Setting up and running an airline is no easy task. Even harder is to set up and run a profitable airline. Only those with business acumen, industry knowledge, and long-term vision will stand a chance of surviving in this incredibly competitive environment. Here’s a brief look into some of the planning that goes into setting up an airline.
Analyzing the market
Finding a niche to occupy is crucial for any airline startup. Incumbent airlines will already be well established at major airports and will monopolize key routes. For this reason, it can be challenging to get well-timed slots and could be unviable to attempt to compete on popular routes.
A far better strategy would be to occupy space at an underutilized airport and to offer regional point to point connections to destinations otherwise unserved. airBaltic is an excellent example of how this has been done, beginning in Riga and now expanding out to other airports in the region, bringing connectivity to cities previously ignored by other carriers.
While conducting this analysis, it’s essential to think about who will use the service and to pitch the product accordingly. Using airBaltic as an example again, the airline has firmly established a hybrid product, where fares remain competitively low but with perks not often seen on traditional low-cost carriers.
Cutting the red tape
Once a niche is found, airlines will need to get all the right permissions in place in order to operate the routes they want to fill. This means obtaining slots at both departure and destination airports, as well as having the right certification from the relevant aviation authorities to fly in that airspace.
They’ll need to decide how to form the company legally. It could be a partnership, a limited liability company, a corporation… the way it is owned, funded and operated will inform this decision process. It will also need to secure the right insurance, contracts, policies, and legal documents to begin operation. In the US, for instance, airlines need a wealth of legal documents, including (but not limited to):
- Business plan
- Employment agreements
- Operating agreements
- Insurance policies
- Certificate of incorporation
- Part 121 Certification
There are many more documents that are legally required, and then, of course, there are some that are not a requirement but are good to have. Things like IATA certification, NBAA Certified Aviation Manager and others are not required to begin an airline, but certainly show a level of dedication that will instill confidence and demonstrate an understanding of best practice.
Choosing the planes and people
Funding is going to be the next challenge. Airlines can choose to buy or lease aircraft, and for a startup, leasing is usually the best means of entry. It removes the barrier of having millions of dollars in liquidity to begin and allows them to access aircraft faster than by joining the manufacturer’s queue for a brand-new model.
Aircraft range in size from tiny six to ten-seater commuter planes all the way up to the behemoth A380, seating hundreds of passengers. While most startup airlines would shy away from investing in a huge international plane, given the right business model, it could work. Virgin Atlantic, for instance, began life with just one Boeing 747.
However, most startups will be looking for something smaller and less expensive to own and operate. The popular A320 and Boeing 737 families have proven their worth but are not always the go-to choice for every type of business model.
On shorter, regional routes, turboprops such as the Dash-8 and ATR-72 can offer better economics in terms of fuel burn and maintenance. Longer route plans could consider regional jets from the likes of Embraer and Bombardier (now the A220).
Then, of course, there’s the wide variety of employees and professionals an airline needs around it to survive. These range from flight crew to avionics engineers to gate agents to baggage handlers. In many situations, contracts can be set up with other organizations to provide these services, but the airline will need to assess which is the most cost-efficient means of getting the job done.
Running a profitable operation
With all this in place, it’s time for the airline to fly. But that’s just the start of all the other challenges facing a new airline in today’s world. From marketing to pricing, frequent flier perks to brand identity, there’s a wealth of other issues to confront to get people into the planes.
Longer-term, the airline will need to solid business plan for expansion, to ensure it remains competitive and to prevent a larger or more established player from muscling them out of the market. Contingency planning for unexpected events such as bad weather and aircraft breakdowns will also be necessary to avoid loss of customer confidence.
Overall, setting up an airline is not for the faint-hearted. When you begin to see the extent of the planning and preparation involved in setting up an airline, it comes as no surprise that so many airline startups experience delays to entry, and so many fail within a few years of starting.
Would you start an airline? Let us know in the comments.