Aviation Business Models; small fortunes...

There was a time when I thought about owning my own domestic airline but the amount of funds required is quite overwhelming.  In order to become successful in the aviation business industry, you will have to 1^st start off with a large fortune to make a small fortune; which is a phrase commonly used in aviation.  Understanding what it takes to lead an airline to success is very important if you’re planning on succeeding and that it will take a great deal of funds to get it started no matter where or how you start.  Most likely, you will have to perform a written out out business plan.  Unlike successful businesses in aviation, there were some that did not succeed and had to take drastic measures.  Customers are the individuals who keep an airline in business; steady airfares.

Knowing with the big carriers cutting routes and raising fares, this would seem an ideal time for a new airline to take them on with cut-rate prices and service to smaller airports eager for more flights. That is the path, after all, taken by two of the industry’s success stories such as Southwest Airlines, back in 1971, and JetBlue Airways, in 2000.  But getting an airline off the ground has become a lot more treacherous. High oil prices these days mean carriers must fly full planes to turn a profit, and smaller airports just do not provide enough passenger traffic. At the same time, the major domestic carriers are more entrenched than ever in their own hub airports, making it harder for a new entrant to wrangle gates there. With that being said, investors have become more cautious about lending to just any airline project.  With the economy picking up in 2011, the top domestic airlines reported profits of $1.5 billion with revenue of $192 billion; a measly margin of 0.8 percent. Still, their combined market value is smaller than that of Starbucks (Mouawad, 2012). .  Fuel has become one of the biggest barriers to entry into the business, accounting for 35 to 50 percent of costs as prices almost tripled in 10 years.

Airfares; how much it costs to get to your flying destination and what it really pays for? Keep in mind that fuel now is by far the biggest cost for airlines greater than even airline salaries. For example, on a 100-passenger US Airways flight, the tickets and fees of 29 people pay just for the fuel to make the trip. Salaries are the second-highest cost, with 20 passengers covering personnel paychecks. The industry spent more than 34% of its revenue on fuel, it takes the fares of more than one-third of passengers on a flight, on average, to pay for the gas (McCartney, 2012). Airline gas mileage has improved over the years, the result of filling more seats on each flight, replacing multiple trips on small planes with fewer trips on larger aircraft and replacing older planes with newer, more fuel-efficient jets (2012, Russel). After fuel and salaries come ownership costs, planes are being bought or leased. That includes the cost of spare engines and insuring planes in case of accidents. Its hard to believe but that's pretty much sums up the where airfares go towards keeping an airline business flowing along with other sources of income. 
      

Mergers have also created a handful of major carriers that control powerful hub airports in large cities, making it generally tougher for a new airline to break in. According to Mouawad article, The most successful smaller airlines: Spirit Airlines, Allegiant Air, Alaska and Hawaiian Airlines in which were all carved out specific markets in past decades that allowed them to thrive without competing head-to-head with their larger rivals.  In other words, these airlines had somewhat a piece of mind in aviation business and that creating a another small low-carrier airline wouldn't be that much complicated unless competing against major domestic airlines.

 

Starting a successful airline business can be quite overwelming but it can be done.  However, by the economy still underneath financially, it may take longer or be difficult to turn a profit in the industry.   But, I will say that for any airline, I think that customers (passengers) should be the main focus.  They're the ones whole keeps airlines up and running. 

 

 

 

Sources:
 

McCartney, S.  (2012, June).  How airlines spend your airfare.  Retrieved from:  http://online.wsj.com/article/SB10001424052702303296604577450581396602106.html

Mouawad, J. (2012, May). The challenge of starting an airline. Retrieved from: http://www.nytimes.com/2012/05/26/business/start-up-airlines-face-big-obstacles.html?pagewanted=all&_r=0

Russel, M. (2012, July). Where does your airfare go? Retrieved from: http://www.newser.com/story/147687/where-does-your-airfare-go.html
 

Stahler, P.  (2012, May).  The strangle business models of airlines. Retrieved from:  http://blog.business-model-innovation.com/2012/05/strange_business_models_of_airlines/