
Starting an Airline  - amerf1
http://www.boeing.com/boeing/commercial/startup/
======
Shenglong
Here's an investment banker joke I've been hearing oddly often recently: "How
do you get a million dollars?" -> "Invest a billion dollars in the airline
industry".

On a more serious note: there's a lot of talk on this page about the finance
and logistics of starting a company like this - but I think the human factor
is also worth mentioning. I fly a moderate amount, and whenever I have an hour
or so to spare on a layover, I try to find interesting people to talk at the
bar. While I've had varying levels of success, last layover at O'Hare, I spoke
to a pilot who had been with a major airline for about a decade.

Having seen "Catch Me If You Can" and surmising that the situation must have
changed, I asked him about his job. That was the most dismal response I've
received from that question. We talked for about half an hour about how
terribly pilots are treated, and how (maybe a bit of an exaggeration) a good
number of beginner pilots for airlines are on food stamps because they're paid
so poorly. I asked about benefits, and his response was, "just about every
benefit you can think of is basically unusable." I asked him why he did it,
and he told me that flying was like a drug.

Pilots are responsible for lives, and I'd feel a lot safer if my pilot was
paid enough to survive. Yet, with dwindling margins and a thriftier consumer
base, it's going to take _a lot_ to disrupt this industry. In reality, I don't
see anything major happening without some drastic innovation that cuts
associated costs significantly in order to build up that margin.

~~~
SoftwareMaven
Pilot salaries are all based on union contracts. Union contracts are all
negotiated by union leaders. Union leaders are all senior pilots. Senior
pilots have a strong incentive to negotiate contracts that pay senior pilots
the most, even if it is at the expense of new pilots.

I know a guy who flies less than 20 hours a month but makes well over
$100k/year. He's been a pilot for over 20 years and knows how to work the
rules so he makes money even when he's not flying (being on standby and such).

~~~
jellicle
Things I learned from Hacker News: both high and low salaries are all the
fault of dastardly "unions".

(Actually, the regional carriers that employ newbie pilots are non-unionized.)

~~~
brightsize
Not just the unions. "Regulations" are at fault too. They're unnecessary and
expensive. The number of airliners that fall out of the sky per year due to
faulty design/construction/maintenance or due to under-
trained/overworked/unfit pilots is something for "The Market" to decide, not
the Gubbmint!

~~~
cloudwalking
It is? Personally, I'll take the more expensive airline ticket if it means my
airline's safety standards aren't weighed against profit margins.

Unfortunately "The Market" optimizes for profit, which is almost never in my
(and the consumers') best interest.

~~~
pieterhg
I think you missed the </sarcasm>

~~~
cloudwalking
I think you're right :|

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peckrob
There's a saying in the airline industry that goes something like this:
"What's the fastest way to become a millionaire in the airline industry? Start
with a billion dollars."

I don't work in the airlines, but I'm a private pilot with lots of friends and
family who do work or have worked in the airlines (and in the aviation
industry in general).

Expenses are high and often unpredictable, and profits are low. A lot of
airlines operate on incredibly thin margins, where only one problem could push
them into bankruptcy. Back in 2008, Frontier Airlines had to go into
bankruptcy (and was ultimately acquired by Republic) due to a dispute with its
credit card processor.
[http://en.wikipedia.org/wiki/Frontier_Airlines#Bankruptcy_an...](http://en.wikipedia.org/wiki/Frontier_Airlines#Bankruptcy_and_acquisition_by_Republic)

Competition is also fierce and is almost entirely price-based. While there
have been a few attempts at competing on other metrics (there were several
attempts to start business-class only airlines in the late 90s and early
2000s) have almost universally failed. In fact, the only one I can think of
currently is OpenSkies, and it is backed by a major airline (British Airways).

It's also (as you would expect) a very complex regulatory and legal
environment. Simply getting off the ground can take years of work.

I have idly thought about a small airline that would connect a handful of
smaller towns across the Southeast that lack affordable or convenient air
service to larger airports, where they could interconnect with the majors. But
when I even begin to look at the numbers, despite what an exciting idea I
think it could be, I know there is no way it would be successful.

~~~
sharkweek
I would assume these margins get even thinner and customer service even worse
in the future as most people really do just go to a referral site, grab the
cheapest flight and call it a day (I mean honestly, where I'm currently at in
life, I don't need comfort on a flight, I just need to get from point a to
point b as cheaply as possible and I assume this applies to 80% of people
flying).

I was just on a Frontier flight a few months ago where nothing but water was
free and they were being EXTREMELY strict about carry on size, which produced
probably a dozen or so more $25 bag checking fees from people boarding. I have
to expect these fees will only continue to grow in order to make up for lost
profits on the original sale

~~~
sliverstorm
I'm not looking forward to it. Flying has already gotten devilishly
uncomfortable (my knees run into the seat in front of me) and while I would
pay for a little bit more comfort, I can't figure out whether it's just
impossible to _find_ such airlines/seats, or if they just don't exist on the
trips I make.

~~~
joonix
Pretty much every airline offers exit row seats for something like $25 more or
an "Economy Plus" that's a step up from economy but far from first class.

------
pkorzeniewski
It blows my mind how people start such big businesses. You must build an
airport, hire stuff, buy planes, meet many legal requirements and so on, all
costing tens of millions of dollars, and on top of that, it must be
profitable. This gives some insight, but still it's terryfing. I feel so
small.

~~~
dekhn
Air travel in the US is a massively subsidized business (the government gives
huge amounts of money to Boeing to make next-gen warcraft, then Boeing
translates those R&D concepts into airplanes.

The airlines were, for a long time, subsidized by air post. Fuel prices are
still much lower than they could be.

These things are _barely_ directly profitable, but they contribute immensely
to the global economy. That's the interesting tradeoff in post-capitalism.

~~~
uuilly
Defense contracts are not subsidies. They are won by competition with the
likes of Lockheed. Most of the money won is spent providing the product or
service. The profit margins on defense contracts are not nearly large enough
to "subsidize" an airline business. Yes, some R&D crosses over but it's no
easy trick. Lockheed does not play in the commercial space at all.

Disclosure: Former Boeing Employee.

~~~
dekhn
I've read enough books about Boeing to say that this is established practice
(IE, the people who ran boeing during the 747 period specifically said this
internally).

Some R&D examples I've seen is the movement of advanced electronics and
structural materials from military craft to commercial craft. Boeing and
AirBus both benefitted tremendously by their military contracts.

------
squidi
The airline industry has the lowest return on invested capital of any
industry:
[http://centreforaviation.com/images/stories/2013/jul/05/ROIC...](http://centreforaviation.com/images/stories/2013/jul/05/ROIC4.PNG)

This analysis from McKinsey is worth a read:
[http://www.iata.org/whatwedo/Documents/economics/Profitabili...](http://www.iata.org/whatwedo/Documents/economics/Profitability-
and-the-air-transport-value-chain-final.pdf)

~~~
leokun
It's very strange given how necessary air travel is. It still surprises me how
need and margins are inversely related (luxury goods have high margins,
commodities low), but it makes sense. It's the price. The price of travel is
so high for most consumers that they're going to optimize on price at the
sacrifice of everything else.

The cost of flying and operating an airline is so expensive that airlines also
optimize on costs and prices.

Virgin stands out as trying to change, that, but otherwise for everything
economy class it's a race to the bottom.

Looking at prices you'd think we value things we need lower than things we
want.

~~~
jusben1369
Actually it's commoditization. There is very little differentiation in airline
flying - particularly domestic in the US. So they get stuck competing on
price. Imagine you're flying from NY or BOS to SFO. You have two choices. Pay
around $500 per ticket with some price shopping. Have a horrible experience of
cattle herding, no food choices, small seats. Or spend $2500 or something
insane for slightly larger seats. Weird how there isn't an option for $500,
$800, $1500 just like there's a Corolla, Camry, Avalon or Lexus. Now, the
airlines will tell you that's because people just care about price and only
price and that's why soon you'll need to drop quarters in to use the bathroom.
But that's just opportunity to me. There are about 800 places you can improve
the flying experience from the minute you hit the curb to bundled in Uber to
and from to wide seats (vs just extra legroom) to food to entertainment to
dedicated standing areas to "kids focused flights" (parents embrace business
travelers avoid) to baggage rules........

~~~
cjrp
Do they not do economy plus (or equivalent)? I mostly fly internationally (not
a lot of domestic flying in England) and there's usually the option of
spending an extra ~£100 on a LHR-EWR return for extra legroom seats. I
couldn't justify the jump to Business/First, but £100 over 15hrs of flying is
a no-brainer.

~~~
aravenel
Yes, but for many flights, especially international ones, the charge for those
seats is not worth it.

I was looking into flights to Japan, and the Premium Economy tickets are
literally double the regular economy tickets.

Many domestic flights have Premium Economy for less than double the price, but
it's still expensive enough and the benefits not great enough (generally only
a couple of inches of legroom--no change in seat width, no better service,
etc) to generally not be worth it unless you are flying cross country.

------
acomjean
Will there be airplane purchases involved?

at least they give a handy price list.

[http://www.boeing.com/assets/pdf/commercial/startup/pdf/busi...](http://www.boeing.com/assets/pdf/commercial/startup/pdf/business/prices.pdf)

These planes aren't cheap. More than a AWS, digital ocean and a linnode
combined!

~~~
mhewett
They don't sell the 757 any more?

~~~
ihsw
757s were discontinued.

[http://www.flightglobal.com/news/articles/sales-drought-
take...](http://www.flightglobal.com/news/articles/sales-drought-
takes-757s-scalp-172670/)

------
ewood
This is very cool. I'm sure I'm not the only one who has fantasized about
starting an airline and doing it 'right' after an annoying flight. Probably
not going to happen but at least I can read about it now.

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johnmurch
Although going big is interesting, I am surprised no one has brought up
[http://www.surfair.com](http://www.surfair.com) when thinking about starting
an airlines. They seem to be doing well and although i do not have a
membership (live on the east cost) I think it would be interesting to do the
same thing from DC to NYC to Boston as I would be down for that!

------
heatherph
This seems like a potentially clever way to grow their customer base.

~~~
eterm
This isn't Boeing starting an airline, it's advice to others starting
airlines.

~~~
chrisseaton
...who would buy airplanes, increasing their customer base.

~~~
mpeg
I know what you mean, but, just to nitpick, most small airlines will lease the
planes

~~~
jacquesm
From people who bought the airplanes...

~~~
jessaustin
Yes, of course, the theory is clear. I still can't help suspecting that this
whole "Startup" organization is a boondoggle so somebody's brother-in-law can
be a VP in charge of something harmless. At Boeing's scale, purchases (or
leases) of new (or at least new enough to affect demand for new) planes by
investors who can't hire their own experienced airline executives will
necessarily be a drop in the bucket.

~~~
notahacker
Experienced airline executives often use outside consultants for specific
areas of expertise, and national governments have a fondness for starting
airlines and purchasing multiple new aircraft. It's probably the only
marketing division of Boeing that turns a profit :)

------
jonnathanson
There's been a big boom in small, regional jet airlines over the last few
decades (Low Cost Carriers, or LCCs, sometimes known as Low Cost Regional
Carriers). A lot of companies saw what Southwest and JetBlue were doing and
figured they could do the same on a smaller scale: control costs by flying
limited routes and serving smaller markets, where they could outcompete the
bigger carriers on price [1]. Then, if things went well, maybe expand from
there.

It's an incredibly crowded field now, and even many of the LCCs themselves
collapsed.

[1] It seems a little counterintuitive, but in the airline business, there is
almost a _reverse_ economies-of-scale effect. This is because routes can't be
flown on demand, but must be scheduled, and so you're maintaining a fixed
supply while dealing with variable demand. You don't have a lot of fantastic
levers to pull to deal with fluctuations in real time, because you can't
redirect inventory (planes, crews, etc.) on demand, and canceling flights
causes chain reactions across hubs and spokes.

This is why a lot of the big carriers have been cutting flights and routes
like crazy in recent years. Faced with undersupplying or oversupplying the
market -- and faced with all their other enormous costs -- they'd rather bet
on undersupply. Passengers these days aren't incredibly loyal to any given
airline, and they're very price conscious. They won't give you credit for
having a bigger network; all they care about is getting from A to B _right
now_ , and finding the best price in so doing. So having a bigger network can
often be a liability.

------
blackaspen
Anything that encourages people to pursue different airline models intrigues
me. Air travel is still the fastest for anything over 500 miles.

------
pbj
There was a fascinating article on HN a few months ago (don't have the link
handy at the moment) about how most major airlines make less than 25 cents
profit on each ticket sold. It's pretty mind blowing when you consider the
entire industry operates on such margins.

------
bencollier49
As a study in starting an airline, Richard Branson's biography is well worth a
read.

~~~
benholmen
Which biography is that? I see a few on Amazon.

~~~
bencollier49
"Losing My Virginity".

~~~
winslow
Hah that is an clever, witty, and awesome title.

------
rivo
My co-founder and I have a combined 20+ years of experience in the airline
software industry. When we set out to start our own business, it was clear
that we were not going to sell to airlines. Too many legacy systems, too much
historically grown cruft, needless complexity, too many individual
requirements but no money to pay for it. Plus they're distributed all over the
world so selling to them is very costly. It's a shame because we would have
had a big head start in terms of domain knowledge.

------
cbr
The problem with starting an airline is that the pilot's union has the
leverage to capture all profits: [http://philip.greenspun.com/flying/unions-
and-airlines](http://philip.greenspun.com/flying/unions-and-airlines)

The key issue is that you don't just need to be certified to fly a 737, you
need to be certified to fly a 737 for a specific airline. This makes strikes
extremely powerful because you can't easily hire replacements.

------
Goosey
One of my favorite childhood games was Aerobiz [1]. Probably not an accurate
simulation of starting an airline, but that is what this submission made me
think of.

[1]
[http://en.wikipedia.org/wiki/Aerobiz](http://en.wikipedia.org/wiki/Aerobiz)

~~~
devd
Another good game - Simutrans -
[http://www.simutrans.com/en/](http://www.simutrans.com/en/)

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cfesta9
Uh, I'm just gonna go find a cash machine.

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ballard
Virgin started with one plane. 1. Uno.

In fact, starting with a fraction of a plane / plane-on-demand would be even
less risk.

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Aloha
I've thought about starting an airline - an all inclusive fare type deal -
also no carry on bags.

~~~
ghaff
Good luck with that :-) Frequent travelers, i.e. the people who airlines
massively depend on for their profits, hate to check luggage.

------
loceng
Smart. Facilitating the process of creating new customers for you.

------
lamby
"Make something people want", they said.

