Barriers to Entry in the Airline Industry

Entrepreneurs may find the idea of starting an airline appealing, given the American penchant for both business and recreational travel. It can be tough to get into the industry, however, with barriers to entry ranging from high costs to government regulation and fierce competition.

Fleet Costs

Purchasing a fleet of airplanes is a significant barrier to entry for many newcomers in the airline industry. As of July 2015, prices for a single airplane range from around $11 million for a small Embraer prop plane designed for regional service to more than $320 million for a Boeing 777. A number of financial programs help startup airlines deal with this expense, however, and many startups take advantage of creative financing to stock their fleets. Still, without a sizable chunk of cash, this isn't an easy industry to break into.

Tips

  • Some airlines overcome the financial barrier of creating a fleet by buying used planes from other airlines. Allegiant Air, for example, started with a fleet of MD-80s retired from service at a larger competitor.

Fuel

Even with the other costs of starting an airline, fuel is the largest barrier to entry for many industry newcomers. According to a 2012 report in the New York Times, fuel costs account for up to 50 percent of an airline’s expenses. The fluctuation of fuel prices can make it difficult for a startup to budget accurately without financial strategies that commit to specific purchases far in advance.

Government Regulations

Airlines are subject to a significant range of government regulations, and complying with all of them can be a barrier to entry for some airline entrepreneurs. Regulatory requirements, including mandatory compensation for denied bookings, a mandatory 30-minute advance notice for flight status changes and rules on how airlines must handle tarmac delays, cost the airline industry as a whole more than $1.5 billion annually.

Tips

  • Taxes, fees and regulations are constantly subject to change. Many airlines employ dedicated resources to ensure compliance.

Competition

Government deregulation aside, new airlines can experience a considerable barrier to entry just trying to get a gate at a major airport. According to the New York Times, a small number of major airlines control most of the gates at large hub airports, making it difficult for new airlines to get a foothold in these markets.

Tips

  • Some successful startups, including Allegiant Airline and Spirit Air, have carved out a niche serving smaller markets. Landing slots and gates tend to be more available at smaller regional airports, according to the New York Times, and these airports welcome business from newer airlines.

Pilots

Staffing an airline requires filling a number of entry-level service positions, but the startup also needs qualified talent in the pilot’s seat. A 2014 article in the Wall Street Journal details an ongoing pilot shortage, and notes that new pilots tend to prefer a career with an established company rather than a riskier startup.

References

About the Author

Keith Evans has been writing professionally since 1994 and now works from his office outside of Orlando. He has written for various print and online publications and wrote the book, "Appearances: The Art of Class." Evans holds a Bachelor of Arts in organizational communication from Rollins College and is pursuing a Master of Business Administration in strategic leadership from Andrew Jackson University.