Planning Start-up Airlines?

At 1BlueHorizon Group we have been receiving many start-up airline project papers from all over the world. They asked us for our opinions, advice by presenting their business plans or executive summaries. Unfortunately, most of them contained unrealistic plans or plans not meeting regulatory requirements. Most of the principals of the projects had no knowledge or experience in the airline business, some worked in the airline industry but they didn’t have sufficient knowledge and experience as they worked in the particular department of the airline business without knowing other departments of the airline business.

We are happy to give our opinions and advice. Often we give guidelines and contact details of professionals who may be able to give them what they are short of.

There was a case from an African nation and its business plan contained the round the world route as its route plan with 5th freedom in every destination its flights stop. Obviously, the principals of this project had no knowledge of ‘Air Service Agreement (ASA)’. ASA contains traffic rights, passenger capacity of the aircraft, frequency, allowed destinations, other conditions. ASA is signed by countries involved, not the airlines. Certain routes start-up airline is planning to operate flights may not be covered by ASA as the government of country start-up airline is based does not have ASA entered with the government of the country which destination of the start-up airline is located OR particular destination(s) is not covered by existing ASA between these countries. ASA governs air transport traffic rights and it is recommended to check with relevant government authorities that planned flights are covered and allowed by existing ASA. Start-up airline may request its government to amend existing ASA with counterpart country’s government or establish new ASA if there is no ASA between them. You can’t operate scheduled service without ASA. You are welcome to contact me if you require further information on ASA and sample contents of ASA.

Airline business, especially, scheduled airline service is regulated and nationality rules apply to its ownership. Most of the countries in the world have the nationality rules requiring airline company licensed in their countries to have majority shares to be owned by its nationals. Commonly 51% of shares or 50% plus 1 share to be owned by the nationals of the country. International scheduled air services governed by ASA’s signed between countries involved are national rights of each country entered into ASA’s. This means only airlines majority owned by nationals of participating countries are allowed to utilise traffic rights allowed in ASA’s.

There are some exceptions. Australia allows non-Australian majority based airline for domestic flights only. The USA restrict foreign ownership in any US registered airline to maximum 25% of shares.

There were many cases the principals of the projects seeking 100% foreign investment for their start-up airline projects. They do not realize nationality rules apply to the airline business. No investor would invest in the airline project without any investment of the principals of the project.

For sales & marketing plans, the principals of the projects should know many aspects. If the planned airline is a full-service airline interline and SPA (including IATA MITA, MPA) should be considered and GDS should be considered too. The principals of LCC should examine their projects are really targeting LCC market. It is not right to think LCC will succeed regardless of area of operation. There are certain markets where LCC’s are not received well due to cultural differences. The right form of the airline should be decided out of the full-service carrier, LCC, the hybrid carrier.

Selecting the right aircraft type is also a major issue. The selection process should be based on range, capacity, performance data and so on. It is recommended to start with leased aircraft until the airline is well established. It is important to have the cash for operations so the purchase of the aircraft should not be considered until the airline has sufficient cash to cover aircraft purchase and operational expenses. It is recommended to check the commercial market value of the aircraft. You may find aircraft cheaper to lease or purchase than other aircraft in the similar category.

It is recommended to have the capital equivalent to minimum 3 months operation without revenue or higher. If you have the capital sufficient enough to operate flights as per timetable for 3 months without any passenger, cargo revenue, your airline shall most probably be considered ongoing concern. This is the minimum capital recommended for the start-up airline projects.

The airline business is not corner shop business which you can do whatever you want. The airline business is regulated business and international rules also apply. It is recommended to seek professional advice to ensure your project is doable, complying with regulations.

The principals of the airline project should have seed funds of their own to start with. You are welcome to contact me if you need my opinions, advice. It is pity to see people wasting their time on impossible airline projects which are out of regulatory requirements and other conditions.

You may contact us by e-mail to info@1bluehorizon.com