Two (good) articles today about the riskiness of starting up an airline and the comments they got shared with, triggered some controversial thoughts with me.
The Articles + Comments
OAG summarized on the Evolution of airlines since 2019 (just before the Pandemic) to today. While their findings are very interesting, there is a tone in the summary and a resulting summarization by Tim (someone I generally value) that I happen to disagree with. OAG’s John Grant wrote:
“Airline start-ups are incredibly difficult, cash rapidly disappears and securing the necessary operating licences frequently takes longer than expected and that’s even before sourcing aircraft, securing slots, avoiding the competition, and building all the necessary reservations systems and back-office support functions.”
And Tim shared the full post with a comment: “OAG is a great data resource for large scale review and schedule activity. This data really doe strike a chord. Airlines are a very risky business. This is very illustrative.”
The other one was an analysis by McKinsey, checking on the aviation value chain’s recovery shared by Patrick, which he introduced with these words: “McKinsey & Company has done an interesting analysis of the aviation value chain. For each subsector, they’ve calculated the “economic profit”, meaning (return on invested capital – weighted average cost of capital) x invested capital. In other words, are firms in that sector creating or destroying value? Their conclusion: only fuel suppliers and freight forwarders created value last year, and airports and airlines lost a lot!”
The Economist’s (My) Response
As an economist by original education and having experience with Startups and Business Angels, I do happen to believe in a sound “business case”. As an airliner, I learned with American to focus on the business case. Like to reconsider twice before approving any waiver on fare rules or trying to upsell to the more expensive (i.e. more flexible) air fare. But I also learned the value of a renowned brand (AA) and service. Or to treat your colleagues as your most valuable customers – they help you sell each and every day. And can ruin a customer relation as quickly.
In “global fares training”, I learned the cost of a flight transfer, something that I never forgot; thanks Ruth King (our fares trainer), I will never forget you.
At Northwest Airlines, I learned that airlines and their managers just sold “cheap”. With full flights in summer season, the airline generated losses on the transatlantic flights. A lesson I’ve seen later over and again. Most sales staff had neither information, nor idea about the “yield” they had to generate to fly profitable. Northwest focused on a minimum yield (revenue per seat-mile) half of that of American. Then sold at that yield as the standard “special fare” and making group offers or “reseller-rebates” below that rate aplenty. As I summarized 2019 on my article about why airlines keep failing, “know your cost”.
Yes, talking about Why Do Airlines Keep Failing. It’s the same response I have on the above two mentioned articles. And many like them. At ASRA 2008, I emphasized brand faces. But I also told those brand faces – the airline sales managers – that they are not there to sell the cheapest price. Anyone can do that, the Internet lives of that. A real sales manager understands that they have to sell the high-end tickets.
Live story, also happened today. Qatar Airways passengers (mother and three kindergarden-aged kids) arrived with >18 hour delay in Düsseldorf. German Rail (clerk) sold tickets to the customer to pick up the passengers that are neither change- nor refundable. So they had to buy completely new (expensive) tickets. A good clerk of this company renowned for it’s unpunctual trains (<60%) would have mentioned the possibility of a flight delay and sold the slightly more expensive tickets that allow for a change. Or at least the optional insurance.
So thinking back to my experiences with Northwest and other such airlines, it’s my questioning about KPIs as well. If my KPI is load and not revenue, I must expect to loose money. It remains beyond me, why airlines offer connecting flight at what a rough calculation on Ryanair or easyJet CASK/CASM (cost per available seat km/mile) proves as below cost, even without the “stop en-route” (landing fees, complexity, etc.). Those are managers who had a nap, when their tutors talked about sound economical calculation? And I keep questioning, why airlines publish loads without revenue per seat. To date, we have hundreds, if not thousands of flights every day, that fly full but loose money. All this is confirmed by the above mentioned and many other such articles.
The Fairy-Tale of Loss Making Airlines
To claim “aviation” is a loss making business is true and can’t be further from the truth.
Yes, many airlines are loss making. And it fits the common reasons I elaborated before. And yes, you can make airlines very profitable, if you have a management that thinks just a bit outside the box and applies economic rules to their modus operandi (mode of operation). But this also goes in line with route development and other areas. If you don’t have your numbers under control and focus on the ones that are “good to sell to shareholders”, you’ll fail.
Like with any company, with any startup, in and outside the aviation sphere, we must constantly have an understanding of our cost. And of the competition. What is it our customer wants? There is a psychological price. If you missed that in your economics studies, make your Internet-search for it now. If you have sales teams, train them to upsell the seats. Sell the higher yield fares. Not at a discount, but at a value!
This is one reason, I do not believe we can make Kolibri ever happen by taking over an already failing or failed airline. Wrong structures, wrong thinking in place. I learned this lesson with Air Berlin. The force of inertia was simply too strong. There are some airline that make revenue, but even their managers I find often blindly “follow the worms” (a Pink Floyd referral, yes, the picture is lemmings).
(That’s) The Way Airlines Operate
But unfortunately, all investors we talk to, always think inside their boxes. Can’t tell how many talks I had to radically change our approach and take A320 and do like everyone else does. Ain’t that contrary to the concept of Unique Selling Propositions?
And has ever a “disruptive investment” (another investor buzz word) been developed out of the box using the same thinking? The same values (I’m the cheapest)?
The others are usually starting to tell you that you have to start with smaller amount of money. Sure way to burn your money is a cheap business plan. As OAG writes “getting to size is so important”. You can’t produce a low cost in small numbers. For us, the ideal mix is seven aircraft, where the “administrative overhead cost” becomes manageable. i.e. You have the same cost if you maintain one – or seven aircraft. The same reservations office (just less staff and calls), only little less marketing. You must outsource your operations (at cost) to share the necessary organization with other small airlines. Etc., etc.
To date, I am still working with consulting companies reviewing airline business plans. Aside the usual failure issues, size is a recurring issue. Another being the lack of fallback in case of flight disruptions, may they be caused by technical issues, weather or other events. Their focus on cheap “human resources” and missing team building results in friction and internal competition that further weakens their product offering.
But even taking that into account, we believe the business and financial plans we developed are sound. And profitable from the outset. With a focus on services and a military-style responsibility “for ours” (no “HR” in that company), a “service-focused concept”. Everyone to pull on the same side of the rope. Yes, not starting with a dead corpse, trying to revive, adds some bureaucratic hurdles. But it allows you to think outside the box and instead of following the worms (or other airlines), to do things “right”.
So ever since I entered into the business, I learned at American Airlines under Bob Crandall how to do things right. And learned over and again that the same mistakes are made by short-sighted, narrow-minded managers. And I know all the reasoning used to distract and divert off the incompetence to operate an economically sound business. Usually, I account this as “no faith in your brand”. That then goes along with topics I mentioned before, like brand dissolution (airlines are often academic example), missing USPs, etc. – Cobalt CEO told me about their USP shortly before their demise “We are Cypriotic”. Seriously? When I started, Lufthansa was the brand. Lufthanseat was the employee. All employees of American Airlines knew “Proud to be AAmerican”. Then came the button counters. And mighty AAmerican was taken over by their once-small rival U.S. Airways. Another box of memories.
So yes, airlines are often a loss making business. With bureaucrats leading them into disaster. Sometimes fast, often times a veeeery long death. Air Berlin and Alitalia are very good examples. “Too big to fail”? Simply “prestigious”? And there are “the others”. Airlines that have an idea about what they are doing. That know their niche(s). That know their cost and marketing. That value their brand. That build a reputation. Until button counters (aka. bureaucrats) take over.
I hope that someone of my hundreds if not thousands of readers (hard to believe, that’s what my server stats claim I’d have) knows some investor with the guts to understand that profitable aviation and sustainable aviation can be the same thing. That the stories those consultancies and their statistics and reports tell have two sides to the coin. And that we get a chance to proof, that climate neutral flying is no heresy, but the future of flight.
Food for Thought – Jürgen
!["Our Obsession with technology will slow down the green transition.” [Lubomila Jordanova]](https://foodforthought.barthel.eu/wp-content/uploads/2021/11/Jordanova-Lubomila-Techfocus-slows-down-green-transition.jpg)
Having been reminded again of 
In 2008, I developed another “disruptive” idea of a hydrogen-powered WIG, to promote the need to think sustainable on a global aviation conference. While it made it through viability study into serious negotiations by a tropical government and a major green fund, it fell victim to Lehman, but I still think it should have been developed. Though since 
While my readers and followers know that I question 
Another issue that keeps coming up in my discussions is that we must stop competing on sustainable solutions. This is a major, not even just an industry or generational challenge. It’s a global one. So let’s stop competing and start joining forces! Back to my example of offshore wind farms and tidal energy turbines. Why not using them side-by-side in the same sea region we anyway impact by building those humongous wind farm structures? Why not using old Oil Rigs to apply tidal energy turbines, clean them, make them an artificial island structure for sea life (also arial one)?
What I learned in my discussions with “green” activists up to government and U.N. levels, is that there is a lot of 
While we now suffer from decades of management misconception that everything must be subordinate to (quick) financial profit and that profits justify the means, we now start to recognize that “sustainability” must be a “shareholder’s value”, as long as “long-term success” (viability). My friends and audience do know I questioned the pure financially focused “shareholder value” for the past 25 years at minimum. And as an economist by “original” profession, I question all those dreamworld models that burn money in the next big hype.
Given the current droughts and considering circular economy, thinking about greenhouses filling entire regions in Spain, I think we will need to invest into vertical farming. Given a “closed system” to improve the water usage. Reduce use of chemical fertilizers, herbicides and pesticides. Discussing with a startup recently, I was surprised on the efforts on seed sequence. Not for the plant or the soil, but to make sure the bees they use at all times find sufficient nectar.
There are many investments into small-scale change, with a focus on two to three years. That by itself should be an issue of concern for any real impact investor. As for climate change and sustainability that can only be a start. What is the 10 year outlook? What impact will it make by 2050?
One of the main concerns we are faced with at Kolibri is our approach to sustainability. First of all, why would an airline turn sustainable, it’s heresy, ain’t it? And why would we pay salaries above country average? Maybe, because they are sustainable and secure the people’s motivation and loyalty?
![“Our Heads Are Round so our Thoughts Can Change Direction” [Francis Picabia]](https://foodforthought.barthel.eu/wp-content/uploads/2021/10/Picabia-Francis-Round-Heads.jpg)
![Man in the Mirror [Michael Jackson]](https://foodforthought.barthel.eu/wp-content/uploads/2020/04/Man-in-the-Mirror-Michael-Jackson.jpg)
In the first year of the pandemic, in the first wave in May, I voiced my expectation already of Corona 
The next big challenge is the look across borders and out of the “industry nations”. Over and again, news about vaccines that expired in the richer nations were met by the ones of i.e. African countries being delivered expiring vaccines or even ones that were not certified in the donor countries. At the same time, vaccines like the Russian Sputnik were still not “certified”. In turn, my own mother-in-law was denied entry into Europe as she got Sputnik, to visit to take care of my kids in my absence, while Yulia (my wife) works full time too.
“Principle Hope” and the Saint-Florian’s Principle dominate our industry: “Oh holy dear Saint Florian, don’t burn my house, take the neighbors one.”
Airports would be well advised to have processes in place to ensure #testingregime for the current and future infections., demanding and assuring the ability for pre-flight testing.
Reports I read fed hopes again about a summer recovery in Europe. A recovery now threatened by the new BA.5 variant spreading throughout Europe. And again, what is the airlines’ role in spreading those new variants so quickly across countries? And Lufthansa recently cancelled 600 flights (5%) for lack of staff. A main reason being the infection of their own. Mainly infected “at work”. What was that again about employee health protection? Naaaw, let’s not play it safe, let’s go back to old normal?
Speaking to airline and airport managers, they prioritize no “new normal” which they promoted in the beginning of the pandemic. But they focus to “renormalize” back to the old normal. Which bites them in the butt over and again. Demands are to lift mask and testing requirements. In an obvious ignorance of the pandemic development. In line with political developments, but not in line with the infection rates.
There can be reasons to fly an aircraft even empty.
Another would be to rotate the pilots to make sure they all keep their “type rating”, their license to fly the aircraft. Which also expires just too quickly. And while airlines now recognize the shortfall on pilots that they had either “laid off” (fired) and (or) didn’t support in keeping their type rating, the current feedback from pilots is that airlines still fail to have programs in place to rotate the pilots as good as they could to keep the type-ratings.
And we talk about leveling the energy to a sustainable level. Use as much energy as you return. Like 
The war in the Ukraine will impact not just long-haul travel, like the reestablishing of the polar route avoiding Russian air space. And that we can not trust in “neutral air space” we learned when Belarus took down a civil aircraft from transit with the sole reason to jail a political opponent living in exile abroad.
Another issue that slowly reaches the public is the issue of batteries catching fire. First major reports were on the 
Worse, recently despite their relative low numbers, electric cars are increasingly reported to catch fire. Some at first loading at a standard, approved home loading facility, others while driving. Different from gasoline, a thermal runaway and the resulting battery explosions cause a much higher real danger to the cars passengers. And it does not help to distinguish the fire, but such car must be placed into a water tank for several days to cool down the batteries. And after a fire, such cars usually are beyond any recycling. The picture just one example of the many that can be found on the Internet.
Incorrect disposal of Li-ion batteries can have a devastating environmental impact on the environment, sparking the need for recycling (
German Automotive Club ADAC just recently reported the average range of electric cars being about 350 km (220 miles), up from 250 km (150 miles) five years ago. Thinking about my role as an airline sales manager some years ago, for a road trip, I traveled frequently more than 500 km a day. Then I shall load the car after a half day, sitting around while waiting? Keep in mind, that corporate fleets and rental cars are the main buyers of new cars! And they don’t buy them because they park them most of the time…?
As I mentioned in my post about 
Ready Player One? I love SciFi. There’s a lot really good ideas how we could merge individual transportation needs with “public” transportation. But that’s SciFi. We need to take the best ideas and evolve our transportation to sustainable ways in the real world. We must reduce energy. Integrate transport modes. Why does it remind me of the question why the big train stations are not at the airports? The “new” Berlin Airport being a perfectly bad example on this!
1971 (yes, 40 years ago and as a kid) I became a fan of Roger Leloup, spending my pocket money on comics. And when Hyperloop became a buzz, I couldn’t help it to remember Leloup’s Vinean transport system.
To make a real change, you need a team of entrepreneurs thinking outside the box. Way outside the box. But with an experience on pioneering work, overcoming the 
While we talk with impact investors, we do also understand the European Central and the European Investment Bank claiming to be “Sustainability Banks”. Talking with the very same investors being “naturally” and clearly interested in sustainable projects, we asked why they would not make use of those funds to complement an investment into Kolibri or other impact investments.
At the same time, the plastics industry is booming. And instead of developing sustainable packaging, the trend is clearly towards mixed-use, the known bad example being “Tetra Pak®“; a packaging made of several layers that make it exceptionally 
Now, how about “my industry”, how about aviation? And why is it constantly the scapegoat and blamed for global warming?
Speaking with one of those “challengers”, he argued that in 10 years the first regional aircraft will fly on fuel-cells. Being “project planning”, I’d say better add 50% reserve to that, then we talk about 15 years. And personally I still doubt that time line. And then we will have aircraft with 10, 20 or maybe 30 seats. With a range of one to two hours. When we will have aircraft that transports 100 seat? Or ones that can replace the 150-250 seats used by the low cost airlines? When do we expect aircraft to transport 250-350 passengers long haul? Hiding behind “Research”? Science Fiction…
Sustainable economy and global warming are big issues today, but most that we see is lip services. An investor group just recently checked impact investments for the “real” impact. They reported about 4% of all investments having a quantifiable impact or quantifiable targets. Only 4%. All others to be #greenwashing. On the “impact programs” of the 100 largest companies in Europe they found not a single one having more than one or two percent impact to global warming. Most of them being “lighthouse projects” that are being developed inside a “bubble” that does not immediately impact the company. Mostly lip-services addressing already established programs, but don’t really change the existing processes.