This video was made possible by Skillshare. Learn new skills that you can use at home,
work, or school with a free trial of Skillshare Premium at the link in the description. Normal times in business are like a road. Competitors are all heading in the same direction
and, while some might turn away and try a different path, for the most part, the only
way to get ahead is through brute force—to slowly catch up and take the lead. That is difficult. Abnormal times in business, though, when an
industry is in crisis, are like a fork in the road. The competitors all reach it together and
are forced to pick a path. This levels the playing field. While the big players have the resources to
evaluate the different paths, and might have experience from times when this has happened
before, all companies big and small must pick a path, and at the end of the day, only one
is going to work best. Crisis can be an equalizer. It stress-tests the big incumbent firms to
see if they’re still the strongest, or riding on inertia, and gives smaller players the
opportunity to make bold choices that could put them ahead. This is what’s happening in the airline
industry right now. It’s one of the clusters of companies that,
as a result of the Coronavirus pandemic, had to almost entirely shut down, and is now in
the process of turning back on and reinventing itself to capture a new set of consumers with
new needs and wants. Industry turmoil is happening, and that means
that there’s a case to be made that we’re at that fork in the road—that all airlines
are having to pick a path, and that this could lead to a shuffling of the rank and order
of the industry. There’s a case to be made that right now,
for the first time in a long time, there’s real opportunity for something new—there’s
opportunity for airline entrepreneurship. If you were tasked with starting an accounting
business, or a coffee shop, or a landscaping business, you’d probably know roughly what
you needed to do to start—you’d need to get a license, or a retail space, or some
lawnmowers—and, with enough initiative and a little bit of luck, you’d probably even
have a real shot at successfully starting any one of these. Meanwhile, if you were tasked with starting
an airline, you and I both know that, no matter your luck or initiative, you’d have almost
no shot of ever taking off. Due to its complexity and capital intensity,
successful airline entrepreneurship is one of the most difficult endeavors in business,
but it is something that, occasionally, real people actually do. So what does it take—what is step one of
forming a new airline? Well, first, an airline needs a business model. Now, everything for start-up airlines nowadays
builds off of what makes them unique, and new airlines have to be unique. You see, fundamentally, for a new company
to succeed, they need to do something better than their competitors—they need to be cheaper,
faster, more convenient, or just do something that others do not. If they don’t, then why would customers
chose to switch to them? The competitive advantage of major airlines
is that they are major—it’s that you can get on one of their planes on one side of
the world and, after a few connections, get off on the other. The problem is that almost all of the major
full-service network carriers, as those in the industry will call them, were formed in
the early days of commercial aviation, and grew as the industry did. Today, it would just be effectively impossible
for an airline to launch with enough scale to compete directly with United, British Airways,
or Singapore Airlines, and if they didn’t, the legacy airlines would crush them faster
than they could get to the necessary scale for their competitive advantage to be considered
their size. Of the ten largest airlines in the US, none
were founded in the current century, and in Europe, only one was—Wizz Air, which nobody
would consider a full-service network carrier. In fact, globally, one of the only examples
of a full-service network carrier established within the past few decades without government
support is Virgin Australia, and in their case, it was almost by accident. The collapse of Ansett Australia, which was
the country’s only major full-service network carrier aside from Qantas at the time, left
a massive void in Australia’s aviation market only a year into Virgin Australia's operations,
which gave the company the opportunity to grow quite quickly and effectively. However, even this example gives further credence
to the theory that it’s nearly impossible for a new major full-service network carrier
to emerge in the 21st century as Virgin Australia entered administration in 2020, and is now
exiting as a smaller, primarily domestic airline—ceding the international market to its legacy competitor,
Qantas. So, once again, new airlines need a strong,
defined, and unique business model to succeed. Looking at three of the most promising startup
airlines planned to launch in 2021, a strong, defined, and unique business model is exactly
what each of them has. FlyPop, for example, is planning to launch
long-haul, low-cost flights from the UK to secondary cities in India without existing
non-stop service, such as Amritsar and Ahmedabad, in order to cater to the Indian diaspora living
in the UK. Meanwhile, Play Airlines is looking to reprise
the business model of the now-defunct WowAir, and was even founded by former Wow executives,
by focusing on facilitating low-cost transatlantic travel with connecting itineraries through
Iceland. Then, in what is likely the most promising
airline start-up of 2021—as its founder previously launched WestJet, Azul Airways,
and JetBlue—Breeze Airways is looking to launch what they refer to as “hub-busting”
flights on underserved routes in the US—meaning they’re identifying routes without existing
non-stop service such as Tulsa to New York or Louisville to Los Angeles, and capturing
demand by setting up non-stop service. Crucially, each of these three business models
do not involve directly competing with full-service network carriers. Budget airlines like Play Airlines and FlyPop
tend to expand the pie by offering prices that stimulate demand from a lower market
segment that likely would not regularly fly on a full-service network carrier, while Breeze
Airways will likely most directly compete with Southwest—as it’s the primary incumbent
airline that might offer non-stop, hub-busting flights. In the selection of a business model, not
competing against the world’s largest airlines is a good choice, because full-service network
carriers have the time and money to start and win a price war, while start-up airlines
do not. That’s because it’s very difficult for
start-up airlines to get funding. There just isn’t the appetite for it, because
the the airline industry has very little upside for investors. It goes through massive, dramatic cycles of
profit and loss depending on oil prices and external economic conditions, but even in
the best of times, it makes a very thin profit. Over the past 25 years, even before the Coronavirus
pandemic, the industry has hovered around a four to five percent operating margin. Investors could just as easily put their money
into something more secure—like the railroad industry, which hovers between a 25 and 30
percent operating margin. In fact, that’s exactly what investor Warren
Buffet has done—he’s famously shirked significant investments in airlines, while
taking massive, successful bets on the American railroad industry. For this reason, many start-up airlines fail
before launch simply because they cannot secure funding, or after launch because they didn't
secure enough to reach critical mass. For those three most promising start-up airlines
of 2021, though, they each have seemingly found enough money to launch. Play Airlines secured a $42 million investment
from Avianta Capital, which is an Irish investment fund run by Aislinn Whittley-Ryan—a member
of an influential aviation family which includes the founders of Ryanair. Meanwhile, FlyPop's exact investor makeup
is less clear, but their largest source of funding is coming from a UK government fund
intended to kick-start innovative businesses whose launch was affected by COVID. Finally, Breeze took the most traditional
funding path, having raised $83.3 million through the venture capital industry, but
that was likely only possible due to its founder’s remarkably consistent track record of successful
airline startups. The only consistency with start-up airline
funding is inconsistency—unlike other industries, where there is often a defined ecosystem of
investors willing and sometimes competing to fund startups with a strong business model,
plan, executive team, and proof of concept, you just don’t have that with airlines. The tiny number of new entrants plus the general
lack of appetite from investors means that finding funding to complete the extraordinarily
expensive tasks required to set up an airline is itself the task that prevents most from
reaching takeoff. One of those extraordinarily expensive tasks
involves quite simply gaining the legal right to operate an airline. Every national aviation authority issues what
are typically called air operator’s certificates, which allows a company to use their aircraft
for commercial purposes. In the US, there are essentially two choices
of certificate type for scheduled airlines. The first, and simpler one, is a part 135
certificate—referring to the section of the US’ federal aviation regulations that
outline this certificate’s operating requirements. Now, a part 135 certificate is primarily used
for cargo and passenger charter operations—which often includes private jet operations—but
it can also be used for certain scheduled operations. Specifically, this certificate only allows
the use of aircraft with nine passenger seats or fewer on scheduled operations, with a few
exceptions. One of the largest part 135 scheduled airlines
in the US, for example, is Cape Air, which operates a fleet of 94 nine-seat aircraft
to primarily small, government subsidized destinations around the US and Caribbean. Because they are on a part 135 certificate,
they can do things like operate flights with a single pilot—even though in practice most
of their flights operate with two pilots—whereas a part 121 certificate holder, like United
Airlines, for example, would need two pilots even to operate the exact same aircraft on
the exact same route. In general, the regulations for part 135 operations
are slightly less stringent, and that also means that attaining this license is a lot
easier. Costs apparently average between $35,000 and
$95,000 in legal fees, plus an additional $50,000 in expenses to attain a part 135 certificate. Meanwhile, getting a part 121 air operator’s
certificate is much, much more difficult. These are the certificates held by United,
American Airlines, Delta, and any other large, commercial airline in the US, and the process
to attain one is so complicated that it’s essentially impossible without hiring a third-party
consultancy to assist. This, in and of itself, is such as niche process
that there are only six FAA-endorsed part 121 certification consultancies in existence. After all, there are only 104 active part
121 airlines in the US, so a new certification is a fairly rare occurrence. While none of the FAA-endorsed certification
consultancies publicize prices, a non-endorsed competitor lists their consulting fee as $1.2
million—which includes things like creating an operations manual, training management,
setting up electronic flight bags, establishing a drug and alcohol testing program, and almost
everything else needed prior to application, plus the management of the process of actually
applying itself. In general, the reason this application process
is so strenuous is because a start-up airline must set up the internal infrastructure for
all the extensive safety programs needed to pass the FAA’s review, and then it must
present a massive packet of documents proving that it has done all these things. Given the complexity of this process, some
airlines decide to purchase, rather than apply for, an air operator's certificate. This is what Breeze Airways initially planned
to do—in July, they applied for the US Department of Transportation to transfer the certificate
of now-defunct Compass Airlines to them—but they eventually dropped this plan due to push-back
from other airlines and Compass’ pilot’s union. Now, Breeze is going through the process of
applying for its own air operator’s certificate, but it goes to show that buying an existing
one is a very real possibility, and it’s something that happens fairly frequently with
part 135 certificates. In fact, there are even websites listing small
part 135 airlines for sale—which can be bought specifically for their certificates. Around the world, while each country’s exact
process is different, certification is quite often a major hurdle for a new airline as
each country’s air regulator needs to see that the startup is fit-to-fly before giving
them their stamp of approval. Of course, these previous steps, of deciding
on a business model, finding funding, and attaining an air operator’s certificate,
have nothing to do with the most fundamental thing an airline needs to operate—airplanes. Now, somewhat counterintuitively, acquiring
airplanes is actually one of the simpler phases of the airline start-up process. The reason why this is is because, quite often,
airlines don’t actually own aircraft themselves. This is part of the reason why Breeze, for
example, can launch with only about $90 million in funding, despite the fact that a single
one of their planned flagship aircraft, the A220-300, has a list price of about $90 million. Rather, a startup airline like Breeze tends
to use one of two techniques. The first option is to lease. This works essentially like a car lease, just
on a much larger scale. Some 50% of commercial aircraft globally are
under lease, and this option is often more popular with smaller airlines. The advantages of leasing aircraft are straightforward—it
spreads out the cost, without the need to take on debt, and it reduces risk, as lease
terms can be shorter than the useful life of an aircraft, are there can be some options
to return aircraft before the end of their lease if there’s no longer the need. In addition, leasing aircraft allows airlines
to get aircraft faster. Aircraft manufacturers often have a multi-year
backlog. Airbus, for example, as of December, 2020,
has a 7,000 aircraft order backlog, meaning an airline ordering an aircraft today wouldn’t
receive it for many years. Lessors often have aircraft available within
months or even weeks, making this the attractive option for startups. Also, particularly nowadays, COVID has made
getting an airplane on lease easier. Existing airlines have been downsizing their
fleets and getting rid of older, less fuel-efficient aircraft. In the case of American Airlines and Air Canada,
that meant retiring 20 and 14, respectively, of their E190 aircraft. It so happens that Breeze is launching with
E190 aircraft and, even though they aren’t directly leasing the retired aircraft of American
and Air Canada, more aircraft of a type in the marketplace pushes prices down. There is, however, another mechanism increasingly
used by airlines, especially when they need to get newer aircraft for which there isn’t
a large second-hand market. Breeze, for example, has an order with Airbus
for sixty A220-300 aircraft. Now, this order is directly from Breeze to
Airbus, but Breeze themselves could never pay for sixty of these aircraft. Therefore, what they’ve done is, before
they’ve even taken delivery of the first of these aircraft, sell five of them to another
company, Voyager Aviation Holdings, which is then going to lease these aircraft back
to Breeze. This means Breeze is effectively getting the
exact aircraft it wants, when it wants, but functionally they get all the benefits of
a lease. It’s to be expected that, as the delivery
dates of the rest of the airline’s A220 fleet near, the airline will enter into more
of these leaseback agreements. Of course this is all a simplistic view of
the process of airline entrepreneurship, but business model selection, funding, certification,
and aircraft acquisition are the four largest hurdles—and improper completion of any of
these is often the source of a start-up airline’s eventual failure. The rest of the process, from hiring staff,
finding office-space, crafting a marketing strategy, leasing space at airports, and much,
much more, is much less likely to have a dramatic impact on their odds of success. Since the era of the emergence of low-cost
airlines, there’s been little successful action in airline entrepreneurship. With a business atmosphere primed for disruption,
the next few years will prove whether it’s still possible for new airlines to succeed,
or whether the industry is still locked down by the world’s largest airlines. What this video goes to prove is that, even
for the world’s toughest tasks, like starting an airline, there’s someone out there doing
it successfully. That’s a lot of what the philosophy is Skillshare
is based on—they figure that there’s nobody better to teach skills than the people who
actually use those skills. Their classes, of which there are thousands,
are taught by real people who actually know what they’re talking about, so it’s a
great way to learn for anyone who’s creative and curious—which I’m sure includes all
Wendover viewers. Whether you want to get ahead at work or find
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In case anyone is interested to see how to ruin an airlines, there is a segment of Indian tycoon Vijay Mallya and Kingfisher Airlines. It is called Bad Boy Billionaires on Netflix
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