I know about high fixed & variable costs, but leasing and buying an airplane isn’t cheap either, and entrepreneurs with that much capital and surely great IQ couldn’t turn an airline profitable. How is this possible? there has to be something “internal” or something I’m missing?
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The short answer is something called breakout cost. Airlines fall into this interesting category of business which the profit per customer starts negative and increases per customer PER INSTANCE OF SERVICE RENDERED essentially. If an airline can nit guarantee some minimum number of people on a flight, the flight is a loss.
Well, how do you guarantee a lot of people on a flight? Service a high traffic corridor. Well, those are all already serviced by existing companies with multi year contracts with the airports and more comprehensive services and bigger and better planes that fly more people per landing and takeoff, so they can outbid you for space on a big airports runway.
So, you have to service smaller local or regional airports.
Well, those usually have three to four major airports the connect to and they complete four or six flights a day per. There and back two or three times. So, you have to fill two flights out and two flights back to whatever small city you’re based in. And remember the fees you pay when arriving at the large airport are still expensive, so you’re probably barely breaking even on that half of the trip.
So, you have two flights worth of passengers to make all your income, and pay your crew for a full day’s labor. Pilots are expensive and aircrew aren’t exactly cheap either.
So basically, if you aren’t flying a ton of flights on giant airplanes, you’ll never get enough throughput for it to be worth it. If you’re flying out of a small airport cause you can’t compete at the larger ones, you can never fill a big enough plane.
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