Starting up an airline?

Some days ago I came across a post in the blog of Randy Tinseth, VP Marketing  for Boeing Commercial Airplanes, where he explains the concept of StartupBoeing and invites entrepreneurs to take up the opportunity. StartupBoeing is a website which offers information to entrepreneurs in order to help them build their business plan or run their operations. As it is stated in the web itself:

“The StartupBoeing team assists entrepreneurs in launching new airlines. From concept through launch, StartupBoeing offers guidance, review, analysis, data, resources, contacts, and referrals to qualified startup airlines.”

The first thing I thought was “yes, there is the opportunity to lose your investment”. To be fair, Tinseth points at different moments the difficulty of the business and that it is tough to start-up an airline. Airbus does also have the same concept available to entrepreneurs, in this case is called: Start Me Up.

I looked for the last industry outlook from the International Air Transport Association (IATA), the industry association. The figures are appalling (see the table below):

IATA Financial results of the last decade.

Airlines around the world have lost during the last decade 50 billion dollars, with only 2 out of ten years with profits. On average the net profit, loss in this case, was -1.4% of the revenues (over 4 trillion dollars in the decade). Of course, there are airlines making profits, but the industry is not doing well (just remember the last achievements of G. Díaz Ferrán).

I then remembered this other comment from Warren Buffet about the airline industry since its inception:

“I made the comment that if a capitalist had been present at Kittyhawk back in the early 1900s, he should have shot Orville Wright. He would have saved his progeny money.

But seriously, the airline business has been extraordinary. It has eaten up capital over the past century like almost no other business because people seem to keep coming back to it and putting fresh money in.

You’ve got huge fixed costs, you’ve got strong labour unions and you’ve got commodity pricing. That is not a great recipe for success.

I have an 800 (free call) number now that I call if I get the urge to buy an airline stock. I call at two in the morning and I say: “My name is Warren and I’m an aeroholic.” And then they talk me down.”

So, yes, if you are considering whether to start-up an airline, do yourself a favour: call that 800 number, and put your cash somewhere else where it returns more than -1.4%…

The one thing we should definitely praise from these initiatives is the information resources available to the general public, something commented by readers of Randy’s blog and a purpose expressed in the Startup website as well:

“StartupBoeing.com also has a wider purpose as a resource to pass on information to our customers – and also as a resource for existing airlines, financial institutions, consultants and the leasing community. It’s a place for neutral industry data. We want to help make the industry healthy and make airlines safe, reliable and profitable.”

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1 Comment

Filed under Aerospace & Defence, Investing, Marketing

One response to “Starting up an airline?

  1. Lucki

    Very good piece! I wonder, if the airlines are making losses, then why is it so expensive to fly to Madrid?

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