The key observation is that the airport is built on credit (by the government, not the airline, using bonds), and the airplanes are usually either bought on credit or leased (in which case they are built by the airline on credit). It's an illustration of why banks and bank debt are so important in our economy! This capital-intensive sort of business doesn't happen by an entrepreneur writing a $1 billion check from fu…
Well they do still write $1 billion dollar cheques. Otherwise where did the bank get the billion dollars to lend someone else? :) Edit: I think I need to dial down the subtly of my humour.
Well they do still write $1 billion dollar cheques. Otherwise where did the bank get the billion dollars to lend someone else? :) Edit: I think I need to dial down the subtly of my humour.
The Fed. http://en.wikipedia.org/wiki/Federal_Reserve_System#Monetary...
banks don't normally use the fed discount window to finance ordinary loan activity.
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 int…
... And all of Airbus's blueprints, courtesy of the NSA.
Well, Delta did buy a refinery last year. It was a crazy move but I haven't heard much about how it's going since then.
True. The real winner is Emirates. They refuel when at the hub in the UAE where they get fuel for next to nothing. That is awesome given fuel is the driving cost of most airlines. When Boeing invents a flying fuel barge, expect them to dominate US routes.
It's a government subsidy just like any other. It's a huge one, and many carriers are complaining about it. They argue Emirates should be charged extra fees for their US service because of unfair competition. I think that argument has merit given US carriers have to pay market price plus taxes on their jet fuel.
Emirates gets huge subsidies because its a goal of Dubai to become a world air hub. It certainly makes sense for them given their geographical position but I don't see how US carriers are supposed to compete with that.
I mean, it's hard to say that getting terminal real estate is any easier than building an airport would be :-)
Good point. Which is evidenced by the fact that many airports aren't really 'in' the cities they are named for. Example: Cincinnati's CVG airport is actually in rural Kentucky. Cheaper land.
Not just "cheaper land" - also NIMBY because of the noise.
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…
The big question is if there'll be a backlash to the no-services nickel-and-dime-fees style airline business. I suspect that the U.S. market will continue the race to the bottom, but elsewhere quality will continue to thrive. Scandinavian Airlines' advertising is currently all about: "luggage: free. card fees: zero, online checkin, assigned seating: free, coffee, newspaper: free, breakfast on board: free, canceling f…
I think people are beginning to realize that at the end of the day it costs a certain amount of money to get a plane from A to B and you can pay upfront on BA or have it weaseled out of you on Ryanair. Even Michael O'Leary (Ryanair CEO) is starting to tone it down. E.g. if you paid by card, Ryanair would charge you the card fee not per payment, but per ticket and per leg, so a group of 4, return flights booked together in one payment, would pay 8x the card processing fee. Oh, and there's no way not to pay by card, did I mention? Whereas on BA the card fee is 0, and you can pay cash at the desk if you really want to!
> You must build an airport Most definitely not. You do need to rent or buy space (and ideally slots) at a bunch of airports. You can also lease planes.
You can also be a contract airline that fills up routes for other airlines. Lots of the "operated by xyz airline" on weird routes are run by airlines that nobody has ever heard of outside of that notice on their ticket.
"We're Mesa Airlines, and we're ready to provide you with the nonexistent service you deserve as the bottom-feeding low-budget traveler you are!"
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.
The key observation is that the airport is built on credit (by the government, not the airline, using bonds), and the airplanes are usually either bought on credit or leased (in which case they are built by the airline on credit). It's an illustration of why banks and bank debt are so important in our economy! This capital-intensive sort of business doesn't happen by an entrepreneur writing a $1 billion check from fu…
It's precisely where the idea of a corporation comes in. How can a group of people risk so much? The only way is if it fails they don't go to prison or suffer for the rest of their lives because of that failure. Otherwise it would be very hard to convince people to take such enormous risks.
The main "problem" with capitalistic business is in expectations. People need to realize that every day comes with risk. And only through that risk do we see reward. But the little guy working the line, he just wants a paycheck with no risk. Unfortunately there would be very little reward if that were so.
The key observation is that the airport is built on credit (by the government, not the airline, using bonds), and the airplanes are usually either bought on credit or leased (in which case they are built by the airline on credit). It's an illustration of why banks and bank debt are so important in our economy! This capital-intensive sort of business doesn't happen by an entrepreneur writing a $1 billion check from fu…
It's precisely where the idea of a corporation comes in. How can a group of people risk so much? The only way is if it fails they don't go to prison or suffer for the rest of their lives because of that failure. Otherwise it would be very hard to convince people to take such enormous risks. The main "problem" with capitalistic business is in expectations. People need to realize that every day comes with risk. And onl…
> But the little guy working the line, he just wants a paycheck with no risk. Unfortunately there would be very little reward if that were so.
The little guys working the lines usually don't have safety nets and credentials—inherited money, money from previously founded business, mentors, a reputation, or even supportive relatives—so their fear of failure is somewhat justified.
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.
The key observation is that the airport is built on credit (by the government, not the airline, using bonds), and the airplanes are usually either bought on credit or leased (in which case they are built by the airline on credit). It's an illustration of why banks and bank debt are so important in our economy! This capital-intensive sort of business doesn't happen by an entrepreneur writing a $1 billion check from fu…
> It's an illustration of why banks and bank debt are so important in our economy! This capital-intensive sort of business doesn't happen by an entrepreneur writing a $1 billion check from funds he has on hand.
Aren't you just pushing the "problem" back one step? The entrepreneur writing a $1 billion check from funds he has on hand is now the banker, not the airline guy. Of course, I guess these days you can keep pushing that back until you hit the federal reserve (or other central bank).