Another case of too much optimism and not enough cash

JetGreen is the third airline operating in Ireland to go out of business since the start of the year.

The company has given no reason why it ceased trading but it would appear to have suffered from the same malaise as JetMagic, which closed its doors in January, and the Edinburgh-based carrier, Duo, which collapsed earlier this month - too much optimism and not enough cash.

This problem is not unique to Ireland, or even Europe, and is a fixture of the US market where the low-cost airline model originated.

It reflects the relative ease with which a low-cost airline can be set up.

The barriers to entry are very low. Aircraft can be leased cheaply and overheads kept to a minimum by going down the Web-based booking route.

It is not even necessary to actually be licensed to operate as an airline, as JetGreen - which was in effect a tour operator - demonstrated.

The other factor that lies behind the plethora of low-cost airlines springing up across Europe is the enthusiasm of venture capital companies and other investors for the concept.

Everybody wants to own the next Ryanair or easyJet.

It is estimated that there are around 50 low-cost operators in Europe at present.

Some are the genuine article, others are re-branded charter airlines and yet more are established players like Aer Lingus that have met the low-cost challenge full on.

It amounts to an ultra competitive marketplace in which the low-cost start-ups are forced to offer unsustainable prices to passengers.

In the case of JetGreen, it was up against both Ryanair and Aer Lingus which offered low-cost seats to Malaga and Alicante, as well as its proposed routes to Rome, Nice and Faro.

And, unlike the vast majority of European airlines, both of its rivals are strongly profitable and in a position to sustain a price war.

The sums clearly did not add up and JetGreen's backers cut their losses.

The general consensus is that only a handful of the current low- cost players have a long future, and only Ryanair and easyJet are seen to be across the threshold.

But new entrants can be expected to continue to enter - and exit - the market at pace.

This will continue to be a boon for the travelling public, but it will also have its downside as the passengers stranded by Duo and JetGreen will testify.

Apart from the general problems this raises for regulators, the mechanism used by JetGreen to enter the market also needs to be examined.

JetGreen was licensed as a tour operator, with the flights actually being flown by Luftleidir Icelandic, part of Icelandair.

This enabled it to sell tickets - some 40,000 - even though Luftleidir had not secured the slots necessary to fly the routes as scheduled.

The numerous connections between JetGreen and another collapsed airline, Freshaer, also flag another issue.

Freshaer collapsed last summer after it emerged that it was not correctly licensed and that its chief executive Mr John Lepp had a conviction in the UK for fraud.

Some of the individuals involved in Freshaer - including financial backers - were also involved in JetGreen.