The airline business is notoriously fickle.
Back in 2007, Warren Buffett, chair of Berkshire Hathaway, said that “if a far-sighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.” About a decade later, he reversed his position and invested heavily in US airlines, only to dump his holdings this April as stocks plummeted amid the COVID-19 pandemic.
Such about-faces are understandable. Despite the difficulties of the airline business — an ongoing boom-bust cycle as demand mirrors the larger economy, intensive regulation, tremendous capital expenses, exposure to volatility in fuel prices, and even financial pain caused by bad weather — airlines can be profitable. With the right business model in the right market, they can prove downright lucrative.
Even today, as the coronavirus pandemic obliterates airline budget sheets and knock carriers into bankruptcy, investors see opportunities. Take David Neeleman, founder of JetBlue and Brazilian carrier Azul, who’s getting ready to start his third airline, Breeze (albeit with a launch date delayed to next year).
Boeing, of course, is all for new airlines who might want to spend a big pile of money on its planes. Which explains why, since 2006, it has run a program aimed at helping new potential customers get off the ground.
StartupBoeing reserves its substantial support for serious enterprises, but it’s not overly discriminating: It puts much of its advice on its website, for free, for anyone looking to get airborne.
So if you see a space in the market for a new airline and you think you have the stomach for one of the world’s toughest industries, here’s what Boeing thinks you — perhaps its next big customer — need to know.
Before anything else, Boeing suggests making sure you know what you’re getting into.
As a first step, Boeing invites prospective airline innovators can reach out to the StartupBoeing team.
Encouraging new airline startups is certainly a self-serving example of working to create your own demand — or in this case, facilitate it — but Boeing is blunt about the challenges.
“Starting an airline is tough. Running a profitable airline is even tougher,” the planemaker says on its website. “Few businesses have as many variables and challenges as airlines.”
The first actual step: market analysis.
Some questions to ask yourself: Why start an airline? Is there a need for another one? What can your airline do that others aren’t doing? What kind of market can it serve?
There’s no point in starting a company if you don’t know where it will slot in among competitors, and who its customers will be. That’s why Boeing suggests studying the commercial aviation market closely before starting to invest.
The company publishes regular, comprehensive reports on commercial market outlook, forecasted air cargo demand, and the outlook of the aircraft financing market (more on that in a bit).
Additionally, there are consultants and agencies around the world which specialize in the commercial aviation market who can help get new airlines off the ground, so to speak.
Next, you’ll need to master the operating environment.
Along with the challenges that come with starting any business, new airlines have a whole set of unique hurdles. For one thing, the rules are many, and unforgiving.
“Startup airlines must be aware of and operate within a framework of regulations, standards and guidelines,” Boeing says on its startup website.
You’ll have to be up to speed on the Freedoms of the Air, a set of regulations dating back to 1944, which dictate where a country’s airlines are allowed to fly or land. Same for ETOPS requirements, a collaborative set of standards that determine how airlines plan routes, are universal.
Safety standards, required training and equipment, labor laws, tax rules, security requirements, fuel and supply procurement, and more, can all vary on the federal, state, or local level. Once you’ve decided on your market, you’ll have to find a way to operate within all of these frameworks.
You have a grasp of the market, you understand the operating environment — now it’s time to create your business plan.
A solid business plan is key to launching any startup. Boeing says it will provide free review services for new airline business plans and financials:
“We offer constructive suggestions, question assumptions, and challenge the entrepreneur to prove the concept just as prospective investors might.”
If you need help getting the initial plan drafted, Boeing says it can recommend advisors around the world.
According to Boeing, the airline business plan should consider the following:
Analysis of the market and competition
Description of the business and opportunity
Details about the operation
Management team biographies
Discussion of risks and obstacles
Pro forma financial statements/projections
The business plan is a success, and you’ve raised the money you need to get started. Now comes the fun part: picking your aircraft.
At this point, you’ll have selected your target markets and frequencies. Based on analyses of air traffic and route/schedule planning, you’re now positioned to pick the airplane type to get started with.
Naturally, Boeing recommends buying Boeing.
If your business plan calls for high capacity or long-range aircraft, Boeing or its European rival Airbus are essentially the only options. Boeing’s smallest current plane, the 737 Max 7, can hold up to 172 people and fly more than 3,800 miles without stopping.
If you’re looking to start with lower capacity or shorter flights, though, you may be better off looking at a planemaker that produces regional jets or propeller planes, such as Embraer, Mitsubishi Regional Jet, or ATR.
For something in-between, you could also look at the unique Airbus A220. The plane, which was first conceived by Canada-based Bombardier before being sold to Airbus, can carry anywhere from 100 to 160 passengers, and fly nearly 3,000 to 3,300 nautical miles.
As part of the aircraft decision, you’ll have to decide whether to buy or lease planes, and whether to get them new or used.
How you source your aircraft can be crucial to your fledgling airline’s long-term success.
Whether to pay outright or finance, buy or lease, likely depends on your initial capital and business plan. If you’re a startup airlines looking to lease, Boeing says it will help you find leasing partners.
Of course, the decision could come down to availability. Planemakers often take orders years in advance, and contractual agreements with top airline and lessor customers often dictate delivery availability for smaller players.
Similarly, a lack of the right type of plane on the used market or from a leasing company could force you to be flexible.
It’s finally time to get airborne — and now the real work begins.
Joey Hadden/Business Insider
You’ve sourced your planes, secured your regulatory approvals, hired your staff, locked down your routes, gates, and landing slots, and sold your seats. It’s finally time for your first flight.
Don’t think you can rest, though. Keeping an airline running — and turning it profitable — is an endless endeavor.
Staying up to speed on market shifts and regulatory changes, managing disruptions to normal service, and simply keeping things running smoothly will be plenty to keep you and your team busy.
So will dealing with your aircraft.
Planes need ongoing inspections and maintenance. Pilots need to continue refreshing their skills on actual planes and in simulators. Flight attendants need their own certifications.
Boeing has an entire division — Boeing Global Services — which brings in billions of dollars each year offering maintenance, data analytics, supply chain resources, and other services to current and former customers. (Airbus and other companies provide similar aftermarket services for aircraft owners, too.)
You’ve brought your imagined airline to life, a tremendous accomplishment by itself. Keeping it going and expanding will be plenty to keep you busy.
Read the original article on Business Insider