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Starting an Airline

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Re: Starting an Airline

#51

Post by peckrob »

There's a saying in the airline industry that goes something like this: "What's the fastest way to become a millionaire in the airline industry? Start with a billion dollars."

I don't work in the airlines, but I'm a private pilot with lots of friends and family who do work or have worked in the airlines (and in the aviation industry in general).

Expenses are high and often unpredictable, and profits are low. A lot of airlines operate on incredibly thin margins, where only one problem could push them into bankruptcy. Back in 2008, Frontier Airlines had to go into bankruptcy (and was ultimately acquired by Republic) due to a dispute with its credit card processor. http://en.wikipedia.org/wiki/Frontier_Airlines#Bankruptcy_an...

Competition is also fierce and is almost entirely price-based. While there have been a few attempts at competing on other metrics (there were several attempts to start business-class only airlines in the late 90s and early 2000s) have almost universally failed. In fact, the only one I can think of currently is OpenSkies, and it is backed by a major airline (British Airways).

It's also (as you would expect) a very complex regulatory and legal environment. Simply getting off the ground can take years of work.

I have idly thought about a small airline that would connect a handful of smaller towns across the Southeast that lack affordable or convenient air service to larger airports, where they could interconnect with the majors. But when I even begin to look at the numbers, despite what an exciting idea I think it could be, I know there is no way it would be successful.

Re: Starting an Airline

#52

Post by mseebach »

squidi wrote: post #4

The airline industry has the lowest return on invested capital of any industry: http://centreforaviation.com/images/stories/2013/jul/05/ROIC... This analysis from McKinsey is worth a read: http://www.iata.org/whatwedo/Documents/economics/Profitabili...

The McKinsey reports is summed up in the joke: "How do you make a small fortune in the airline business? You start with a large one."

Re: Starting an Airline

#53

Post by aravenel »

cjrp wrote: post #35
jusben1369 wrote: post #18

Earlier quoted context omitted.

Actually it's commoditization. There is very little differentiation in airline flying - particularly domestic in the US. So they get stuck competing on price. Imagine you're flying from NY or BOS to SFO. You have two choices. Pay around $500 per ticket with some price shopping. Have a horrible experience of cattle herding, no food choices, small seats. Or spend $2500 or something insane for slightly larger seats. Wei…

Do they not do economy plus (or equivalent)? I mostly fly internationally (not a lot of domestic flying in England) and there's usually the option of spending an extra ~£100 on a LHR-EWR return for extra legroom seats. I couldn't justify the jump to Business/First, but £100 over 15hrs of flying is a no-brainer.

Yes, but for many flights, especially international ones, the charge for those seats is not worth it.

I was looking into flights to Japan, and the Premium Economy tickets are literally double the regular economy tickets.

Many domestic flights have Premium Economy for less than double the price, but it's still expensive enough and the benefits not great enough (generally only a couple of inches of legroom--no change in seat width, no better service, etc) to generally not be worth it unless you are flying cross country.

Re: Starting an Airline

#54

Post by ghaff »

bencollier49 wrote: post #41

As a study in starting an airline, Richard Branson's biography is well worth a read.

Another good one is An American saga: Juan Trippe and his Pan Am empire. A decent chunk of the book is essentially the other side of the story that is portrayed in the Aviator (i.e. Trippe trying to get monopoly status for Pan Am's international routes).

Re: Starting an Airline

#55

Post by harlanlewis »

jusben1369 wrote: post #18
leokun wrote: post #12

Earlier quoted context omitted.

It's very strange given how necessary air travel is. It still surprises me how need and margins are inversely related (luxury goods have high margins, commodities low), but it makes sense. It's the price. The price of travel is so high for most consumers that they're going to optimize on price at the sacrifice of everything else. The cost of flying and operating an airline is so expensive that airlines also optimize…

Actually it's commoditization. There is very little differentiation in airline flying - particularly domestic in the US. So they get stuck competing on price. Imagine you're flying from NY or BOS to SFO. You have two choices. Pay around $500 per ticket with some price shopping. Have a horrible experience of cattle herding, no food choices, small seats. Or spend $2500 or something insane for slightly larger seats. Wei…

This is the Virgin America model in some ways, with affordably comfortable seats and a relatively livestock-free experience. But while customers like it[1], they're only just now turning profits after 6 years of building a fleet and routes[2]. Doing something different in the airline industry takes a lot of upfront time and money - and that's just for parts of the flying experience airlines actually have control over. The closest they get to changing the airport experience is better lounges and staff.

1: http://www.dailymail.co.uk/news/article-2329405/Virgin-Ameri... 2: http://www.bizjournals.com/sanfrancisco/news/2013/08/07/eyei...

Re: Starting an Airline

#58

Post by saryant »

lallysingh wrote: post #40
bulte-rs wrote: post #29

Earlier quoted context omitted.

Problem with this is that airplane configurations are not easily changed; and accomodating 3 different sizes of seats with the risk of having to sell bigger seats for lower prices.... is not worth taking for most airlines (especially low-cost carriers)

Looks like a market opportunity for quickly-reconfigurable seats.

It's actually pretty easy for (e.g.) United to add or remove rows of their Economy Plus seating. They can make that change overnight.

When United and Continental merged and began adding E+ to the Continental fleet, most aircraft were completed pretty quickly since that change can be made during overnight maintenance at the hubs.

Re: Starting an Airline

#59

Post by selectodude »

peckrob wrote: post #51

There's a saying in the airline industry that goes something like this: "What's the fastest way to become a millionaire in the airline industry? Start with a billion dollars." I don't work in the airlines, but I'm a private pilot with lots of friends and family who do work or have worked in the airlines (and in the aviation industry in general). Expenses are high and often unpredictable, and profits are low. A lot of…

>In fact, the only one I can think of currently is OpenSkies, and it is backed by a major airline (British Airways).

OpenSkies is three-class service now. And pretty much just boils down to the name of the BA route between NY and Paris-Orly without the need to connect via LHR. Pretty bizarre, if you ask me.

Re: Starting an Airline

#60

Post by ubernostrum »

peckrob wrote: post #51

There's a saying in the airline industry that goes something like this: "What's the fastest way to become a millionaire in the airline industry? Start with a billion dollars." I don't work in the airlines, but I'm a private pilot with lots of friends and family who do work or have worked in the airlines (and in the aviation industry in general). Expenses are high and often unpredictable, and profits are low. A lot of…

While there have been a few attempts at competing on other metrics (there were several attempts to start business-class only airlines in the late 90s and early 2000s)

There are still business-catered offerings, they just tend to be a division of a parent (legacy) carrier. US Airways and Delta's "shuttle" offerings between major business destinations on the east coast stand out as an example.

A couple of the large airlines do still have all-business-class flights, too (BA's oddball little transatlantic A318, to take an example; Singapore's "longest flight in the world", which is about to be discontinued, is another one, using specially configured A340s). It's just that there doesn't seem to be enough demand to sustain an entire airline dedicated to the idea.

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