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.
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.
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.
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.
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.
Taxes, fees and regulations are constantly subject to change. Many airlines employ dedicated resources to ensure compliance.
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.
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.
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.
- Las Vegas Review Journal: Allegiant's reliance on MD-80s is costing it big bucks
- USA Today: Why a Boeing 777 Costs $320 Million
- Aircraft Compare: Embraer
- New York Times: The Challenge of Starting an Airline
- Government Accounting Office: Airline Deregulation - Barriers to Entry Continue to Limit Competition in Several Key Domestic Markets
- UCLA: Barriers to Entry in the Airline Industry: A Regression Discontinuity Approach
- Market Realist: Bargaining power of the airline industry’s customers and suppliers
- Wall Street Journal: New Startup Airlines Crowd the Skies
- Aviation Institute: Consumer Regulation and Taxation of the U.S. Airline Industry Estimating the Burden for Airlines and the Local Impact