s business model as being too complex. It operated a number of different air operator certificates, it seasonally migrated its fleet and it created client-tailored charter operations—all while trying to further scale the business. At some point, the business became a monster and “it manages you, instead of you managing it—so you go into firefighting mode,” he says. “If I was ever in the same situation again, I would get the business model right first and then scale it afterward,” says Kaikaris.
Small Plant’s decision to expand into Germany was riddled with problems. One of the biggest, he reflects, was based on its quest to grow fast, as a default. Small Planet wanted to reach €1 billion in revenue by 2025. He compared the situation to a mountain climber who gets part way up a target and is too tired to continue climbing. Yet instead of pausing to catch a breath, he just keeps going. “Intuitively, we felt something wasn’t right but we had a goal and had programmed ourselves that growth was good, so we went for it,” he says.
That decision propelled them further into the German market, which resulted in a €28 million loss in the first three quarters of 2018—€20 million of which accrued from the the Flight Compensation Regulation 261/2004 or EU261, because 6% of Small Planet’s flights from Germany were delayed more than 3 hr. Various factors behind the delays included lack of crew; unavailable aircraft due to AOG (aircraft on ground), late deliveries or unreliable vendors; and a very high aircraft utilization rate, says Kaikaris.
“Failure in Germany became failure of the group because of cross-guarantees: We could not simply ax the German entity without killing the group. This was due to our past decision to issue group guarantees to lessors, because we wanted to grow fast—leasing aircraft for Germany without group guarantees would have been more expensive and therefore slower,” the former CEO notes.
He advises that if your gut instinct says you are rushing a decision, “step back and look for a fresh perspective,” and make sure your desire to grow fast isn’t a default position but a conscious choice.