The Cliché “ How do you make a small fortune in aviation? Start
with a very large fortune.” is a phrase that is directly related to aviation.
Many people who have an interest in the industry may know that it is very
costly to start up a business, hence to make a small profit one most start out
spending a lot of money to get things rolling and if the nuts and bolts hold
and your business plan is successful your business may churn out a small
profit.
If we think back to 2008, there was major hype generated around
Eclipse Aviation; who would later be bought out and become known as Eclipse
Aerospace. They were a leading producer of a fleet of jets, known as VLJ’s
(very light jets), which were promised to fly 1800nm, and cost fewer than 1
million dollars. The production of VLJ’s were said to make owning and operating
a jet affordable to everyone. On November 25, 2008, Eclipse filed for Chapter
11 bankruptcy due to unprecedented economic challenges on Wall Street. The
promises and commitments made by the company were wiped away (VLJ news 2013). Filing
for bankruptcy may have been the best decision for the business but it also
took a huge toll on its investors and customers. J. Mac McCllean, chief editor flyingmag, reported,
“Eclipse 500 owners and order holders suffered losses well over 1 billion”. and
that “shareholders lost hundreds of millions”. Talk about starting with a large
fortune. Eclipse was eventually bought out and became Eclipse Aerospace were
they continue to be the lead producer in VLJ’s today.
Like any successful start up business the key to becoming
successful is be one of the first to get a piece of the pie. A company DayJet,
a commercial American aviation operation, had the business plan to provide on
demand jet travel at low cost to private fliers. Companies like Dayjet were
going to simplify flying for frequent travelers and make it cost-effective with
the use of their VLJ’s. On May 26, 2008 DayJet announced it was unable to raise
40 million in financing and that it would slow down its expansion. On October
19 the same year Dayjet had shut down operations abruptly later filing Chapter
7 bankruptcy liquidating the companies assets (Aviation Today 2008).
Although these companies cease to exist, losing money in the
aviation industry is a daily occurrence. Airline carriers providing flights
daily are struggling to stream profit today. In 2010 a one way flight from LAX
to DTW costs Delta Airlines $13,880, from DTW to JFK the remaining flight
segment costs $3,872 totaling $17,752 (Vandermey 2011). According Vandermey, in
the third Quarter of 2010, ATA reported that a $506 ticket was pulling an
average of $33 in profit. $33 dollars
may not seem like much but is way more than the airline had seen in the last
decade!
Aviation isn’t all about losing money there are companies out
there that have been successful in generating profit. According to Seth
Stevenson, an editor for slate magazine, in 2012 South West Airlines reported
its 39th consecutive year of profitability. Stevenson reports that
South west’s business
model is the key factor for success of the company. South west operates
domestically within the U.S. providing 3,000 flights per day and reporting
$17.1 billion in total operating revenue in 2012 (SWAmedia 2013). What is
unique to South Wests operations compared to other airlines is that the fleet
of which they operate is only made up of one type of aircraft, the Boeing 737,
while others may operate up to 10 different types of aircraft. Operating a
fleet consisting of one type of aircraft allows Southwest’s employees to make
simple changes in day-to-day operations without effecting all operations.
Another successful Aviation company I came across was Ascension
Aircraft, an airplane sales and leasing company in Augusta Georgia consisting
of four employees. Jamail Larkins, a graduate from Embry-Riddle, founded
ascension Aircraft, in 2006. By 2008 the company generated over $7 million in
revenue (Leiber 2009). The company sells and leases aircraft with fractional
ownership with four-year contracts After the four years are up the aircrafts
are then sold and the money is then divided amongst the owners based on
ownership. In an interview Jamail’s advice to other entrepreneurs is “Take
advantage of every available resource and learn from the lessons of other small
business owners”.(Matisiak 2011) .Ascension Aircraft objective is to provide
out-of-the box solutions to complicated problems.
Starting up a successful company in any industry is no simple
task. When it comes to the Aviation industry factors such as the condition of
the economy can make or break your company as seen with Eclipse and Dayjet.
Although those companies were unsuccessful in their endeavors companies like
South West and Ascension prove that even when the market is suffering for some
it doesn’t mean that it is impossible for start ups or established business to
turn a profit.
Sources:
Aviation Today (n.d.) (2013) DayJet Continues Slower Expansion Retrieved
April 1, 2013, From: http://www.aviationtoday.com/vlj/categories/bga/22199.html#.UV
p6NRkXfgV
McClellan J.M.(2009) What went wrong with Eclipse? Retrieved
April 01, 2013 From: http://www.flyingmag.com/what-went-wrong-eclipse
Vandermey A. (2012) Where your airfare really goes. Ever wonder
what’s behind rising price of an Airline ticket? The cost breakdown may
surprise you. Retrieved April 01, 2013 From:http://money.cnn.com/magazines/fortune
/storysupplement/ airline_costs/
Leiber N.(2009) America’s Best Young Entrepreneurs 2009. Retrieved April 01 2013
From: http://www.businessweek.com/stories/2009-10-06/americas-best-young-entrepreneurs-2009businessweek-business-news-stock-market-and-financial-advice
Matusiak A. (2011) Aviation Entrepreneurs Says American Jobs Act is “Critically Important”
to Small firms. Retrieved April 01 2013 From:http://www.white house.gov/blog/2011/10/11/aviation-entrepreneur-says-american-jobs-act-critically-important-small-firms
SWA Media
(n.d.) (2013) Southwest Coporate Fact
Sheet. Retrieved April 01 , 2013 from:
http://swamedia.com/channels/Corporate-Fact-Sheet/pages/corporate-fact-sheet#2011stats
VLJ new’s (n.d.) (2013) Eclipse seeks court Approval for Restructuring Retrieved April 01,
2013 from: http://www.vljnews.com/index.php/latest-news/eclipse-aviation-seeks-court-approval-for-restructuring.html
It seems to be hit or miss whether an aviation company makes money or not. It all depends on the timing and the business model. Southwest requires their pilots to have a B737 type rating before they can get hired. This can reduce their operating costs but up to $50,000 per pilot!
ReplyDeleteI think that the low cost carrier model is the best choice, especially in times like this as proven by Southwest. Allegiant Air, the company that I work for, is another low cost carrier that has done very well and is continuing to expand even during the hard times. I think that providing services that are just a little bit different than everyone else at a reasonable rate is the way to go.
ReplyDeleteI agree with Kyle, low-cost carriers seem to have a grasp on how to do things right. There are so many companies that feel the need to expand into the new, bigger and better models; with Southwest, they keep it simple and, while they don't have the perks, they still seem to fill their planes and get people from point-A to point-B in a safe, efficient manner.
ReplyDelete