newswatcher
1st Aug 2002, 08:37
From the Guardian(31/7):
"Forget broadband telecoms, boutique investment banks and branded restaurant chains. The trendiest business opportunity of the moment is spartan, ascetic and charges customers pounds 3.95 for a sandwich. A budget airline is this year's surefire way to make a million.
Swept along in the tailwind of EasyJet and Ryanair, everybody wants a no-frills carrier. Holiday company MyTravel is limbering up for a low-cost launch. Ciao Fly, which runs daily flights to Italy, made its debut at Luton this month.
British European has just rebranded with the no-frills monicker Flybe.com, while BMI British Midland is opening a second base at Cardiff for its budget carrier bmibaby.
It has never been easier to set up an airline - traditional barriers to entry have come tumbling down.
With valleys full of mothballed planes in the Californian desert, aircraft are available on ten-a-penny leases. Brussels has cut through red tape on European routes, allowing liberal access to airport slots. Meanwhile, the internet means rock-bottom marketing costs - no more vast call centres or networks of fussy travel agents.
There are thousands of entrepreneurs who dream of being Stelios Haji-Ioannou. With a little imagination, the sky is no limit. The Guardian presents a step-by-step guide to starting your own budget airline.
1 Get the planes
The Boeing 737 is the standard workhorse of the no-frills operator. But with a catalogue price of some pounds 30-40m, your Prince's Trust young enterprise grant is going to be stretched. A simpler solution is to go to one of the world's top two leasing companies - International Lease Finance Corporation or GE Capital - and borrow a couple of ageing aircraft.
However, renting a plane is a good deal tougher than renting a car or a video. Leasing firms don't release their 40-tonne machines to any Tom, Dick or Harry.
Toby Nicol, director of corporate affairs at EasyJet, says: "Depending on how progressive they are, they may either laugh at you or think you're the next Stelios. What they think of you will determine the fee."
With a sharp suit, a bit of sweet-talking and a lot of luck, the big boys could be persuaded to hand over an initial two 737s - enough for an embryonic airline - for perhaps $150,000 (pounds 100,000) a month.
2 Hire the staff
To work the fleet to the limit, each plane needs six sets of crew - each consisting of two pilots and four cabin crew.
Pilots don't come cheap. Even on low-cost carriers, they typically earn pounds 60,000 a year. A spokesman for the British Airline Pilots' Association suggests dipping into the armed forces: "Quite a few pilots come from the armed forces - airlines like that, because there's less training involved.
"Obviously you can't just step out of a Tornado and straight into a 737 but it's more a question of refreshing their training than starting from scratch."
There is never a shortage of budding travellers wanting to become stewards and stewardesses. But a new carrier will need experienced staff to cope with inevitable early hiccups. One airline source says: "You might find it difficult to get experienced people. They might not think it's a dream move."
3 Apply for a licence
This is tricky. Anyone who wants to run an airline in Britain needs an air operators' licence. A four-page application form is available on the Civil Aviation Authority's website, with basic questions about routes, planes, directors' names and ownership.
But if the government doesn't like the look of you, it can make life difficult. The rules say that any airline must prove that it is "financially viable", with enough money to avoid leaving passengers stranded. The CAA declined to elaborate on the precise nature of "viability", which means it can set the hurdle where it likes.
EasyJet hit on an innovative solution - it "borrowed" a licence from a Luton charter firm, Air Foyle. In its early days, EasyJet was a virtual airline - its flights were on Air Foyle planes, captained by Air Foyle pilots. The only distinctive feature was EasyJet's phone number, painted in bright orange letters along the side. It was some time before founder Stelios Haji-Ioannou got round to obtaining a full operating licence himself.
4 Secure the slots
This is where charm, chutzpah and charisma come into play. Particularly at airports around London, take-off and landing slots are at a premium. Smaller carriers constantly complain of being squeezed out.
Slots at BAA's seven British airports are handled by a special agency, Airport Co-ordination Ltd. A helpful chap manning the phones suggests a spot of networking. He reckons the best place to start will be Vancouver in September, for the annual scheduling conference of the International Air Transport Association: "You can make informal contact with people there, then submit a request to us by telex."
A spokesman for Britain's low-cost mecca, Stansted Airport, is not encouraging, advising that available slots are largely in the quiet middle of the day - useless for that businessman with a 9am meeting in Frankfurt.
But Luton is more encouraging. Passenger services director Natalie Raper says: "We've got slots for you. Even if you're going to destinations already served by the airport, we'd welcome the fresh competition. We'd nurture your airline and do everything we possibly could to help you."
Theoretically, flying to other EU countries doesn't require any government approval. It's simply a question of negotiating with foreign airports. By picking particularly outlandish destinations, Ryanair and Buzz have even persuaded some overseas airports to pay them for their custom. Ambitions to break into Paris Charles de Gaulle are best forgotten for the time being, although a helpful airline source suggests that Munich is looking empty.
5 Outsource everything on the ground
The likes of Go, EasyJet and Ryanair rarely bother employing more than a handful of staff at airports. They contract out most jobs to specialist agencies.
Groundstar, a Newcastle-based handling agent, recently took on one of the trickiest accounts in the low-cost world - handling Ryanair's flights at Stansted. Ryanair was forced to admit this month that problems have followed, with tem pers rising due to staff shortages and broken baggage belts.
An assistant at Groundstar's head office says however that the company provides an A to Z service for airlines. Its staff check in passengers, load bags, check passports, clean aircraft, "push back" planes for take-off and pacify angry travellers.
However, our airline will also need a fuel supplier and a catering contractor, even if on-board meals amount to nothing more than Pringles and limp chicken sandwiches.
Ground-handling in Britain is dominated by a handful of agencies - notably Servisair and Aviance (until recently known as Reed Aviation).
Arrangements at continental destinations can be more informal, according to weary airline executives. One aviation source says: "The boss of an airport might tell us we can land there. But he'll say: "you must use Jose's fuel and my cousin's catering company"."
6 Set up the website
Selling seats on the internet is much cheaper than running a call centre or using travel agents. But the software is critical - it needs to incorporate "yield management", with prices constantly adjusted according to availability on each flight.
EasyJet has come a cropper with its reservation software. The airline says it spent pounds 2m writing its own booking system. But a US firm, Navitaire, has launched legal action, accusing EasyJet of software piracy. Getting the website right will be crucial to the success of the airline - passengers are guaranteed to be alienated by a site which keeps crashing.
If all goes well, the time from conception to take-off could be as little as six months. But be warned - flying is a risky business. Robert Crandall, former boss of the world's biggest carrier American Airlines, recently pointed out that the world's airline industry has lost as much money as it has made since the Wright Brothers invented manned, powered flight at Kitty Hawk in 1903. Some City investors joke that the best way to deliver shareholder value would have been to shoot the brothers down.
It may be easier than ever to get off the ground. But canny airline executives say there is only one sure-fire way to make a small fortune in the aviation industry - start with a big fortune.
"Forget broadband telecoms, boutique investment banks and branded restaurant chains. The trendiest business opportunity of the moment is spartan, ascetic and charges customers pounds 3.95 for a sandwich. A budget airline is this year's surefire way to make a million.
Swept along in the tailwind of EasyJet and Ryanair, everybody wants a no-frills carrier. Holiday company MyTravel is limbering up for a low-cost launch. Ciao Fly, which runs daily flights to Italy, made its debut at Luton this month.
British European has just rebranded with the no-frills monicker Flybe.com, while BMI British Midland is opening a second base at Cardiff for its budget carrier bmibaby.
It has never been easier to set up an airline - traditional barriers to entry have come tumbling down.
With valleys full of mothballed planes in the Californian desert, aircraft are available on ten-a-penny leases. Brussels has cut through red tape on European routes, allowing liberal access to airport slots. Meanwhile, the internet means rock-bottom marketing costs - no more vast call centres or networks of fussy travel agents.
There are thousands of entrepreneurs who dream of being Stelios Haji-Ioannou. With a little imagination, the sky is no limit. The Guardian presents a step-by-step guide to starting your own budget airline.
1 Get the planes
The Boeing 737 is the standard workhorse of the no-frills operator. But with a catalogue price of some pounds 30-40m, your Prince's Trust young enterprise grant is going to be stretched. A simpler solution is to go to one of the world's top two leasing companies - International Lease Finance Corporation or GE Capital - and borrow a couple of ageing aircraft.
However, renting a plane is a good deal tougher than renting a car or a video. Leasing firms don't release their 40-tonne machines to any Tom, Dick or Harry.
Toby Nicol, director of corporate affairs at EasyJet, says: "Depending on how progressive they are, they may either laugh at you or think you're the next Stelios. What they think of you will determine the fee."
With a sharp suit, a bit of sweet-talking and a lot of luck, the big boys could be persuaded to hand over an initial two 737s - enough for an embryonic airline - for perhaps $150,000 (pounds 100,000) a month.
2 Hire the staff
To work the fleet to the limit, each plane needs six sets of crew - each consisting of two pilots and four cabin crew.
Pilots don't come cheap. Even on low-cost carriers, they typically earn pounds 60,000 a year. A spokesman for the British Airline Pilots' Association suggests dipping into the armed forces: "Quite a few pilots come from the armed forces - airlines like that, because there's less training involved.
"Obviously you can't just step out of a Tornado and straight into a 737 but it's more a question of refreshing their training than starting from scratch."
There is never a shortage of budding travellers wanting to become stewards and stewardesses. But a new carrier will need experienced staff to cope with inevitable early hiccups. One airline source says: "You might find it difficult to get experienced people. They might not think it's a dream move."
3 Apply for a licence
This is tricky. Anyone who wants to run an airline in Britain needs an air operators' licence. A four-page application form is available on the Civil Aviation Authority's website, with basic questions about routes, planes, directors' names and ownership.
But if the government doesn't like the look of you, it can make life difficult. The rules say that any airline must prove that it is "financially viable", with enough money to avoid leaving passengers stranded. The CAA declined to elaborate on the precise nature of "viability", which means it can set the hurdle where it likes.
EasyJet hit on an innovative solution - it "borrowed" a licence from a Luton charter firm, Air Foyle. In its early days, EasyJet was a virtual airline - its flights were on Air Foyle planes, captained by Air Foyle pilots. The only distinctive feature was EasyJet's phone number, painted in bright orange letters along the side. It was some time before founder Stelios Haji-Ioannou got round to obtaining a full operating licence himself.
4 Secure the slots
This is where charm, chutzpah and charisma come into play. Particularly at airports around London, take-off and landing slots are at a premium. Smaller carriers constantly complain of being squeezed out.
Slots at BAA's seven British airports are handled by a special agency, Airport Co-ordination Ltd. A helpful chap manning the phones suggests a spot of networking. He reckons the best place to start will be Vancouver in September, for the annual scheduling conference of the International Air Transport Association: "You can make informal contact with people there, then submit a request to us by telex."
A spokesman for Britain's low-cost mecca, Stansted Airport, is not encouraging, advising that available slots are largely in the quiet middle of the day - useless for that businessman with a 9am meeting in Frankfurt.
But Luton is more encouraging. Passenger services director Natalie Raper says: "We've got slots for you. Even if you're going to destinations already served by the airport, we'd welcome the fresh competition. We'd nurture your airline and do everything we possibly could to help you."
Theoretically, flying to other EU countries doesn't require any government approval. It's simply a question of negotiating with foreign airports. By picking particularly outlandish destinations, Ryanair and Buzz have even persuaded some overseas airports to pay them for their custom. Ambitions to break into Paris Charles de Gaulle are best forgotten for the time being, although a helpful airline source suggests that Munich is looking empty.
5 Outsource everything on the ground
The likes of Go, EasyJet and Ryanair rarely bother employing more than a handful of staff at airports. They contract out most jobs to specialist agencies.
Groundstar, a Newcastle-based handling agent, recently took on one of the trickiest accounts in the low-cost world - handling Ryanair's flights at Stansted. Ryanair was forced to admit this month that problems have followed, with tem pers rising due to staff shortages and broken baggage belts.
An assistant at Groundstar's head office says however that the company provides an A to Z service for airlines. Its staff check in passengers, load bags, check passports, clean aircraft, "push back" planes for take-off and pacify angry travellers.
However, our airline will also need a fuel supplier and a catering contractor, even if on-board meals amount to nothing more than Pringles and limp chicken sandwiches.
Ground-handling in Britain is dominated by a handful of agencies - notably Servisair and Aviance (until recently known as Reed Aviation).
Arrangements at continental destinations can be more informal, according to weary airline executives. One aviation source says: "The boss of an airport might tell us we can land there. But he'll say: "you must use Jose's fuel and my cousin's catering company"."
6 Set up the website
Selling seats on the internet is much cheaper than running a call centre or using travel agents. But the software is critical - it needs to incorporate "yield management", with prices constantly adjusted according to availability on each flight.
EasyJet has come a cropper with its reservation software. The airline says it spent pounds 2m writing its own booking system. But a US firm, Navitaire, has launched legal action, accusing EasyJet of software piracy. Getting the website right will be crucial to the success of the airline - passengers are guaranteed to be alienated by a site which keeps crashing.
If all goes well, the time from conception to take-off could be as little as six months. But be warned - flying is a risky business. Robert Crandall, former boss of the world's biggest carrier American Airlines, recently pointed out that the world's airline industry has lost as much money as it has made since the Wright Brothers invented manned, powered flight at Kitty Hawk in 1903. Some City investors joke that the best way to deliver shareholder value would have been to shoot the brothers down.
It may be easier than ever to get off the ground. But canny airline executives say there is only one sure-fire way to make a small fortune in the aviation industry - start with a big fortune.