How to start an airline (the excessively oversimplified version)

I’m quickly approaching 4 months on the ground since my last flight due to the COVID-19 thing. Of course a big part of me misses travel and I cannot wait to get in the air again! On the flipside, things aren’t so bad actually. Being grounded for so long has forced me to re-evaluate the kind of content that I produce here on SANspotter.com, and my mind has been running crazy with ideas. Case in point: I woke up in the middle of the night last night thinking how fun it would be to write an article which explains (in layman‘s terms) how to start an airline. From scratch.

Yes, I do realize that is a pretty tall order for a guy who is best known for making snarky airline reviews. I sure as heck know how to be a picky passenger, but what the hell do I know about the airline industry? Well…you might be surprised how much I’ve learned from flying all over the world for so many years. I know I am.

How to start an airline from scratch

The good news is that the series of steps needed to launch an airline from scratch aren’t any more complicated than they are for launching nearly any other kind of business. The bad news is that it takes a special kind of person (the kind who finds joy in extreme financial hardship) to actually go through with them. Here’s what you’re going to need:

• Balls of steel
• A good idea
• A personality persuasive enough to convince others that your idea is good
• Investors with deep pockets
• Approval from the government
• Optimism to the extreme
• Did I mention the balls of steel thing yet?

That’s it. That’s all it takes. I’m serious! However, there’s quite a bit that goes into each one of these bullet points. Keep reading, and I’ll explain them all in greater detail.

But first, a disclaimer:

As you can probably tell by now, this is a little different from other articles on the same topic. Even though I am successfully self-employed and I understand a thing or two about building businesses, you’ve got to keep in mind that I’m a graduate of art school. My communication ability is solidly at the seventh grade level (on a good day), and explaining things in the most basic way possible is my superpower.

Long story short, this is the most oversimplified “how to start an airline” guide you’re ever going to read. That isn’t to say that I am purposely mocking the entire process without giving any real information. Everything I’m about to write is legit. It’s exactly what you’re going to need in order to properly get a new airline off the ground. No pun intended.

First thing you’re going to need: balls of steel

It’s not like I needed to do any research to tell you that the airline business model isn’t very sound, but I did a little digging anyway. According to Forbes, nearly 40% of all airlines fail. To be honest, that’s a lot less than I thought, but it’s still an eye-opening (and butt-clenching) figure.

Digging a little further, I came across a Skift article which highlighted 10 of the most amazing airline failures of the past 15 years. It’s a fascinating read, but if you don’t have patience for that sort of thing, moral of the story is this:

• Most of the airlines on that list thought very highly of themselves and grew far too fast for their own good

However, it’s important to know that sometimes it’s more than just optimism which can destroy an airline. Mergers can be more nasty then most would assume. How? Well, just ask the ex-empoyees of TWA and Continental. Both of those airlines were merged / bought out by larger airlines (American absorbed TWA an United ingested Continental) who promised nothing but the best of intentions.

Both American and United promised to keep TWA and Continental employees employed (and most of the infrastructure in place), but we all know how that turned out. Very little of the legacies of both TWA and Continental remain.

AA and UA wiped them off the face of the earth as fast as they possibly could. They were probably laughing and giving each other high-fives as as they quickly sold off all the assets they didn’t need (which was most of them).

But that’s not all. There are a multitude of nasty things that have happened to airlines over the years:

• Bad economies
• Crashes (which ultimately tarnish the reputation of the airline)
• Running out of cash trying to keep up with the competition
• Terrorism
• Global pandemics

Running an airline is one of the most expensive business ventures possible. It’s also one of the most vulnerable and delicate industries there is. One little hiccup in the economy (or a super-aggressive competitor hell-bent on taking you out) can ruin it all in an instant.

Running an airline is challenging, extremely stressful, and the chance of failure is extremely high. If balls of steel is what you have (and your confidence is through the roof), continue reading. You just might have what it takes to build the next great airline.

The second thing you’re going to need: a very good idea

Exploding out of the gates trying to compete directly with the bigger and more established airlines is not how you want to start an airline of your own. Not only will those established carriers have a much bigger market share and brand recognition than your rinky-dink new airline, they will not hesitate for an instant to try and crush you (and any great ideas you thought that you had).

The airline industry is very unique in the fact that it’s a hyper-competitive environment. Most airlines have absolutely no issue with flooding in particular market with excess capacity (for a financial loss) if it puts excess pressure on another airline with the goal of forcing them to retreat.

The big three US airlines are absolutely notorious for this, which is why you’ll see them jump into a market they never served before if a small competitor pops up out of the woodwork.

To avoid being crushed by the larger and more established airlines, you need a unique idea. This will will do two things:

1. Allows you to be profitable
2. Keeps you out of the crosshairs of the major airlines

Coming up with a creative business plan that is not only profitable, but won’t tick off every other airline existence, will be a Herculean effort. You’ll have to think outside the box a little, since starting an airline with the goal of becoming a major player within 10 to 20 years has proven again and again to be a bad idea. JetBlue is a rare exception, mainly because they were very creative with their Mint business class product.

Another example of “thinking outside of the box” was the Virgin America business model. Although it was never publicly confirmed, I (and many other airline analysts) had a hunch that Virgin America was built from the ground up to eventually be sold off.

This is all my personal opionion, but it doesn’t seem all that far-fetched to think that Fred Reid (the CEO) knew that all they had to do was get big enough to be attractive (or super annoying) to another major airline, and they could all profit in a big way by selling out to that ticked-off competitor for top dollar. They reached their goal in April 2016 when Alaska Airlines finally had enough and gobbled them up for $4 billion. Cha-Ching!

The third thing you’re going to need: the ability to persuade others

I’ll admit it. I am totally jealous of the people who can sell anything to anyone. I’m the kind of guy who couldn’t sell a cheeseburger to someone dying of hunger, and therefore, I know for a fact that I’d be a lousy airline CEO.

Having the ability to present your ideas in a convincing matter is an absolute necessity for success in the business world. Especially in the airline industry. There are very few investors who are eager enough to fund airline start ups (even when the economy is good), since there are far more profitable businesses to invest in. It’s never been easy to get funding for a new airline.

If you’re going to seek funding for a business that has a 40% chance of failure, you better be extremely charming. Being extremely good looking will help as well (I’m sure of it), but even then the odds are stacked against you. We can’t all be Richard Branson.

The fourth thing you’re going to need: investors

I got a little ahead of myself in that last section, I know. But yeah – there are very few business men and women in this world who have pockets deep enough to fund a new airline on their own. Some have tried. Most have failed.

Again, I was not a business major in school, but I’m not dumb enough to not realize that the best way to build any kind of new business is to seek venture-capital. There are two reasons for this:

1. A business can grow much faster if it has the money to purchase the assets it needs right from the beginning. This money can also keep the business stay afloat for a while until profit starts rolling in.
2. Having investors on board who are extremely eager to get a return on their investment puts added pressure on the founding members to be successful.

Finding investors eager enough to invest in a new airline does not guarantee success. The only thing it does is gets the operation off the ground (no pun intended). From there, it’s up to the management team to figure out to grow the business. Just for kicks, these were the two investors who funded Virgin America in the beginning:

• Black Canyon Capital
• Cyrus Capital Partners

FYI, finding any investor who is willing to invest in a new airline will be a Herculean effort. If you manage to do so, consider yourself extremely lucky. However, there’s an even bigger hurdle to jump…

The fifth thing you’re going to need: approval from the government

If you thought finding investors was difficult, just wait until you try to get government approval for a new airline. Here in the US, there are a multitude of state and federal requirements that need to be met in order to receive a license to operate.

And of course, it’s an extremely expensive process to obtain a valid operators permit from the federal government.

Not only that, it’s an extremely lengthy process as well. For example, it took California Pacific Airlines (based out of Carlsbad here in San Diego) over 8 years to receive FAA approval to launch their first flight. Unfortunately, they had essentially run out of money by the time they were legally allowed to operate, which only accelerated their failure.

The sixth thing you’re going to need: crazy amounts of optimism

If you somehow managed to get both investors and government approval to start an airline, you’re further ahead than nearly everyone else who has ever tried. At this point, it’s in your best interest to use that success to fuel more optimism. Why? Well you’re going to need it, especially since your chance of failure still hovers just over 40%.

As I mentioned earlier on in this article, there are so many unpredictable factors that can destroy an airline. It doesn’t matter if an airline has been around for over 90 years, or less than one. These factors have the ability to wipeout any commercial air carrier in a matter of weeks.

For example, I’m writing this article just as we are beginning the second wave of the COVID-19 outbreak here in the US. It doesn’t look good for any industry, especially the airlines. Even though they have received one federal government bail out so far, they all have said that it’s not going to help them survive in the long term. Six months from now the airline industry may very well be different from what we know it as today.

The moral of the story? Stay positive, because things can get ugly when you least expect it…

Are you really sure that you want to start a new airline?

The question of how to start a new airline all comes down to this: how big are your balls and what are they made of? Sorry. I can’t put it any more delicately than that.

The airline industry is fascinating. It’s constantly evolving, it’s easily influenced and affected by outside factors, and it takes copious amounts of genius (and luck) to be successful.

Personally, I would never even dream of starting an airline unless I get to a point in my life where I could lose $1 billion of my own money and not lose any sleep over it.

Then again, even if I was that wealthy, I still wouldn’t be able to sleep if I lost that much of someone else’s money. And since the chances of hemmoraging cash will be extremely high, there’s a pretty good chance that you’re not going to be seeing SANspotter airways at your local airport anytime soon.