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Starting an Airline

boeing.com

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Re: Starting an Airline

#191

Post by jonnathanson »

There's been a big boom in small, regional jet airlines over the last few decades (Low Cost Carriers, or LCCs, sometimes known as Low Cost Regional Carriers). A lot of companies saw what Southwest and JetBlue were doing and figured they could do the same on a smaller scale: control costs by flying limited routes and serving smaller markets, where they could outcompete the bigger carriers on price [1]. Then, if things went well, maybe expand from there.

It's an incredibly crowded field now, and even many of the LCCs themselves collapsed.

[1] It seems a little counterintuitive, but in the airline business, there is almost a reverse economies-of-scale effect. This is because routes can't be flown on demand, but must be scheduled, and so you're maintaining a fixed supply while dealing with variable demand. You don't have a lot of fantastic levers to pull to deal with fluctuations in real time, because you can't redirect inventory (planes, crews, etc.) on demand, and canceling flights causes chain reactions across hubs and spokes.

This is why a lot of the big carriers have been cutting flights and routes like crazy in recent years. Faced with undersupplying or oversupplying the market -- and faced with all their other enormous costs -- they'd rather bet on undersupply. Passengers these days aren't incredibly loyal to any given airline, and they're very price conscious. They won't give you credit for having a bigger network; all they care about is getting from A to B right now, and finding the best price in so doing. So having a bigger network can often be a liability.

Re: Starting an Airline

#192

Post by jellicle »

SoftwareMaven wrote: post #170
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…

Pilot salaries are all based on union contracts. Union contracts are all negotiated by union leaders. Union leaders are all senior pilots. Senior pilots have a strong incentive to negotiate contracts that pay senior pilots the most, even if it is at the expense of new pilots. I know a guy who flies less than 20 hours a month but makes well over $100k/year. He's been a pilot for over 20 years and knows how to work the…

Things I learned from Hacker News: both high and low salaries are all the fault of dastardly "unions".

(Actually, the regional carriers that employ newbie pilots are non-unionized.)

Re: Starting an Airline

#193

Post by armenarmen »

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.

In what country?

Re: Starting an Airline

#194

Post by mpg33 »

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.

I don't you need to build an airport to own an airline...or am I mistaken?

Re: Starting an Airline

#195

Post by selmnoo »

ianstallings wrote: post #134
dictum wrote: post #129

Earlier quoted context omitted.

> 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.

True, but without the risk there would be no job for them to fear losing in the first place. People need to be responsible to themselves first, and a safety net is part of that. I say that knowing I just blew through $20k+ of my own safety net after going jobless for months. It's just business after all. But then again, this is why I have no qualms giving them my upsized salary demands. Because after all, it's just b…

> True, but without the risk there would be no job for them to fear losing in the first place. People need to be responsible to themselves first, and a safety net is part of that.

It bugs me that it's often the poor that want free markets and cheer most for it, and shun co-op stores. The system is betraying them, they should just get away from it and focus on positive systems like co-op self-sustaining communities.

Re: Starting an Airline

#196

Post by [deleted] »

fennecfoxen wrote: post #176
wodow wrote: post #75

Earlier quoted context omitted.

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 Boein…

[deleted]

Re: Starting an Airline

#197

Post by prawn »

heatherph wrote: post #2

This seems like a potentially clever way to grow their customer base.

Surprised that I had to read so far down the comments to find someone who saw how this best applied to HN. Then surprised again that a few of the respondents still missed it when it was explained.

It's someone with a product for sale to a category of businesses, helping people start more of those businesses. Similar approach could be taken by more entrepreneurs, especially those looking for good blog content.

Re: Starting an Airline

#198

Post by [deleted] »

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.

[deleted]

Re: Starting an Airline

#199

Post by fennecfoxen »

[deleted] wrote: post #196
fennecfoxen wrote: post #176

Earlier quoted context omitted.

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 Boein…

[deleted]

> I think that's backwards. A bank is required to hold $100mm cash if it has $1b of demand deposits.

Yes. So it can loan out the other $900 million. Or, if it holds $1,111,111,111.11 it can loan out $1 billion.

> But it can hold all sorts of no-reserve-requirement deposits (like CDs) ... From that it can lend out whatever it wants

Yes, but in either case, it needs to have that $1 billion available to it in order to cut a $1 billion check. In neither case does a bank with only $100 million available get to loan out $1 billion, which is what it sounded like someone was suggesting.

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