Start-Up Airline

[akula]

Hello Forum,

This is my first post here. It seems odd that someone would be interested in having a start-up airline in today's airline industry, but the rules of capitalism apply to all industries. The weaker companies go belly-up for new ones to come in.

How does one go off creating an airline?

Let me give you some advice..
As far as aviation goes, one of the most persistent opportunities in this space is the commercialisation of airship technology.

Airships are an extremely effective way to solve many industry problems; including, transport, defence and telecommunications

Unlike airplanes and helos, blimps are able to transport enormous loads to places that are ill-equipped for airstrips...such as offshore oil rigs, urban building projects, or rural mining sites

In essence, if I was gonna make a billion in aviation, I would start a blimp company, that would help in transport, telecommunication and defence matters...because airships are a far more superior way to either provide transportation, air cover or telecommunication connectivity

Read up about this..

[jonathanfigaro]

I suggest reading on how other airlines got started and then follow the unwritten blueprint , they used!

[Manny4life]

Let me say something here, it's no easy thing to start-up airline. I have been researching continuously over the past three months on this idea, drawing the financial plans, which have caused me several headaches, anyway I'm glad I'm gradually rounding it up. My plan is for a VLJ service but also tailored to meet part 121 if need be. To start an airline, if in the U.S, you have to visit your local FSDO and get an information package from them based on if you will be operating a Part 121 (scheduled carriers),or Part 135 (on-demand operations such as Air Taxi and Charter). My best bet for anyone is to use the service of an Aviation consultant and/or Attorney because they are familiar with the industry and that is a great foot in the door, but this guys don't come cheap either. Note the certification process can take up to six months and one year if running smoothly, or longer if not denied because you haven't satifactorily met up the capital requirement (the major one).

The satisfication requirement includes proof of capital for the next 90 days if you operate at loss and there's a whole lot of stringent rules from business plan, types of airplane to be used, maintenance, flight crews and operation, training and development, manuals and record keeping, select routes, destinations, hubs, and then deal with TSA approval for most restricted airports, and whole lot of stuff. I wouldn't be surprised that the entire certification process could be in the low's of six figures. Please do not underestimate the capacity of this project as it is really capital intensive. Trust me with research, you will find out.

After you are done with FAA , you then have to deal with Dept of Transportation (DOT and TSA, which ever comes first) to get approval for your routes and TSA (restricted Airports like DCA- Ronald Reagan National, Washington DC). After all that hassle, then you then deal with your respective airports of destination to get your slot, lease gates and all necessary arrangements.

My suggestion would be for you to lease rather than buy, so that in the case you are not profitable, you are not bound for bankruptcy. If you lease ACMI (Aircraft, Crew, Maintenance, and Insurance), you won't have to bother with all this stuff, it's already take care of, as opposed to purchase, getting insurance can be challenging for a new carrier, and you gonna have more than a hard time proving to FAA you have selected the best crew, trained them, and then give them your maintenance plan and schedule.

Per my calculation, an average low cost airline would have to break-even between 63% - 75% load factor depending on the Cost Available Seat Mile (CASM), which depends on the kind of aircraft used. It is more profitable if it operates less.

For example you buy your said aircraft and the CASM is $0.19 and you have 50 seats on that aircraft, assuming that your destination is 200 miles away, your Available Seat Mile is 200 x 50 = 1,000 ASM's or to find the value for each seat per mile, multiply $0.19 x 200 miles = $38 per seat (excluding landing fees, crew, maintenance and so on). So for a 200 mile trip, each seat will cost you $38.

The next is the Revenue Available Seat Mile, just like the example above, this is the revenue. Per my calculation, if I was to compute all the said expense into per Nautical Miles (NM), it would come up to about 18% to 30% of the CASM (this largely depends how much you pay your crew, airports you operate from and so on), meaning that the average of the both is 24%, so 24% x $0.19 = $0.045, add the total together, and you get $0.24 CASM. Now that you have this figure, we recalculate again; $0.24 x 200 miles = $48 per seat. So with this figure, you can compute your RASM either by guessing or computing it mathematically. Assuming we want to guess, let say we like to make revenues of 40% of our CASM ($0.24), that would be (40% x $0.24) +($0.24) = $0.34 RASM, so to equate it, it would be $0.34 x 200 miles = $68 (per seat/ticket), and you profit per ASM is the difference between Revenue - Cost = $0.34 - $0.24 = $0.10 Well you get the idea of what's going on. But wait, you have to calculate the load factor just in case you are not 100% (which is really hard) and then re-adjust your pricing per seat to balance profit. Also, don't forget to calculate what I call the Break-Even Load Factor (BELF). This helps you determine at what percentage of you load factor will you break-even at the cost of the trip and that depends on your pricing per ticket and amount of seats sold.
CASM = $48, so at 50 seats = $48 x 50 = $2,400 (total trip cost)
RASM = $68, 20 at 50 seats = $68 x 50 = $3,400 (total trip revenue)
Regardless of whether we have a 10%, 30%, 75% or even 100% load factor, we still gonna incur the CASM total trip cost of $2,400.

I divide total trip cost/cost of ticket per seat.Which is
$2,400/$68 = 35.29. You will need 35.29 passengers out of 50 to break even, so lets equate it to percentage; 35.3/50 x100 = 70.6 or 71% load factor.

Another scenario where you decide to increase the price ticket to $75, therefore, $2,400/$75 = 32. You will need 32 passengers to break-even, then equate it to % = 32/50 x 100 = 64% load factor.

Another scenario where you decide to reduce the price ticket to $65, therefore, $2,400/$65 = 36.92. You will need 37 passengers to break even, then equate it to % = 37/50 x 100 = 74% load factor.

I will stop here, but make sure you crunch this numbers really well in excel. If you need some help with the numbers, so long they are not really complex, I can help.

This should explain a little bit, not all (kinda similar to) southwest model and how are able to compete successfully and profitable. All the variable costing per flight is incurred immediately and absorbed and not wait to carry it over, and also use one type of aircraft (B737's), all have almost the same CASM, hence the reason why they are all profitable keeping maintainence and crew and training on same aircraft.

[Iamnotsatisfied]

Seems like someone did their research. Good luck with your venture!

[Manny4life]

Has anyone found numbers associated with the cost of fuel/staff/maintenance/etc? I was having trouble finding exact numbers. I thought of starting an aviation company similar to NetJets - more like a Taxi service for the airline industry. However, I haven't really devoted a ton of time to the idea.

Well you have to, I have some numbers for you, but you have to say what kind of aircraft it is. If its for a VLJ, then you won't have so much problems because most of them offer maintenance programs which is the huge part of compliance, and they can train your pilot(s) for a huge fee, which is really great, and as for fuel, that is really not important. Look at the local FBO which you plan on operating from and their fuel prices are listed there, they are about $5 to $6 a gallon for jet fuel the last time I checked. It's best if you can get more info about the aircraft you want to fly, destination, management, systems and other stuff. You get all this information, everything will go together.

[Bugman]

If you take a loan for an airplane and use your house as collateral, if you can't make the payments they take the airplane and the house. If you owed $250k on the plane and sold the house to cover that(assuming the house is worth $500k) you should still have something left(depending on how fast you had to move the house).

An idea I've been waiting for someone to do is to build a small airstrip downtown(big cities like Dallas and Houston) and offer shuttle service covering a 10 mile radius. Then go out into an undeveloped area way out and build a nice development with big lots and the peace of the country and build an airstrip there as well. Then have several daily flights from the neighborhood to the city for people to work there. I'm not sure if the costs would be doable or not, but it sure sounds catchy if a developer wanted to do it. Naturally, they would be getting top dollar for their houses out there on what would be fairly cheap land.

[ACMAir]

Let me say something here, it's no easy thing to start-up airline. I have been researching continuously over the past three months on this idea, drawing the financial plans, which have caused me several headaches, anyway I'm glad I'm gradually rounding it up. My plan is for a VLJ service but also tailored to meet part 121 if need be. To start an airline, if in the U.S, you have to visit your local FSDO and get an information package from them based on if you will be operating a Part 121 (scheduled carriers),or Part 135 (on-demand operations such as Air Taxi and Charter). My best bet for anyone is to use the service of an Aviation consultant and/or Attorney because they are familiar with the industry and that is a great foot in the door, but this guys don't come cheap either. Note the certification process can take up to six months and one year if running smoothly, or longer if not denied because you haven't satifactorily met up the capital requirement (the major one).

The satisfication requirement includes proof of capital for the next 90 days if you operate at loss and there's a whole lot of stringent rules from business plan, types of airplane to be used, maintenance, flight crews and operation, training and development, manuals and record keeping, select routes, destinations, hubs, and then deal with TSA approval for most restricted airports, and whole lot of stuff. I wouldn't be surprised that the entire certification process could be in the low's of six figures. Please do not underestimate the capacity of this project as it is really capital intensive. Trust me with research, you will find out.

After you are done with FAA , you then have to deal with Dept of Transportation (DOT and TSA, which ever comes first) to get approval for your routes and TSA (restricted Airports like DCA- Ronald Reagan National, Washington DC). After all that hassle, then you then deal with your respective airports of destination to get your slot, lease gates and all necessary arrangements.

My suggestion would be for you to lease rather than buy, so that in the case you are not profitable, you are not bound for bankruptcy. If you lease ACMI (Aircraft, Crew, Maintenance, and Insurance), you won't have to bother with all this stuff, it's already take care of, as opposed to purchase, getting insurance can be challenging for a new carrier, and you gonna have more than a hard time proving to FAA you have selected the best crew, trained them, and then give them your maintenance plan and schedule.

Per my calculation, an average low cost airline would have to break-even between 63% - 75% load factor depending on the Cost Available Seat Mile (CASM), which depends on the kind of aircraft used. It is more profitable if it operates less.

For example you buy your said aircraft and the CASM is $0.19 and you have 50 seats on that aircraft, assuming that your destination is 200 miles away, your Available Seat Mile is 200 x 50 = 1,000 ASM's or to find the value for each seat per mile, multiply $0.19 x 200 miles = $38 per seat (excluding landing fees, crew, maintenance and so on). So for a 200 mile trip, each seat will cost you $38.

The next is the Revenue Available Seat Mile, just like the example above, this is the revenue. Per my calculation, if I was to compute all the said expense into per Nautical Miles (NM), it would come up to about 18% to 30% of the CASM (this largely depends how much you pay your crew, airports you operate from and so on), meaning that the average of the both is 24%, so 24% x $0.19 = $0.045, add the total together, and you get $0.24 CASM. Now that you have this figure, we recalculate again; $0.24 x 200 miles = $48 per seat. So with this figure, you can compute your RASM either by guessing or computing it mathematically. Assuming we want to guess, let say we like to make revenues of 40% of our CASM ($0.24), that would be (40% x $0.24) +($0.24) = $0.34 RASM, so to equate it, it would be $0.34 x 200 miles = $68 (per seat/ticket), and you profit per ASM is the difference between Revenue - Cost = $0.34 - $0.24 = $0.10 Well you get the idea of what's going on. But wait, you have to calculate the load factor just in case you are not 100% (which is really hard) and then re-adjust your pricing per seat to balance profit. Also, don't forget to calculate what I call the Break-Even Load Factor (BELF). This helps you determine at what percentage of you load factor will you break-even at the cost of the trip and that depends on your pricing per ticket and amount of seats sold.
CASM = $48, so at 50 seats = $48 x 50 = $2,400 (total trip cost)
RASM = $68, 20 at 50 seats = $68 x 50 = $3,400 (total trip revenue)
Regardless of whether we have a 10%, 30%, 75% or even 100% load factor, we still gonna incur the CASM total trip cost of $2,400.

I divide total trip cost/cost of ticket per seat.Which is
$2,400/$68 = 35.29. You will need 35.29 passengers out of 50 to break even, so lets equate it to percentage; 35.3/50 x100 = 70.6 or 71% load factor.

Another scenario where you decide to increase the price ticket to $75, therefore, $2,400/$75 = 32. You will need 32 passengers to break-even, then equate it to % = 32/50 x 100 = 64% load factor.

Another scenario where you decide to reduce the price ticket to $65, therefore, $2,400/$65 = 36.92. You will need 37 passengers to break even, then equate it to % = 37/50 x 100 = 74% load factor.

I will stop here, but make sure you crunch this numbers really well in excel. If you need some help with the numbers, so long they are not really complex, I can help.

This should explain a little bit, not all (kinda similar to) southwest model and how are able to compete successfully and profitable. All the variable costing per flight is incurred immediately and absorbed and not wait to carry it over, and also use one type of aircraft (B737's), all have almost the same CASM, hence the reason why they are all profitable keeping maintainence and crew and training on same aircraft.

I have conducted a lot of research in CASM of various different aircraft, operating costs per block hour, and other such variables. A one type fleet is one of the most crucial things in reducing costs but it reduces versatility, except 737s and A32x series, which are both relatively versatile but do not service low demand ports very efficiently. In regards to costs of operating the aircraft, I have crunched some numbers, but the costs and the process required in order to gain certification and be ready to fly remains a blur. I purchased the FAR/AIM manual in 06, but I need to buy the updated one. I am also reading "Airline Marketing and Management" by Stephen Shaw. I have read 3 other books about individual airlines like JetBlue and the no-frill airlines in Europe. My greatest concern is raising the capital necessary for start-up. JetBlue was able to raise over 130 million dollars in fundraising prior to launch. I would definitely like to keep in touch Manny4Life.

[Manny4life]

I have conducted a lot of research in CASM of various different aircraft, operating costs per block hour, and other such variables. A one type fleet is one of the most crucial things in reducing costs but it reduces versatility, except 737s and A32x series, which are both relatively versatile but do not service low demand ports very efficiently. In regards to costs of operating the aircraft, I have crunched some numbers, but the costs and the process required in order to gain certification and be ready to fly remains a blur. I purchased the FAR/AIM manual in 06, but I need to buy the updated one. I am also reading "Airline Marketing and Management" by Stephen Shaw. I have read 3 other books about individual airlines like JetBlue and the no-frill airlines in Europe. My greatest concern is raising the capital necessary for start-up. JetBlue was able to raise over 130 million dollars in fundraising prior to launch. I would definitely like to keep in touch Manny4Life.

Well, I agree with you about the 737's and A32x, but have you considered CRJ's and ERJ's that are within the 50 seater configuration. I read recently that most airlines are dumping their smaller ERJ's fleet for so many reasons, also, their CASM are not that expensive which is great for smaller and thiner routes less than 350NM, at least I recommend the newer model CRJ's.

Again you don't have to start like David Neelman, although he managed an airline that failed, but there was a difference (he had the both the experience and the team), and his model was different from the previous which seemed a little close to perfect. Trying starting on a small scale and then gradually walk your way up the ladder. Investors and VC's in this recession time are quite unlikely to fund any project, not saying that they don't, they do but very rare find them. If you do, you will have to come up with more than a perfect plan and trust me, you better have a tough skin for their criticisms.

Just want to say this, I went to Embry Riddle Aeronautical erau.edu) Daytona beach campus for a program, and you can contact his office and schedule an appointment with Dr. Bijan Vasigh (professor of Airline Economics, Management, Risk and Finance), tell him that he instructed you in EC315 and EC420, Managerial Economics and Economics of Air Transportation, and you could be lucky, he will give you his ideas, opinions and related articles, his very helpful. He might ask you to identify your self (email me and I will give you the research topic I wrote for him about DFW).

The guy is a great source of information, and has written publication, articles, and several airline have consulted him including Delta, AirTran and few others. Tell him that you can't remember the names of other professors but you like to consult them on Airline Marketing and Management. Tell him your name is (email me)and you were there in 2007. Contact Dr Dawna Rhoades (Dept Director for Airline Strategy and Operations). She is a wonderful source also, but very (go figure),although very busy, but you will be opportune to have met with her regarding your proposal. Contact them on first.last name @erau.edu

[ACMAir]

Wow, thank you. These contacts seem excellent. I have considered ERJs and CRJs, but I've heard the CRJs have high CASMs, therefore I was thinking more along the line of Q400s, which have much less operating costs compared to CRJs. The Q400 is selling like hot cakes in this economy, so I don't think any would remain in the used market, if anyone decides to let go of the Q400 like SAS did. I am considering however, the 717, which although was made for very short range flights, has great economic specifications. If I follow a model like Porter, that flies only Q400s in Canada, linking relatively large cities, it might be successful. However, large cities would call for aircraft much larger than a Q400, a 737-800 or A320/321.

Therefore, I think its best to come up with the routes and destinations, in order to find the aircraft that would be most beneficial for the route. I am considering the C-Series, bombardier's commercial jet. Its a wing mounted twin engine, and the project is no where near a success yet. I think they would be pretty desperate for orders, being that only Lufthansa placed orders so far.

[Manny4life]

Wow, thank you. These contacts seem excellent. I have considered ERJs and CRJs, but I've heard the CRJs have high CASMs, therefore I was thinking more along the line of Q400s, which have much less operating costs compared to CRJs. The Q400 is selling like hot cakes in this economy, so I don't think any would remain in the used market, if anyone decides to let go of the Q400 like SAS did. I am considering however, the 717, which although was made for very short range flights, has great economic specifications. If I follow a model like Porter, that flies only Q400s in Canada, linking relatively large cities, it might be successful. However, large cities would call for aircraft much larger than a Q400, a 737-800 or A320/321.

Therefore, I think its best to come up with the routes and destinations, in order to find the aircraft that would be most beneficial for the route. I am considering the C-Series, bombardier's commercial jet. Its a wing mounted twin engine, and the project is no where near a success yet. I think they would be pretty desperate for orders, being that only Lufthansa placed orders so far.

There are specifications you should consider in the selection of an airplane

1. Range and performance
2. Operational and airline economics
3. Interior (comfort), Crew Training, maintenance and so forth
4. Several other factors play their own roles.

The CRJ's have a CASM of bout $0.24 which is quite high though as compared to the Boeing 737's of $0.19, that's a difference of $0.05, but other direct cost associated with it is very low, therefore compensating for the difference. Yes for the C-series, on the Bombardier webpage, if am correct, they are due for certification 2012 for dated entry in 2013, but I could be wrong though. The only reason they haven't had much success is because the airplane is still in its early stages of concept. So what are your plans in terms of routes, hubs, and so on? Are you planning something more direct or hub/spoke system? I mean what extent of work have you done already?

[Manny4life]

The Q400 seem like a very good fit mostly for short trips of no less than an hour at most because most passengers have problems with propeller noise even though it's has reduced standards. Do you know what the CASM is? Remember you decide what to include in your CASM, most airline compute their CASM on several factors some include the direct, indirect and fixed operating cost by allocation basis.

[ACMAir]

Although I appreciate the Southwest Airlines business model, I was thinking more along the lines of a hub and spoke system, being that its most efficient. I am currently disputing which airport to hub in, somewhere without much competition for gates, but still with enough passenger traffic. I was thinking of St. Louis Lambert International Airport, but I haven't done much research on their PFCs and other fees. If I do chose STL I would not go with the Q400, because of its location. The large markets are relatively distant from the airport, and like you mentioned, using the Q400 to its maximum range, would provide passengers with discomfort. I am flying both an ERJ145 and Q400 this summer. This way i can test out the comfort of both, and see what the benefits and disadvantages of both are from a passengers perspective. However, If i do choose STL, I'd probably go with the A32X series or 737. The CASM of a Q400 is not stated on their site, but this link gives the Q400 in perspective with regional jets. Q400.COM - Turbo Profits

[Manny4life]

I would have attached a spreadsheet with their website links but its not accepting excel as an attachment. I will try exporting it to Word, and you should be able to get their contact info and their phone number and if lucky, they would list their PFC's on the webpage. Do you plan on short or long haul flights, because in my own opinion, I don't think for a flight less than an hour, I like to travel hub to hub. Hub and spoke good for long haul, but I did not understand exactly what you meant by most efficient?

[ACMAir]

Not long ago I created my route map, and its based on a hub and spoke system that connects both the west and the east of the US. I agree, short flights using the hub and spoke system would be irritating, but for flights across the country, like LAX to LGA, a stop in STL would be efficient to allow someone from LAX to go to LGA, BOS, ATL, or any other eastern city in this case, instead of having a separate LAX-LGA, LAX-BOS, LAX-ATL flights running with less passengers. This would help ensure the LAX-STL flight would be full. That's what I meant by more efficient. The only reason I keep going back to the idea of regional flights is the fact that many cities are losing service. These smaller cities are now underserved, and a new airline similar to Allegiant can service these markets well, by using a hub, like Allegiant's use of LAS. Plus the prices on most high profile flights are in intense competition and in my opinion, price lock. These markets are more for marketing and name recognition than true profits, right?

[Manny4life]

Not long ago I created my route map, and its based on a hub and spoke system that connects both the west and the east of the US. I agree, short flights using the hub and spoke system would be irritating, but for flights across the country, like LAX to LGA, a stop in STL would be efficient to allow someone from LAX to go to LGA, BOS, ATL, or any other eastern city in this case, instead of having a separate LAX-LGA, LAX-BOS, LAX-ATL flights running with less passengers. This would help ensure the LAX-STL flight would be full. That's what I meant by more efficient. The only reason I keep going back to the idea of regional flights is the fact that many cities are losing service. These smaller cities are now underserved, and a new airline similar to Allegiant can service these markets well, by using a hub, like Allegiant's use of LAS. Plus the prices on most high profile flights are in intense competition and in my opinion, price lock. These markets are more for marketing and name recognition than true profits, right?

Wow, you realize that ATL, is the largest airport, LAX third, BOS no 18, and LGA no 20. This are major airports and obviously their PFC's would be higher and tightly slot controlled. I was looking at Port Authority for New York sometimes last week, they manage JFK, LGA and EWR, but I looked at LGA, their's is the max $4.50 and its on page 7/8. Also, BOS Logan International PFC is $4.50. I would imagine all major airports to have the max of $4.50. You are in for a fierce competition. So what differentiates you from the majors?