wolfpacker
Posts: 343
Joined: Tue Jun 29, 1999 2:35 am

Small Airline Survival

Thu Jun 13, 2002 5:11 am

Can a small airline, under 10 aircraft, survive in todays market?

Example - Midway has 5 737s and is doing ok, from what I hear. But in the world today most airlines are trying to get bigger, i.e. more flights, better frequent flier programs, etc.

Thanks in advance.
 
PacificFlyer
Posts: 380
Joined: Sat Nov 03, 2001 11:30 am

RE: Small Airline Survival

Thu Jun 13, 2002 5:25 am

Air Tahiti Nui only operate two A340s. They were just operating with a single aircraft before.
 
Noise
Posts: 2017
Joined: Wed Dec 22, 1999 7:38 am

RE: Small Airline Survival

Thu Jun 13, 2002 5:29 am

They basically have to fly where they can make money. If they can't make money on a certain route, they shouldn't fly it.
 
N79969
Posts: 6605
Joined: Tue Jan 29, 2002 1:43 am

RE: Small Airline Survival

Thu Jun 13, 2002 6:11 am

Midway is around because the NC's congressional delegation saved it after it had ceased flying. AirTahiti also fly some ATRs as well.

To answer your question, small airlines are not viable businesses in my opinion. The airline industry is very capital intensive and there is very little room for product differentiation. The fixed costs are huge. Because of the amount of capital required to enter the business and low returns- the incentive for airlines is to get big. Since the rate of return is pretty much pegged, it makes sense to make that return on the largest amount of capital you can get. (Hope that makes sense)

There are also economies of scale and network effects that provide strong incentives for airlines to grow. The economies of scale are evident in airline hubs. The more airplanes and frequencies that are flown- the more fixed costs can be amortized.

Growing the network either organically or by codeshare lets airlines compete nationally and internationally. One of USAirways weaknesses is that they have such a weak presences outside of the Eastern US. They have a hard time competing in terms of destinations and frequencies with other airlines that have hubs in the east such as Continental or Delta.

In the short term, I think we will see small airlines come and go. In the long run, it is the big carriers that can hang through business cycles by virtue of their size and their network strength.
 
wolfpacker
Posts: 343
Joined: Tue Jun 29, 1999 2:35 am

RE: Small Airline Survival

Fri Jun 14, 2002 5:08 am

I agree with the economy of scale. Too bad the local residents don't see the benefits of a local airline, i.e. prices, local jobs, etc.
 
Guest

RE: Small Airline Survival

Fri Jun 14, 2002 5:35 am

It helps if an airline has a niche. The no-frills carriers all started out small -- both Southwest and Westjet started out with three airplanes -- but grew rapidly because they filled a void in the market.

Here in Canada, there are also a lot of very small airlines that specialise in serving tiny communities and wilderness lodges out in the northern frontier, many of which can only be reached by air or canoe.

A lot of failed airlines are Johnny-come-latelys trying to imitate what another airline is already doing.

 
Treg
Posts: 488
Joined: Tue Oct 16, 2001 8:55 pm

RE: Small Airline Survival

Fri Jun 14, 2002 6:07 am

Yes, it is possible. At least here in Europe

For example: Estonian Air (2 F50 and 2 735) and they are making profit!