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Starting an Airline

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Re: Starting an Airline

#81

Post by smacktoward »

rayiner wrote: post #43
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…

Food is also necessary, but the margins on staple foods are razor thin. It's Econ 101: profits in competitive industries tend towards zero. The only way to make consistent economic profits is to focus on industries where there is (relatively) little competition. One way to do that is ride the wave of a new industry before the competitors have time to pile in. Another is to enter industries where product differentiati…

> wheat is wheat, but an iPhone and an Android phone aren't totally fungible.

You can also use branding-slash-marketing to make your fungible product seem less fungible. Witness, for instance, how cattle ranchers used marketing campaigns to turn "Angus beef" into a premium, name-brand product (http://bbq.about.com/od/beef/a/Angus-Beef.htm) that customers don't believe is directly substitutable with unbranded beef.

Re: Starting an Airline

#82

Post by justinsb »

cjrp wrote: post #77
peckrob wrote: post #69

Earlier quoted context omitted.

> It's just that there doesn't seem to be enough demand to sustain an entire airline dedicated to the idea. Yeah, this is kind of what I meant. The only people capable of doing this are the majors (and then only on a small handful of mostly-Transatlantic routes). Every attempt so far at building a whole airline around the idea of not competing on price has met with failure. And, as a sidenote, I really want to take t…

Interesting thought, could a newcomer have operated the LCY-JFK service with the same level of success? Or does it need BA's brand behind it to even get off the ground. P.S. Happy to see fellow aviation geeks here on HN

It's not just the BA brand though for business flights; it's the "enterprise deals" with the companies that are paying for the seat, the businessperson's preference for earning points they can redeem for a nice holiday, and the onward network for connections.

I'm not sure in the case of LCYJFK the connection network is really a factor, but I think the other two things sunk MaxJet, Eos and Silverjet. (It probably didn't help that they all launched around the same time as well!)

Re: Starting an Airline

#83

Post by marcosdumay »

leokun wrote: post #12
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...

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…

lots people love the air transportation industry. They wouldn't think about working anywherer else... And on the economic sectors that this happen, salaries and ROI tend to be lower than the ones where it does not happen.

Re: Starting an Airline

#84

Post by cjrp »

bulte-rs wrote: post #70
arethuza wrote: post #32

Earlier quoted context omitted.

You don't need to buy planes - leasing is a pretty common option - there are even lease options ("wet leases") that cover the plane, crew, maintenance and insurance: http://en.wikipedia.org/wiki/Aircraft_lease#Wet_lease e.g. EasyJet started with 2 wet leased 737-200s: http://en.wikipedia.org/wiki/EasyJet#Origins

The problem with wet leasing is that it doesn't scale. Try operating an airline with 300 planes under wet-lease and still make a profit.

MVP, if it gains traction you look at longer-term lease/purchase options

Re: Starting an Airline

#85

Post by dekhn »

pkorzeniewski wrote: post #22

It blows my mind how people start such big businesses. You must build an airport, hire stuff, buy planes, meet many legal requirements and so on, all costing tens of millions of dollars, and on top of that, it must be profitable. This gives some insight, but still it's terryfing. I feel so small.

Air travel in the US is a massively subsidized business (the government gives huge amounts of money to Boeing to make next-gen warcraft, then Boeing translates those R&D concepts into airplanes.

The airlines were, for a long time, subsidized by air post. Fuel prices are still much lower than they could be.

These things are barely directly profitable, but they contribute immensely to the global economy. That's the interesting tradeoff in post-capitalism.

Re: Starting an Airline

#86

Post by arethuza »

sharkweek wrote: post #78
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…

I would assume these margins get even thinner and customer service even worse in the future as most people really do just go to a referral site, grab the cheapest flight and call it a day (I mean honestly, where I'm currently at in life, I don't need comfort on a flight, I just need to get from point a to point b as cheaply as possible and I assume this applies to 80% of people flying). I was just on a Frontier fligh…

One solution to the carry on size restrictions: wearable luggage!!

http://www.skyscanner.net/news/best-wearable-luggage-jackets...

Re: Starting an Airline

#87

Post by neurotech1 »

bulte-rs wrote: post #66
lallysingh wrote: post #40

Earlier quoted context omitted.

Looks like a market opportunity for quickly-reconfigurable seats.

If you are able to design one that passes all FAA/EASA/CAA/ certifications, I think ALL airplane builders will hail you as their saviour. Not to mention the airlines ;-)

The seats sit on rails on the floor, so they can be swapped out or repositioned quite easily. Usually the Supplementary Type Certificate for each aircraft plans for this.

Re: Starting an Airline

#88

Post by pionar »

bulte-rs wrote: post #70
arethuza wrote: post #32

Earlier quoted context omitted.

You don't need to buy planes - leasing is a pretty common option - there are even lease options ("wet leases") that cover the plane, crew, maintenance and insurance: http://en.wikipedia.org/wiki/Aircraft_lease#Wet_lease e.g. EasyJet started with 2 wet leased 737-200s: http://en.wikipedia.org/wiki/EasyJet#Origins

The problem with wet leasing is that it doesn't scale. Try operating an airline with 300 planes under wet-lease and still make a profit.

Why does it have to scale? Maybe it's not meant to scale. Not EVERYTHING IN THE WORLD HAS TO SCALE.

Re: Starting an Airline

#89

Post by sliverstorm »

sharkweek wrote: post #78
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…

I would assume these margins get even thinner and customer service even worse in the future as most people really do just go to a referral site, grab the cheapest flight and call it a day (I mean honestly, where I'm currently at in life, I don't need comfort on a flight, I just need to get from point a to point b as cheaply as possible and I assume this applies to 80% of people flying). I was just on a Frontier fligh…

I'm not looking forward to it. Flying has already gotten devilishly uncomfortable (my knees run into the seat in front of me) and while I would pay for a little bit more comfort, I can't figure out whether it's just impossible to find such airlines/seats, or if they just don't exist on the trips I make.
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