sandyb123
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Could A 'virtual' Airline Work?

Sat Jan 04, 2014 3:13 pm

Hi all,

I was reading up again on the the two failed attempts of Martin Halstead to start an airline in the UK, Alpha One Airways and subsequently Varsity Express .

Martin's vision was to start an airline by subcontracting the flying to 3rd parties, basically on an ACMI lease and using their AOC. His contribution was to run the sales and marketing function of the operation.

However his plan came under great criticism especially as he didn't have the money to float it into a viable business. Alpha One never made it off the ground and Varsity lasted a week before Links Air pulled the plug sighting unpaid debts.

He was also accused of fraud by the pilots who had paid into the business, suppliers and airlines that he used and the CIty Of London police investigated the accusation and although his foray was foolish, he was found not to be guilty of fraud.

There are a few other examples of 'virtual' airlines such as Citywing

Is this a viable business model? Is it possible to set up an airline 'brand' from nothing and subcontract all of the delivery to 3rd parties?

Sandyb123

[Edited 2014-01-04 07:18:26]
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sccutler
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RE: Could A 'virtual' Airline Work?

Sat Jan 04, 2014 3:21 pm

Inasmuch as airlines are, in essence, service businesses, I believe not.
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lanalemania
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RE: Could A 'virtual' Airline Work?

Sat Jan 04, 2014 3:28 pm

It probably works for some markets, although it's more of a tour operator with a different marketing approach IMO. 'Kosovo Airlines' might be an example of that, they don't operate on an own AOC but appear as a carrier with an own brand. All flights they sell (some of them exclusively) are operated by other airlines, such as Edelweiss Air or Germanwings.
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RE: Could A 'virtual' Airline Work?

Sat Jan 04, 2014 3:35 pm

Quoting sandyb123 (Thread starter):
Is this a viable business model? Is it possible to set up an airline 'brand' from nothing and subcontract all of the delivery to 3rd parties?

If the situation is right yes, it works very well, but only if you are able to build a sound and well financed business model around the operation with competent management. This also sums up why, IMO, Halstead's operations failed.


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RE: Could A 'virtual' Airline Work?

Sat Jan 04, 2014 3:46 pm

Quoting sandyb123 (Thread starter):
Is this a viable business model? Is it possible to set up an airline 'brand' from nothing and subcontract all of the delivery to 3rd parties?

Although it was always the intent to become a "normal airline", Easyjet started this way with the flying sub-contracted to and operated on a 3rd party's AOC. They started operations using GB Airways then changed to Air Foyle.
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RE: Could A 'virtual' Airline Work?

Sat Jan 04, 2014 3:49 pm

Citywing / Manx2 prior to their rebrand do seem to be surviving on that basis - founded in 2006 - but I suspect it's an approach that doesn't scale. They only have single figure numbers of aircraft in their 'fleet' at any one time.
 
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RE: Could A 'virtual' Airline Work?

Sat Jan 04, 2014 3:54 pm

iirc, there were also issues about who was responsible for what when a "Manx" aircraft crashed in Cork a couple of years ago.
 
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RE: Could A 'virtual' Airline Work?

Sat Jan 04, 2014 4:11 pm

Quoting sandyb123 (Thread starter):
Martin's vision was to start an airline by subcontracting the flying to 3rd parties, basically on an ACMI lease and using their AOC. His contribution was to run the sales and marketing function of the operation.

Isn't this essentially the business model of OO and other CPA-only air carriers?
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RE: Could A 'virtual' Airline Work?

Sat Jan 04, 2014 4:22 pm

Quoting EA CO AS (Reply 7):
Isn't this essentially the business model of OO and other CPA-only air carriers?

I realised after I had posted earlier that this is OO's (et al) business model and that proves it is scalable (I think Skywest Holdings have about 700 aircraft now????)
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RE: Could A 'virtual' Airline Work?

Sat Jan 04, 2014 4:42 pm

There's been several attempts at such airlines in the past and they went down in flames. In two cases, Xtra Airways was the airline doing the bulk of the flying for these virtual airlines:

Western Airlines (2007):


View Large View Medium
Click here for bigger photo!

Photo © Matthew C. Lyons



Operations ceased less than three weeks after they started because Western wasn't paying Xtra as well as the fuel supplier at Bellingham, WA.

(Myrtle Beach) Direct Air (2006-2012):

Used a variety of airlines over the years (Xtra, Sky King, Vision, USA Jet, Dynamic, Miami Air, World Atlantic, Falcon Air, and even Virgin America for a time.), but primarily used Xtra and Sky King. Operations ceased because suppliers weren't being paid (airlines and fuel suppliers) and Sky King blamed their 2012 bankruptcy filing on Direct Air and their bankruptcy and liquidation (Sky King was owed over a $1 million by Direct Air.).

Hooters Air (2003-2006):

Flights were operated by Pace Airlines, which was an airline Hooters of America CEO Robert Brooks bought in order the launch the airline (He has originally planned to acquire Vanguard, which was in bankruptcy, but the offer was rejected.).


These sort of operations are a workaround to the regulations that startup carriers in the US are subject to, as in the late 90s, new regulations put more scrutiny and gov't oversight on startup airlines in the wake of the high-profile crash of ValuJet 592 in which the FAA and DOT were criticized for not keeping a close watch on the airline as it had a number of incidents that were abnormally high for an airline of that size.
 
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RE: Could A 'virtual' Airline Work?

Sat Jan 04, 2014 4:42 pm

What about Midwest at the end?
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RE: Could A 'virtual' Airline Work?

Sat Jan 04, 2014 4:50 pm

I think starting a virtual airline from scratch would be difficult, but might be possible under the existing alliance structures. A "Oneworld Airlines" could have the Oneworld brand and paint scheme on the aircraft that we are accustomed to today.
 
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RE: Could A 'virtual' Airline Work?

Sat Jan 04, 2014 5:14 pm

Pace also operated as Patriot Air and Air Santo Domingo.
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RE: Could A 'virtual' Airline Work?

Sat Jan 04, 2014 5:19 pm

That is exactly how WOW Air was/is operated. They started flying in the spring 2012. Using leased aircraft from Air VIA and Avion Express. in 2013 they got their own AOC from the Icelandic authorities.
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RE: Could A 'virtual' Airline Work?

Sat Jan 04, 2014 6:06 pm

Virtual airlines already work. Bigtime. The world's largest airlines are, in fact, significantly virtual -- American, United, and Delta. All three of them feature substantial outsourced regional ops that comprise over 40% of their total daily flights, with some hubs having over 80% of their flying performed by someone other than the mainline carrier itself.

If that ain't virtual, I don't know what is.
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RE: Could A 'virtual' Airline Work?

Sat Jan 04, 2014 6:07 pm

Quoting EA CO AS (Reply 7):
Quoting sandyb123 (Thread starter):
Martin's vision was to start an airline by subcontracting the flying to 3rd parties, basically on an ACMI lease and using their AOC. His contribution was to run the sales and marketing function of the operation.

Isn't this essentially the business model of OO and other CPA-only air carriers?

If I'm reading this correctly, I actually think it's the opposite.

OO and other regionals do their own flying (many own their own planes), but someone else does the marketing and sells the tickets.

As I'm reading the OP, the idea is to have an "airline" that has no planes or crews, but sells tickets. Think of United Express without United mainline. So, SkyWest, Mesa, Republic, etc., would all fly for some carrier, using their branding, but that branded carrier wouldn't have any planes of its own.
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RE: Could A 'virtual' Airline Work?

Sat Jan 04, 2014 9:37 pm

You need the ability to enter into a contract with the customer. Everything else - aircraft, crew, marketing, maintenance, operating certificate, can be out-sourced.
 
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RE: Could A 'virtual' Airline Work?

Sat Jan 04, 2014 10:15 pm

Quoting sccutler (Reply 1):

Inasmuch as airlines are, in essence, service businesses, I believe not.

So are hotels and restaurants, and two of the biggest organizations in both those industries operate as franchises.

Best Western Hotels - which owns and operates very few of it's own properties
McDonald's - again owns and operates very few of it's chains

I know that an airline is different than a brick & mortar service business, and that the 'virtual' company would probably want a strong say in the operations of it's subcontractors, as well as carry a decent amount of risk.

Here's one example I found (albeit an obscure one) in the US that is a 100% vitual airline.

Linear Air - http://www.linearair.com/ - which sells scheduled flights on Cirrus SR-22 aircraft to a few points around the northeast and midwest.

All of the services are provided by a different operating carrier - Linear doesn't have any of it's own aircraft. And not only that - but there are 4 separate operators providing the services.

I think technically it could work, but said Virtual airline would have just as much barrier to entry as a regular start-up airline, plus the hassle of coordinating with the other operators. However, if the AOC used is that of the actual operator, maybe this would actually remove some barriers to entry.

Maybe it could be a good way to start business while putting together other aspects (certifications, aircraft financing, etc) to eventually wean the company off of sub-operators and begin go operate it's own services.

'902
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RE: Could A 'virtual' Airline Work?

Sat Jan 04, 2014 10:39 pm

You might want to start a travel company, buile a clientelle then buy your OWN airplanes Certify your airline and fire your Contractors to fly your clientelle yourself. It's not hard to go that way but to build an airline is one thing abd a travel company quite another. Allegiant is both a Travel company and an Airline. Whay begat whom?? I have no Idea but it Works!
 
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RE: Could A 'virtual' Airline Work?

Sat Jan 04, 2014 10:49 pm

Reading the headline I thought you were talking about an airline that only offers codeshare flights.  
 
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RE: Could A 'virtual' Airline Work?

Sat Jan 04, 2014 10:58 pm

Morris Air Started this way. Originally they were called Morris Air Charter, then changed to Morris Air, and mostly operating public charter flights. For most of their mainland service they used Sierra Pacific., and at times Braniff III. For their Hawaiian operations they used Total Air, and several other DC8 operators.
 
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RE: Could A 'virtual' Airline Work?

Sun Jan 05, 2014 1:31 am

Quoting LH422 (Reply 19):
Reading the headline I thought you were talking about an airline that only offers codeshare flights.

I'm under the impression that that's essentially what we're talking about. Imagine for example a United Airlines which sold tickets, planned networks, etc etc, but flights were operated by the same airlines that currently fly as "United Express" with no aircraft actually belonging to the airline itself.

Unless of course you mean that today someone would attempt to start an airline and create a "network" by codesharing on already-existing services of other airlines without actually operating any aircraft themselves. Sort of like weaving an airline out of other airline's threads!

'902
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RE: Could A 'virtual' Airline Work?

Sun Jan 05, 2014 2:15 am

Quoting sandyb123 (Thread starter):
subcontract all of the delivery to 3rd parties?

Ask QF which to Europe are little more than a travel agent for EK.
 
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RE: Could A 'virtual' Airline Work?

Sun Jan 05, 2014 2:27 am

Quoting homsar (Reply 15):
OO and other regionals do their own flying (many own their own planes), but someone else does the marketing and sells the tickets.

None of it is at-risk flying though, they're all "cost-plus" capacity purchase agreements.

Quoting homsar (Reply 15):
As I'm reading the OP, the idea is to have an "airline" that has no planes or crews, but sells tickets.

This actually exists; an "airline" called Hahn Air that is merely the plating "carrier" for travel agencies that cannot or will not issue on other air carrier's stock. As the ticketing carrier, agencies sell tickets on other worldwide carriers and issue them on "Hahn Air" stock; Hahn holds all the funds until the customer travels and then the airline doing the flying bills back Hahn for the value of the flight coupon that was pulled.
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RE: Could A 'virtual' Airline Work?

Sun Jan 05, 2014 5:29 am

We already have this. It's called Expedia, Orbitz etc.

No difference.
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RE: Could A 'virtual' Airline Work?

Sun Jan 05, 2014 7:39 am

I just went to the Star Alliance website and went through the process of booking a round the world trip from SYD -SYD and several stops in Asia, ME, Europe, USA and back to OZ. I noted that at no time was there any flight operated by an airline called "Star Alliance". In answer to your question, I can name 3 big ones!
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RE: Could A 'virtual' Airline Work?

Sun Jan 05, 2014 8:30 am

Quoting EIDL (Reply 5):
Citywing / Manx2 prior to their rebrand do seem to be surviving on that basis

Indeed - they're doing very well indeed and have been very successful, bringing viable scheduled services back to my own local airport at Gloucester  http://www.citywing.com/cgi-bin/airkiosk/I7/181002i?NM=2&LANG=EN
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RE: Could A 'virtual' Airline Work?

Sun Jan 05, 2014 3:56 pm

Quoting gulfstream650 (Reply 24):

We already have this. It's called Expedia, Orbitz etc.

No difference.

By your rationale, brick and mortar travel agencies are "virtual airlines" as well, which is far from the case. There's no "Expedia Airlines" or "Orbitz Airways" as they are merely selling tickets on airlines just as travel agents have been doing for years.

Quoting EA CO AS (Reply 23):
This actually exists; an "airline" called Hahn Air that is merely the plating "carrier" for travel agencies that cannot or will not issue on other air carrier's stock. As the ticketing carrier, agencies sell tickets on other worldwide carriers and issue them on "Hahn Air" stock; Hahn holds all the funds until the customer travels and then the airline doing the flying bills back Hahn for the value of the flight coupon that was pulled.

Hahn Air in some respects, is just another travel site, albeit one for the airline and travel industry as opposed to the general public. They seem to have shifted their business model to being a sort of clearinghouse/travel bank making use of their status as an airline instead of actually operating flights. If one of the major travel sites wanted to, they could probably do the same exact thing Hahn Air is doing.

Quoting strfyr51 (Reply 18):
Allegiant is both a Travel company and an Airline. Whay begat whom?? I have no Idea but it Works!

Allegiant was an airline first and a travel company later, as that was part of the reinventing of the airline after they went bankrupt in 2000 and were taken over by current management.
 
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RE: Could A 'virtual' Airline Work?

Sun Jan 05, 2014 6:09 pm

Quoting srbmod (Reply 9):
There's been several attempts at such airlines in the past and they went down in flames. In two cases, Xtra Airways was the airline doing the bulk of the flying for these virtual airlines:

Western Airlines (2007):


View Large View Medium

Photo © Matthew C. Lyons



Operations ceased less than three weeks after they started because Western wasn't paying Xtra as well as the fuel supplier at Bellingham, WA.

(Myrtle Beach) Direct Air (2006-2012):

Used a variety of airlines over the years (Xtra, Sky King, Vision, USA Jet, Dynamic, Miami Air, World Atlantic, Falcon Air, and even Virgin America for a time.), but primarily used Xtra and Sky King. Operations ceased because suppliers weren't being paid (airlines and fuel suppliers) and Sky King blamed their 2012 bankruptcy filing on Direct Air and their bankruptcy and liquidation (Sky King was owed over a $1 million by Direct Air.).

Hooters Air (2003-2006):

Flights were operated by Pace Airlines, which was an airline Hooters of America CEO Robert Brooks bought in order the launch the airline (He has originally planned to acquire Vanguard, which was in bankruptcy, but the offer was rejected.).

I can name four others:

-SkyValue (based at GYY; used Xtra aircraft)
-JetAmerica (home base TOL; was to use Miami Air aircraft and originally was to be Air Azul - closed before first flight, and the story was legendary)
-MetJet (home base GRB; used SY aircraft - I felt sad for this one as their CEO was a fellow a.netter)
-Southern Skyways (used various bases and operators)
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sandyb123
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RE: Could A 'virtual' Airline Work?

Sun Jan 05, 2014 7:36 pm

Quoting TWA902fly (Reply 17):
So are hotels and restaurants, and two of the biggest organizations in both those industries operate as franchises.
Franchises are not really equivalent to the business model being discussed here.

Quoting gulfstream650 (Reply 24):
We already have this. It's called Expedia, Orbitz etc. No difference.

These are travel agents and never actually have their name on the aircraft. I'm talking about a business that runs as an airline and nothing else.

Quoting ERJ135 (Reply 25):
I just went to the Star Alliance website and went through the process of booking a round the world trip from SYD -SYD and several stops in Asia, ME, Europe, USA and back to OZ. I noted that at no time was there any flight operated by an airline called "Star Alliance". In answer to your question, I can name 3 big ones!

Well the alliances are something of a special case but in the example above is them acting as a travel agent. Although their logo does appear on the aircraft of the member airlines, they are not the predominant or operating brand.

Quoting viscount630 (Reply 26):
Indeed - they're doing very well indeed and have been very successful, bringing viable scheduled services back to my own local airport at Gloucester  http://www.citywing.com/

Citywing is the closest example I can find to what I am talking about. Their aircraft are branded Citywing and customers book exclusively through their website / sales channels. For AOC rules the customer needs to know who they are actually flying with, but I bet if you asked 95% of their passengers they would say Citywing, not Van Air Europe.


I think it's a very interesting business model, but only seems to have worked on small / secondary markets. Or for businesses that want to rapidly expand without the initial paperwork or investment.

Would be interesting to see how this would work on competitive routes.

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macsog6
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RE: Could A 'virtual' Airline Work?

Mon Jan 06, 2014 6:08 am

As I posted by in May, 2012 -

I suspect the next great disruption will be the establishment of a virtual airline. It would go something like this:

- The airline would secure aircraft from the airframers on an hourly basis, i.e. for every hour you fly, you pay the airframer $X.
- Same with the engines, power by the hour taken to the max.
- Other systems would be either tied to the airframe or the engine. The virtual airline would have no MX capability.
- Crews, both cabin and flight deck, would be secured from staffing agencies and paid by the hour as an independant contractor. No labor disputes, no retirement issues, etc. Crews could work for multiple virtual carriers.
- Flight planning and dispatch would be out-sourced on a per flight basis. Again, no labor issues and multiple carriers could be handled by one provider.
- Fuel would still be an issue, but you can bet hedging would be the virtual carrier's main objective.
- Ground staff would be shared by any number of these virtual carriers; you would just have a check-in. They would handle it for all the virtual carriers at any particular location. But in any event, they would come from yet another staffing agency.
- Routes would be chosen based upon profitability, they would fly where they can make the most money.

Admittedly, I do not care for this rather 1984 version of Big Brother airlines, but I can clearly see something along these lines happening as other industries have already seen this trend, Air carriers are not that far behind.


I still suspect this is being discussed in private by investors currently as this model has been used in many other industries, including ones that we commonly view as "service" industries.
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RE: Could A 'virtual' Airline Work?

Mon Jan 06, 2014 6:17 am

Everyone and Everything that touches your virtual airline wants to be a profit center.
Won't work.
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tzfalax
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RE: Could A 'virtual' Airline Work?

Mon Jan 06, 2014 6:48 pm

Quoting macsog6 (Reply 30):
- Crews, both cabin and flight deck, would be secured from staffing agencies and paid by the hour as an independant contractor. No labor disputes, no retirement issues, etc. Crews could work for multiple virtual carriers.

This part wouldn't work unless something has changed. Back when ValuJet was booming, all staff was hired via a temporary agency (Jordan Personel iirc) but all crews, cockpit and cabin, had to be hired directly by ValuJet. I know this was a legal requirement and I assume it is/was an FAA requirement.

Is this still the case?
 
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RE: Could A 'virtual' Airline Work?

Mon Jan 06, 2014 7:26 pm

Quoting EA CO AS (Reply 23):
None of it is at-risk flying though, they're all "cost-plus" capacity purchase agreements.

Not entirely. It depends on the market. There are many at-risk markets, and pay the major a fee to use the reservation system and mileage plan.
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sandyb123
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RE: Could A 'virtual' Airline Work?

Mon Jan 06, 2014 11:45 pm

I can see the opportunity (BTW I am speaking hypothetically here) for such a business to succeed in certain markets.

Strengths
Quicker to establish
No need for AOCs and other regulatory approval
No / little capital outlay
Operational / maintenance outsourced
Crewing outsourced
Aircraft utilisation 100% (i.e when the aircraft isn't used it's the operators problem)
Virtual Airline focuses on sales and marketing

Weaknesses
Two businesses trying to make a profit
Contracted terms being renegotiated
Reliance on 3rd party for product delivery
Less control on service standards and consistency
Lack of brand loyalty based on third party involvement
No access to alliances or frequent flyer pools

Opportunities
Positive cashflow (i.e the pax pays when they book but operator paid on delivery)
Quick growth based on access to large potential operator pool
Faster response to disaster recovery based on access to assets
3rd party asset branding ala Citywing
Access to international operators and territories based on open sky agreements (certainly in Europe)
Buying power for fuel, airport fees etc stronger than individual contracted operators
Asset is the 'brand' of the business

Threats
3rd party pulls out / goes bust
Lack of delivery or incidents relating to 3rd party negligence
Opportunity to operate only on non-competitive specialist route network

Obviously there are all the headaches that real start-up airlines have such as load factor etc but this is relating specifically to the virtual model.

Anyone add to the above?

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RE: Could A 'virtual' Airline Work?

Tue Jan 07, 2014 12:56 am

Quoting sandyb123 (Reply 34):
Positive cashflow (i.e the pax pays when they book but operator paid on delivery)

IIRC, in the US with a public charter flight, which is essentially what this would be, when the pax pays the money has to go into a escrow account until the flight actually operates. I believe Direct Air got in trouble for not doing that.
 
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RE: Could A 'virtual' Airline Work?

Tue Jan 07, 2014 4:15 am

Quoting Goldenshield (Reply 33):
Quoting EA CO AS (Reply 23):None of it is at-risk flying though, they're all "cost-plus" capacity purchase agreements.
Not entirely. It depends on the market. There are many at-risk markets, and pay the major a fee to use the reservation system and mileage plan.

Please give me an example.
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Goldenshield
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RE: Could A 'virtual' Airline Work?

Tue Jan 07, 2014 12:15 pm

Quoting EA CO AS (Reply 36):
Please give me an example.

All of OO's Brasilia flying for DL.
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Andy33
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RE: Could A 'virtual' Airline Work?

Tue Jan 07, 2014 12:49 pm

Quoting macsog6 (Reply 30):
- The airline would secure aircraft from the airframers on an hourly basis, i.e. for every hour you fly, you pay the airframer $X.
- Same with the engines, power by the hour taken to the max.
- Other systems would be either tied to the airframe or the engine. The virtual airline would have no MX capability.
- Crews, both cabin and flight deck, would be secured from staffing agencies and paid by the hour as an independant contractor. No labor disputes, no retirement issues, etc. Crews could work for multiple virtual carriers.
- Flight planning and dispatch would be out-sourced on a per flight basis. Again, no labor issues and multiple carriers could be handled by one provider.
- Fuel would still be an issue, but you can bet hedging would be the virtual carrier's main objective.
- Ground staff would be shared by any number of these virtual carriers; you would just have a check-in. They would handle it for all the virtual carriers at any particular location. But in any event, they would come from yet another staffing agency.
- Routes would be chosen based upon profitability, they would fly where they can make the most money.

Norwegian's long haul operations get very close indeed to your list. Aircraft mx outsourced to Boeing, who in turn outsource it to a local provider, outsourced crew, outsourced dispatch (but not as far as I know flight planning), ground staff from local handling companies (normal in Europe anyway except at legacy airline's hubs), fly wherever they can make money and can get or already have traffic rights. Lots of a-net posts discussing different aspects of their approach.
 
FWAERJ
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Joined: Wed Jun 07, 2006 1:23 am

RE: Could A 'virtual' Airline Work?

Tue Jan 07, 2014 12:52 pm

Quoting Goldenshield (Reply 37):

Quoting EA CO AS (Reply 36):
Please give me an example.

All of OO's Brasilia flying for DL.

Some (but not most) OO CR2s for UA are at-risk as well.
B721/722/731/732/733/735/73G/738/739/742/752/753/762/763, A300/319/320, DC-9/10, MD-82/83/88/90, ERJ-140/145, CRJ-200/700, Q200, SF340, AS350

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