Start-Up Airline Guide
Start-Up Airline Guide
Start-Up Airline Guide
FOR BEGINNERS
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Produced by
TABLE OF CONTENTS
INTRODUCTION .2
WHAT TYPE OF AIRLINE? 3
SELECTING THE RIGHT AIRCRAFT .8
SALES & MARKETING 10
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INTRODUCTION
This guide has been made for those who are thinking about starting an airline.
Especially for those with no or limited knowledge in aviation. I have seen many
airline start-up projects came and gone. Most of them did not take off and ended
up as paper airlines.
This guide provides vital information for the readers to avoid mistakes and plan
properly. Perceptions, misunderstandings, the usual mistakes made by previous
start-up cases are also explained for better understanding.
This is a rough guide with the main issues covered therefore please do not
consider it as a complete guide. Certain issues require in-depth knowledge and
experience to understand and they are available from aviation experts in each
sector. Proper consultation and/or search of information shall be required to
know more about particular issue in details.
Starting an airline is one step but to make it successful is another. Plans and
reality often do not match therefore be careful, market study should be taken
into consideration.
Financing is also a major hurdle and it is often the sole reason why many startup airline projects ended up as paper airlines only. Amount of funding needed
for an airline varies depending on country and regulations. Understanding of
regulatory issues is an important factor as financial fitness is a major issue in
USA, EU, etc. This is for the protection of the travelling public however often the
cost of meeting schemes to protect the travelling public forces start-up airlines
to have far more than originally estimated cost value. Contacting local civil
aviation authorities or relevant bodies shall help you to find such information
therefore it should not be missed at the planning stage.
You may contact the author if you need any information or clarification. Limited
free consultations shall be provided.
September 2015
James Stewart Kim
Group Managing Director
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E-mail : [email protected]
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Here is a chart that may help you to decide your model of an airline if you are
going to operate turbo prop or small jet aircraft. The model of an airline should
be decided based on market study, potentials and the logic of the travelling
public not just following trend or LCC may give better reception by the
Full service carrier model would work if your capital is limited without having
near future investors or backing from financial institutions. It is all depends on
the routes you are going to operate. Proper market study is necessary to decide.
You dont need to aim to be a LCC if routes you are going to operate is a near
monopolised routes or mainly business traffic based or competition limited
niche routes. Proper market study shall reveal chances of success. It is advised
to avoid consideration of LCC if you are going to operate turbo props or small jet
aircraft.
travelling public. Please keep in mind LCC model does not always work on all
circumstances of operations.
MARKET CONDITION
There is no other
operator operating the
route(s)
you
are
planning to operate.
TYPE RECOMMENDED
FULL SERVICE
There is a competitor
but it operates once a
day or a few flights per
week with a large jet
aircraft.
FULL SERVICE
FULL SERVICE
REMARKS
You will be the sole
operator without any
competitor on the
routes therefore you
dont need to bleed
yourself by offering LCC
type fares
If
competitor
is
operating a large jet
with once a day
frequency, twice a day
(morning and evening)
would be able to attract
passengers.
Business
passengers
fares are usually paid by
their employers and a
good timetable would
attract passengers so no
necessity for cut throat
fare offerings.
Full service carrier model shall be suitable if your planned routes are business
traveller demand based or you have products which are better than competitors.
This guide is aimed for worldwide readers therefore it covers all the possible
scenarios.
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Most people think LCC model we know of would work everywhere. Selling low
fares and generate auxiliary revenues for profits. But it is not true. Think about
JetStar Japan and AirAsia Japan. Despite their great success elsewhere they
couldnt be successful in Japan. There are many reasons including Tokyo Narita
airports night flight curfew which affected LCC models advantage of early
morning and late night flights (JetStar Japan case) and cultural, business system
Cultural Considerations?
(Japans travel industry is still heavily relied upon ticketing through travel
agents).
Look at the LCCs of South Korea. Although they promote themselves as LCCs
they are more like hybrid concept. Under 1 hour flying time based domestic
flights are offered with free water, coffee, soft drinks. Snacks, meals are offered
on international flights. Often their fares are lower than Korean Air and Asiana
Airlines but higher or similar to foreign full service carriers serving South Korea.
It can be seen that Korean passengers using those Korean LCCs are paying for
Korean language service premium. Paying for food, drinks is not acceptable for
Korean passengers travelling by air so implementing European & American LCC
model is difficult and would not work well. That is the reason why they provide
in-flight services without charging for them. This makes Korean LCC model Low
Fares Carrier model compare to legacy full carrier model but more like the full
service model with lower fares.
Lets look at other parts of the world. There are not many people with credit and
debit cards in South East Asia or the Indian sub-continent countries. Particularly
credit and debit cards for international use are limited in certain countries with
foreign currency control but with high passenger demands. FlyDubai has
established service centres (mostly run by local travel agents) for payments in
local currency where local people can visit to make bookings and payments. In
Thailand, Malaysia and other parts of South East Asia, LCCs teamed up with local
banks, convenient stores, travel agents, etc to provide payment services. Some
carriers offer web site bookings with payment through local channels.
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It is important to remember that standard LCC model does not work everywhere.
Cultural considerations, local business practices, regulations should be counted
toward to business model of your airline otherwise achieving success would be
very difficult.
European, American LCC models which we are familiar with are mostly internet
based bookings and payments by credit and debit cards. Booking through call
centres make it more expensive by charging service fees. Different parts of the
world have necessities for unusual elements of service to grab passengers. India,
Pakistan, Bangladesh, etc are large markets for Middle Eastern based LCCs such
as FlyDubai, Air Arabia. To tap those markets with limited availability of credit
and debit cards among populations and foreign currency control, the only logical
solution was doing business with local travel agents.
You should choose the right model for the right market segment. You should not
try to make your planned carrier a LCC unless you have sufficient financial
capability to expand. Success of LCC model is simply VOLUME. If you cant
generate volume, you cant be successful with LCC model or you will end up with
a very small profit which may be considered as a bad investment in terms of
return on investment principal.
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ACMI (Aircraft, Crew, Maintenance, Insurance) carrier usually provide its aircraft
with crew (mainly cockpit crew), maintenance, insurance (aircraft insurance, not
passenger & cargo insurance) elements to other airlines who need extra
capacities. Well known feeder service carriers in the USA are Republic Airways
Holdings and Mesa Airlines. They provide feeder services to mainline carriers
such as American, Delta, United Airlines. Through Airline Service Contract, they
provide feeder services from secondary airports to hubs of their contracted
mainline carriers. Mainline carriers pay them based on per flight therefore they
do not risk losses based on outcome of the business. There are also a number of
There are other types of airline business models. Non-scheduled carrier (charter
airline), cargo carrier, ACMI carrier, feeder service (franchise) carrier and so on.
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It is recommended to check with your local civil aviation authority for detailed
AOC application process and related regulations as each country has its own
regulations governing airline licensing.
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2. Many airlines lease aircraft then decide to buy. The main reason is to learn
about the aircraft and suitability for their operations. It is a way to ensure
the aircraft they are going to buy is suitable, profitable under their
circumstances. Consider it as a trial before purchase.
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Professional help should be sought unless you have in-house team of technical
experts who can inspect and advise you to enable you to make the right choice.
Purchasing the aircraft based on as is where is comes with the risks. You have
to conduct proper inspections even if it will cost you money but avoiding it may
incur higher costs if you find more things to repair or replace after purchasing it.
You will not be able to make any claims after you have purchase it as a certificate
of technical acceptance is a part of the purchase process and issuing such
certificate means you accept the conditions of the aircraft.
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Non-direct flights via hubs of airlines are cheaper than direct flights. But why
often 2, 3 airline combined routings with one or more stops are cheaper than
others? This is a benefit of SPA (Special Prorate Agreement) based fares for
passengers and it also helps airlines.
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Point A to B by X Air
Point B to C by Y Air
US$400
US$300
Direct flight fare averages US$1,200
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If your airline becomes a member carrier of IATA then wider doors shall be
opened. IATAs MITA (Multilateral Interline Traffic Agreement) shall provide a
great opportunity to sell more tickets and generate revenues from tickets
combined with other airlines. Good use of traditional airline sales & marketing
tools should not be discounted but ensure good use of it is implemented.
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From an airline point of view, supposedly empty seats based on their average
load factor can be filled up by passengers from off-line destinations contributing
to operating cost and revenue. Except airlines participating in SPA, the general
public are not aware of the real cost per sector so there is no concern of
complaints. For full service carriers, SPA is a vital tool. At the beginning, start-up
carriers shall not be able to enter into bilateral interline and SPA agreements but
most likely it shall be on a unilateral basis. Long established, financially strong
airlines are usually concerned about the financial capability of start-up airlines
therefore they can issue start-up airlines sectors on their tickets but not vice
versa. However it can be changed to bilateral arrangements when start-up
carriers financial capability and credibility are acknowledged by interline and
SPA partner carriers.
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Financial forecasts are important part of the whole process. A qualified account
with airline/aviation experience, knowledge is needed to get financial forecast
reliable. ACCA or CIMA qualified accountants are preferred as these
qualifications are internationally recognised. If you are trying to raise fund
domestically within your country, a locally accepted qualification based
accountant shall be acceptable but you should hire an accountant with an
internationally recognised qualification. To create business plan, financial
forecast shall cost tens of thousands dollars or more depending on the size of
your planned routes, fleet and other factors.
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Documents, numbers are what they look at. You may have to have some seed
fund for it. It is better to ask livery designers to create logos, liveries and images
for your business plan to present your project attractive in visual format. You
may have to subscribe to certain professional software programmes if you wish
to create necessary components for your business plan unless you are going to
hire professionals to create it with the proper information.
There are numerous specialised aviation consulting firms around the world and
some are owned by airlines themselves. You should shop around to find a
suitable service providers for the required documents unless you and your
partners are capable of doing such works with relevant qualifications.
Well, from the start you will need funds to create the proper documents needed.
Please contact the author if you have a good idea for a start-up airline project
with reasonable seed fund available for advices.
It is sad to see new airlines start and go. Especially those who were listed in the
stock market and gone within a year or two. Founders got rich by cashing in
while the general public who bought shares in good faith that they will continue
to operate as an ongoing concern. It is sad to see some people using the airline
business as a tool for get rich quick with a stock market listing.
There are many airlines listed in the stock markets in their home countries and
outside their home countries. Going for IPO (Initial Public Offering) is a good way
to raise funds to boost airline business but it should not be a way for founders
to get rich by selling their shares after a successful IPO. Airline business should
be started by people who are keen on keeping the business as an ongoing
concern for years to come. It is recommended to stay away from airline ventures
if your sole aim is get rich quick through stock market listings.
Then what is minimum capital needed?
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