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Starting an Airline

boeing.com

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Re: Starting an Airline

#171

Post by samstave »

rayiner wrote: post #34
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.

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…

I think this illustrates why banking/money should be the most heavily guarded, regulated and most aggressively prosecuted industry there is.

Fraudulent activity by the banks should be the corporate equivalent of a capital crime.

Every major banker should be held personally accountable to the actions of the banks they lead.

Re: Starting an Airline

#172

Post by ianstallings »

rayiner wrote: post #163
ianstallings wrote: post #154

Earlier quoted context omitted.

Well if you can show one example where rewards come without risk I'll gladly cede my position. I just haven't experienced it myself in my life. I guess someone giving me a gift is risk free. But I wouldn't call that a reward.

Sure. Say you're a bright young Harvard business school graduate. You might choose to either found a start-up, or go to a VC firm and help fund start-ups. The latter path is much lower risk (because you're not risking your own money, but rather that of the limited partners), but statistically you'll also probably come out ahead, financially, going that route. Or to pose another example, starting a restaurant is proba…

But both paths come with risk. Riskier doesn't always mean more reward, but no risk at all does mean no reward. That's all I really meant. Risk is of course relevant to each of us and we all define it differently, but everyone entertains some form of risk in their lives in order to just eat and keep a roof over our heads. It's worth it :D

Re: Starting an Airline

#173

Post by ianstallings »

tikhonj wrote: post #162
ianstallings wrote: post #154

Earlier quoted context omitted.

Well if you can show one example where rewards come without risk I'll gladly cede my position. I just haven't experienced it myself in my life. I guess someone giving me a gift is risk free. But I wouldn't call that a reward.

Reward without risk is the usual definition of arbitrage. Some people make good money that way. Of course, you can construe any activity to have some risk. After all, there's always the possibility that your currency collapses, or something. However, ignoring that sort of possibility, risk is not necessary to make money in a capitalist system.

Hrm, a valid point and I would add that the risk in arbitrage is so very low because they basically only face systemic risk. Risk of financial crisis, etc. I never really thought about that until now.

Re: Starting an Airline

#174

Post by notahacker »

csomar wrote: post #110
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.

Not really. A new airline just started in my town and there is no need to build an airport or buy planes. The total startup capital, if I remember was around $3 million and then they raised double that a year later on the stock market. They are not profitable yet but they are pretty competitive with the old/only airline in the country.

That $3 million doesn't get you much of an airline without some guarantee of profits on the route you're looking to operate though - leasing a 15 year old 737-800 for a year would use up most of that money before you'd even considered getting it off the ground.

Re: Starting an Airline

#175

Post by notahacker »

Aqua_Geek wrote: post #79
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 know there is no way it would be successful. Here’s an interesting article on a new airline that seems to be doing pretty well: http://www.bbc.co.uk/news/business-23959197 . Granted, it’s a very different kind of airline that Flohr is creating.

Making a profit in business aviation like VistaJet is trying to do is potentially even harder than making a profit in the airline industry though...

Re: Starting an Airline

#176

Post by fennecfoxen »

wodow wrote: post #75
3pt14159 wrote: post #72

Earlier quoted context omitted.

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.

A bank doesn't necessarily need a billion dollars to lend a billion dollars...

Yes it does. A bank needs $1.1 billion to lend $1 billion, or they're out of compliance with Federal Reserve regulations.

The interesting part is that once they lend the $1 billion, and it's spent on aircraft (etc) and ends up in the bank accounts of Boeing and its contractors and its employees and the raw materials companies... then there's $1.1 billion in the original bank's accounts and $1 billion in all the Boeing accounts and there you go, they've turned $1.1 billion into $2.1 billion. And Boeing-etc's banks' can loan out up to about $909 million with it, and so on and so forth. Which may be what you're thinking of.

Now, the bank can borrow some or all of that $1.1 billion. And sometimes they can borrow that from the Fed. But the Fed isn't too big on that, and in non-2008esque-crisis situations tries to discourage it.

Re: Starting an Airline

#177

Post by j2d3 »

Shenglong wrote: post #142

Here's an investment banker joke I've been hearing oddly often recently: "How do you get a million dollars?" -> "Invest a billion dollars in the airline industry". On a more serious note: there's a lot of talk on this page about the finance and logistics of starting a company like this - but I think the human factor is also worth mentioning. I fly a moderate amount, and whenever I have an hour or so to spare on a lay…

Robot pilots.

Like this: http://www.dailymail.co.uk/sciencetech/article-2324358/Welco...

Re: Starting an Airline

#178

Post by fennecfoxen »

delluminatus wrote: post #138
baddox wrote: post #130

Earlier quoted context omitted.

> 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 pu…

Not exactly, because bankers aren't required to have monetary reserves equal to their loan amount. So a bank can "loan" an entrepreneur $1B of which the bank only physically possesses, say, $100 million. This is what is meant by banks "creating" money -- the bank just created $900 million.

You're a little off. The bank can in fact loan $1 billion and only keep $100 million around on hand afterward. And the $1 billion of the loan is, in fact, new money in the economy that didn't exist before.

But the bank still needs to have the $1.1 billion on hand first, so that it can have that $100 million after the billion-dollar check goes out.

Re: Starting an Airline

#179

Post by csomar »

notahacker wrote: post #174
csomar wrote: post #110

Earlier quoted context omitted.

Not really. A new airline just started in my town and there is no need to build an airport or buy planes. The total startup capital, if I remember was around $3 million and then they raised double that a year later on the stock market. They are not profitable yet but they are pretty competitive with the old/only airline in the country.

That $3 million doesn't get you much of an airline without some guarantee of profits on the route you're looking to operate though - leasing a 15 year old 737-800 for a year would use up most of that money before you'd even considered getting it off the ground.

Lately, they leased an Airbus A330 for $30k/day (that is $11m). They are also leasing multiple other planes. I guess it's manageable since they are making money from tickets.

I forgot to mention that they enjoy no competition in my town (basically they revived the town small airport) but not much on the rest of the country (being sabotaged by the national airline)

Re: Starting an Airline

#180

Post by elorant »

Shenglong wrote: post #142

Here's an investment banker joke I've been hearing oddly often recently: "How do you get a million dollars?" -> "Invest a billion dollars in the airline industry". On a more serious note: there's a lot of talk on this page about the finance and logistics of starting a company like this - but I think the human factor is also worth mentioning. I fly a moderate amount, and whenever I have an hour or so to spare on a lay…

That was a line said once by Richard Branson when he was asked how to become a millionaire: “Start as a billionaire and then buy an airline.”
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