Is it wise for start up airline to start the operation with ultra long haul flight (cross pacific oceans) by leasing A380?

A 15 hours flight between Sydney to Los Angeles costs over $300,000. A return trip would cost twice as much i.e $600,000. To achieve breakeven at 80% seat factor (440 seats occupied including first class and business class), average ticket price should be about $700 one way and $ 1400 return.

How would a start up carrier fill 80% seats at the desired price of $1400 per ticket for the return trip. The markets are already saturated and supply is already more than demand in lucrative markets. And remember empty seats are perishable, therefore, operating an empty aircraft would cost almost as much as the passengers on board. This is because various operating cost categories are fixed.

To fill up your aircraft, you will have to sell seats well below operating cost to attract passengers from other airlines competing on the same route. A chain reaction of cut throat prices would soon drive out the start up from market as old ones have more financial staying power than the new ones, with limited finances.

It is very important for the entrepreneurs to understand the dynamics of airline business and its operating costs before they jump into this business. Please also read an answer to the similar question at the following link:

Muhammad Afsar Malik’s answer to If airlines are such a bad business model then why do businessmen keep lining up to start them?

If you still insist to go ahead with your desired project then here is what you need to do:

  • Arrange about a $ 300 million worth of working capital, minimum 02 A380s aircraft on lease, to operate daily flight between Sydney and Los Angles, for a period of at least one year.
  • Start selling seats at half the seat-mile cost. your competitors will probably not react until they start to lose their market share significantly.
  • When you hit a stable seat factor of 90% or above, then gradually start to increase the price of ticket, which remains at least 20% below the competitors, no matter how low they stoop to drive you out of market. Maintain this strategy until end of the year. With $300 million, you have enough working capital to operate daily flight for the whole year, even without any passenger on board.

At the end of an year, one of the two things would have happened. Either one of the two or three competitors in the would have left the market or reduced its capacity on the route, equal to the capacity floated by your start up airline. You can then start to operate at breakeven seat factor of around 80% and hope that no one else repeats what you have done to capture the market.

The big question is how will you arrange $300 million, unless you already have very deep pockets? Assuming that you have them then it would also require a very large heart to lose it all within a period of one year.