You want your own airline?

What’s your aviation strategy? Entry into the airline business is easier than you might expect.  You might think that you must first of all buy an airplane.  Not true: you can lease one.  And everything in the way of services that you might need can all be provided by service companies, whether for ground handling, catering, machine maintenance, and so on: everything can be outsourced.  (In American Airlines, outsourcing was 29 per cent of total non-fuel expenditures in 1995: by 2019 the share was 50 per cent). And some services, such as ticket offices, are no longer needed: you can just sell your tickets online. You don’t need crew either: you can rent those from staff agencies (or as part of the deal when you lease the plane, a so-called “wet lease”).  So what will make you distinctive?

The only way that you will succeed and make a profit is by a comprehensive aviation strategy.   This will have to cover marketing, pricing, fuel purchasing, and destinations, interconnections, and the like. These are all crucial but the necessary skills are on the market, in the form of experienced people in the aviation industry who are ready to change job.

Of course, unless you or your new planners can come up with some really original and really clever ideas for the strategy, the danger is that the existing airlines will see you come and go. Arrivals and departures in the airline industry are frequent. A total of 275 airlines started life in the years 2010 to 2019, and just under 500 airlines disappeared in the same period. Using data from the wonderful website Aviation Fanatic, the average lifespan was 16.5 years for 489 airlines over the ten-year period.

Another problem is an external shock, such as a big change in fuel prices, a war, a natural disaster, or a coronavirus pandemic. Even if you ground your planes, you will be losing money, not only because you’re paying the for the lease, but because planes cost money for storage and maintenance even when inactive. Oil prices might go through the roof, making your flights too expensive, unless you had the foresight to buy forward. Or the opposite: prices might fall and you might be stuck with a contract for expensive fuel while some competitor is not. You need more money. Maybe the government would help?

The thing is…..

The pandemic has had many tragic impacts, and the economic effects are secondary. But they are enormous. The IMF expects global economic activity to decline on a scale not seen since the Great Depression, with 170 countries seeing income per capita decline this year. There have been striking changes in the value, volume and direction of trade. WTO expects world merchandise trade to fall by between 13 and 32 per cent in 2020, with exports from North America and Asia hit hardest. There have also been changes in the relative importance of different forms of infrastructure. Take airlines for instance. Passengers are vanishing, flights are cancelled, and this means that air freight capacity is also reduced, because much air freight has actually been carried in passenger planes. However, some airlines are now using passenger planes to carry freight. Rail is also beginning to come into its own: trains are now carrying the post from China to Europe. A 12-14day journey is a lot quicker than sending goods by sea, especially when demand is high. Another vital infrastructure, telecommunications networks, is under pressure. Voice has seen a resurgence, and network disruptions have been reported across Europe. With remote working, as well as the general population staying at home, the strain on internet services is severe. Video streaming has been reduced in technical quality in order to relieve the pressure on the systems. (As for the quality of the films themselves, this is the same as it was.) And some further pressure on the system is on hold for the moment: there is a global shortage of webcams.