Starting an Airline : No Seriously

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Naughty Vend

Naughty Vend

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  • #1
    Let's assume I have some insider information; there's an international airport about to start offering transatlantic flights to La Guardia, new longer trains are about to be unveiled upon an already high-speed link to another international airport as such annexing the port and ownership may change of this port. In an area which already benefits from major tourisim and globally famous golf courses, globally known historical figures including those of repute as well as admiration and to boot they'll be breaking ground on a new oil field relatively soon where the closest land is a remote peninsula and the easiest mode of fast transit will be helicopter.

    If the costs were about £2.5m to get this off the ground (no pun intended) would you still consider diligence worthwhile in knowledge that the B.E.P. on projections are about sixteen months, rolling on to a £0.5m p/a nett profit without further expansion or diversification? There are locals whom could underwrite this and I've spoken to them, just from your first read though I am interested to guage initial reactions...​
     
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    Esk247

  • #5
    Well this is like one of the first posts i made on UKBF about buying a sail training ship that was for sale at around £1.5 million.

    Of course it sounds totally and utterly wacky, like a DWP post, but i had backing for the principle idea behind the project from local businesses, the council were also interested because it would have allowed them to get grant funding for the construction of marina buildings and harbour development projects as well as the fact the ship was already moored in the perfect location for the development work and the owners wanted a quick sale.

    Project never came off in the end, the ship was sold to the French :mad: but we got quite far, despite the obvious 'this is a silly post' remarks, we did hold talks with the owners and we did negotiate a rental agreement for festival events.

    Not sure on airlines but you'll need to talk to people with deep pockets. It's not what you know, it's who you know!

    Edit: if its Scotty land how about Trump?
     
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    leemason

  • #6
    I think it was Richard Branson who, in answer to a question about how to become a millionaire, said "Become a Billionaire and then start an airline".

    Seriously though airlines are a pretty high risk area to invest in. Many long and short haul operators have started and gone bust like Zoom & Highland Express to name just two of the Scots airlines.
     
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    Naughty Vend

    Naughty Vend

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  • #8
    sandiep said:
    And more importantly Globespan, that used to do the Transatlantic stuff from Scotland. However, Globespan didn't go bust because of an unprofitable business, it went bust because of the retention taken by the credit card processing companies. Which in itself is a whole different ballgame.
    Click to expand...

    Aye, but did you not read on into that article that the company retaining the funds was owned by the same people as those whom owned the airline... stank to high heaven that.
     
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    cal900

  • #9
    As someone to takes an interest in this industry, I read today that airlines in profit are only making about 2.5% profit. Its a very sick industry!

    Some of the sharpest operators also involved, expect airlines to run planes on loads of routes at a loss to put you out of biz.

    Add to that new airlines don't have networks so passengers carnt move on to the next destination without changing airline.

    Oh and your carnt even lease a large plane for 2 half million dollars/pounds/euros:|
     
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    Graemem

  • #13
    I'm not sure I get this, are you wanting to fly the route to New York? Or are you just want to set up another airline that'll take advantage of the increase traffic generated by that route?

    Surely if you were going to New York so would the bigger airlines and they would just undercut you until you went bust? If you were going budget/no frills then maybe you could keep a low cost - but then aren't Ryanair planning this, which would probably go from Prestwick (Unless that's the one your talking about, but it sounds more like the east)? So when they start you might lose business to them as well?

    I have no idea how/if it'd work, 2.5million seems a bit low considering the cost of a plane... I'm guessing you just charter someone else's or something? It sounds crazy, but knowing nothing about it I couldn't say that sounds silly or not. I say if you believe it could work, go for it/at least try. Do you believe it will work?
     
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    fisicx

    fisicx

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  • #14
    £2.5 million isn't going to go very far.

    Just getting the lease on the aircraft is going to cost more than that (you are going to need at least 2). You then need to the AOC which requires all sorts of hoops to be jumped through. You need pilots and cabin crew, a maintentance program set up, ground staff, booking/check in services, catering contracts and the license to actually fly the route. This is before you even begin marketing which could eat up that £2.5million on it's own.

    Great idea but the estimated startup costs are way too low and the time needed to put the operation into place could take a year or more.

    PS: Just checked and the cost of an AOC if starting from scratch is now over £50K and takes at least a year.
     
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    oldeagleeye

    oldeagleeye

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  • #19
    I had a member PM me some 6 months back saying that he wanted to start an airline and was looking for 2 million quid. At first I thought it was a big joke too because the guy was only 23 but then he revealed that he worked for an airline broker that rent out aircraft to charter companies and indeed other airlines and I was quite amazed at the deal he could get on a 29 seater executive turbo prop. Perfect it seemed for a feeder airline. He had also already done a deal with a regional airport on landing fees as the airport itself was undergoing refurbishment and looking for new business.

    All in all. The venture was worth a feasibility study. Unfortunately it didn't take long to spot one fundamental flaw in his BP. Strangely enough it wasn't cash-flow or ROI although margins were thin and in negociating a worthwhile 6 months free landing fees at the home airport he also forgot to factor in baggage handling. No matter were were still near enough break even by year 2. An opportunity then perhaps for someone like AS to own a small airline and enjoy his own executive jet for free.. I could see that or one of the merchant banks coming on board. So what went wrong.

    It all boiled down to looking thru the hype and local knowledge. The hype was that the Thames Gateway was the gateway to London. The airport Southend.

    Southend with it's high speed rail links to London. Yea right. It's 50 mins at the best of times. A nightmare in the rush hour with standing room only if your lucky from Wickford into Liverpool St. Going by road is no better. Far worse in fact with the last12 miles into London gridlocked if there is an accident and almost so in the rush hour.

    Who on earth would want to fly from Birmingham then to Southend. Then get a filthy seat in a carriage for another hours journey to London. In fact the route our guy was looking at was in fact Scotland where for the same fare as he would have to charge you can fly to London City airport.

    Nevertheless I persevered and looked at the growing commuter trade twix the southeast and paris. A 29 seater didn't hack it. I tried Jersey knowing that a company called Burstin once had a thriving holiday trade. That had dried up long ago and you could always get a seat on the old mail plane these days. In short a feeder airline wasn't feasible.

    It wasn't all bad news however. This guy could get 70% off the normal charter rates and hire by the day. A nice little earner for corporate charter then but airline - forget it.

    Rob
     
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    BusinessRookie

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  • #21
    oldeagleeye said:
    I had a member PM me some 6 months back saying that he wanted to start an airline and was looking for 2 million quid. At first I thought it was a big joke too because the guy was only 23 but then he revealed that he worked for an airline broker that rent out aircraft to charter companies and indeed other airlines and I was quite amazed at the deal he could get on a 29 seater executive turbo prop. Perfect it seemed for a feeder airline. He had also already done a deal with a regional airport on landing fees as the airport itself was undergoing refurbishment and looking for new business.

    All in all. The venture was worth a feasibility study. Unfortunately it didn't take long to spot one fundamental flaw in his BP. Strangely enough it wasn't cash-flow or ROI although margins were thin and in negociating a worthwhile 6 months free landing fees at the home airport he also forgot to factor in baggage handling. No matter were were still near enough break even by year 2. An opportunity then perhaps for someone like AS to own a small airline and enjoy his own executive jet for free.. I could see that or one of the merchant banks coming on board. So what went wrong.

    It all boiled down to looking thru the hype and local knowledge. The hype was that the Thames Gateway was the gateway to London. The airport Southend.

    Southend with it's high speed rail links to London. Yea right. It's 50 mins at the best of times. A nightmare in the rush hour with standing room only if your lucky from Wickford into Liverpool St. Going by road is no better. Far worse in fact with the last12 miles into London gridlocked if there is an accident and almost so in the rush hour.

    Who on earth would want to fly from Birmingham then to Southend. Then get a filthy seat in a carriage for another hours journey to London. In fact the route our guy was looking at was in fact Scotland where for the same fare as he would have to charge you can fly to London City airport.

    Nevertheless I persevered and looked at the growing commuter trade twix the southeast and paris. A 29 seater didn't hack it. I tried Jersey knowing that a company called Burstin once had a thriving holiday trade. That had dried up long ago and you could always get a seat on the old mail plane these days. In short a feeder airline wasn't feasible.

    It wasn't all bad news however. This guy could get 70% off the normal charter rates and hire by the day. A nice little earner for corporate charter then but airline - forget it.

    Rob
    Click to expand...

    Just wanted to say that your post was really informative Oldeagleeye and that I wish there were more people like you on here :)
     
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    oldeagleeye

    oldeagleeye

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  • #23
    Liybpg said:
    Airline business is a very tough one. I don't think as an industry they have earned anything in the last 20 years (or more). So for ever dollar of profit, there is a dollar of loss.
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    What a lot of nonsense. Ryan Air has been making mega bucks for years . Virgin Air is hugely successful. Even BA is extremely profitable. In 198 profits soraed by over 45% reaching almost £900 Million GBP and that after making allowances for the building of terminal 5.

    Last year the strikes cost BA around £150 Million out of a forecast £500 Million.. That is GDP. In dollars it is almost $1 BILLION USD.

    Yes BA can lose £250 Mille in a year but that is a price a National Airline has to pay to keep the fleet running and it's peanuts over a 7 year cycle.

    It would be interesting to know what business your in Liybbg. Not too dependent on getting the numbers right I hope for your sake.:rolleyes:

    Rob
     
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    Liybpg

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  • #25
    oldeagleeye said:


    What a lot of nonsense. Ryan Air has been making mega bucks for years . Virgin Air is hugely successful. Even BA is extremely profitable. In 198 profits soraed by over 45% reaching almost £900 Million GBP and that after making allowances for the building of terminal 5.

    Last year the strikes cost BA around £150 Million out of a forecast £500 Million.. That is GDP. In dollars it is almost $1 BILLION USD.

    Yes BA can lose £250 Mille in a year but that is a price a National Airline has to pay to keep the fleet running and it's peanuts over a 7 year cycle.

    It would be interesting to know what business your in Liybbg. Not too dependent on getting the numbers right I hope for your sake.:rolleyes:

    Rob
    Click to expand...

    Not in the airline business obviously ) I have read about this somewhere, so cannot confirm exactly. What I meant was essentially that not that airlines don't make profits, but that as an industry they don't make money. So while Ryan Air is making £100m, there's Alitalia which is loosing £500m (don't remember the numbers, but the principle is the same).
     
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    fz04

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  • #29
    Naughty Vend said:
    If the costs were about £2.5m to get this off the ground (no pun intended) would you still consider diligence worthwhile in knowledge that the B.E.P. on projections are about sixteen months, rolling on to a £0.5m p/a nett profit without further expansion or diversification? There are locals whom could underwrite this and I've spoken to them, just from your first read though I am interested to guage initial reactions...​
    Click to expand...

    airline industry is one of the worst performing at the moment

    if you do go ahead and start your airline i would first suggest to contact a well known investment bank who would be able to advise you on your biggest risk which is how to hedge against the fluctuations in oil prices

    unless you have alot of experience in the ariline industry or can raise quite a few million in equity to begin with its not really an industry you want to be in
     
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    oldeagleeye

    oldeagleeye

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  • #30
    The Pines said:
    @ oldeagleeye,

    Just as a matter of interest, where would the £2m investment have been coming from??? (Obviously assuming the figures had worked out a bit better...)
    Click to expand...


    On that the guy was dreaming a bit thinking the need for fancy offices etc. I know Southend airport well. I trained for my PPL there and could have got an office for next to nothing.

    Instead of employing a crew which would have been a major expense we also went back to his employer who gave us a very reasonable all-inclusive price based on flying time by the hours - crew and fuel - insurance included. We could then have got away with about £150K and he had £50K of that cash. I am sure that a deal with an oil company in Scotland would have raised the rest.

    Rob
     
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    Liybpg

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  • #31
    oldeagleeye said:
    Thanks Mike. Gathered that. Chinese perhaps. What the hell has the Yin of BA and Virgin got to do with the Yan of Atlanta or the USA for that matter where there are far too many airlines anyway.

    Anyway.Must remember to add Liybpg to the DWP friendship club.:rolleyes:
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    The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.
    — Warren Buffett, annual letter to Berkshire Hathaway shareholders, February 2008.​
     
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    mike.davis

  • #33
    Liybpg said:
    The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.
    — Warren Buffett, annual letter to Berkshire Hathaway shareholders, February 2008.​
    Click to expand...

    And then he/she resorts to quoting other people when they can't think of anything to say. (not the first time)
     
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    papverpoppies

    papverpoppies

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  • #34
    mike.davis said:
    And then he/she resorts to quoting other people when they can't think of anything to say. (not the first time)
    Click to expand...

    We, the people need airlines, how else are we going to go on those exotic holidays.... Airlines like any other business have to cut their cloth accordingly, and some do go under. But, are we really meant to believe that there is NO profit to be made.

    Airports expanding, airlines buying larger planes, sound to me a like an industry in decline;)

    Sounds like a 'myth' being put around by those who do not want to share the profits to others, outside the club!

    Poppy xx
     
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    Esk247

  • #35
    More interesting than airlines for me is the cruise industry. Kind of off topic but kind of not as it's based around tourism, holidays, transport and travel.

    The amount of cruise ships being built is astronomical imo. These aren't you're old steam puffers, these are the ultimate 3,000 passenger super ships. Huge great monsters they is.

    Take a gander at this beast. Disney Dream. Over 3,500 passenger capacity!

    10 new cruise vessels are due for delivery in 2011, several more are under construction in shipyards in Italy and Germany and thats less than last year due to the global recession.

    How can this be sustainable?? surely you can only fit so many cruise ships in to ports around the world.
     
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    MikeJ

    MikeJ

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  • #36
    Some figures here...

    http://www.iata.org/whatwedo/Documents/economics/Industry-Outlook-Dec-10.pdf

    ... for those that can be bothered to read, rather than just rant. The table at the very end is probably the most interesting.

    Suggests that there's been a significant nett loss by airlines over the last 10 years (about $40 billion I think, but I did that in my head). The last 10 years does start at 2001 though, which is an unfortunate "base" to start a review of airline performance at.
     
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    Liybpg

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  • #38
    MikeJ said:
    Some figures here...

    http://www.iata.org/whatwedo/Documents/economics/Industry-Outlook-Dec-10.pdf

    ... for those that can be bothered to read, rather than just rant. The table at the very end is probably the most interesting.

    Suggests that there's been a significant nett loss by airlines over the last 10 years (about $40 billion I think, but I did that in my head). The last 10 years does start at 2001 though, which is an unfortunate "base" to start a review of airline performance at.
    Click to expand...

    -26.7bn loss according to this info.

    But probably not enough to convince the critics that those figures are indicative. Afterall, it is taken from some sort of a source but not a brilliant brain of theirs.
     
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    Esk247

  • #40
    squeaky bum time

    800px-Allure_of_the_Seas_under_the_Storebaelts_bridge.jpg
     
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