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Challenges Facing Startup Airlines by Steve Robinson
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Challenges Facing Startup Airlines |
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Travel & Tourism
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There is a tendency to believe that it is only natural for startup airlines to succeed because they usually introduce cheap fares, in the form of cheap airplane tickets and cheap vacation packages on the routes that they fly. Further positive factors include American Airlines being in bankruptcy, and smaller markets losing AirTran service as Southwest completes its purchase of this airline. Some believe that a niche has been created in markets that have lost airline service that can be filled by a startup airline with lower costs and a limited scope. History has shown that it is very difficult for a new airline to successfully differentiate itself against incumbent airlines. One of the newest potential startup airlines is PEOPLExpress which announced a plan in February to offer air service from Newport News/Williamsburg International Airport in Virginia to small East Cost airports, including possibly Pittsburg, Providence and West Palm Beach. Before this airline can take flight it requires additional financing and Federal Aviation Administration approval. The new PEOPLExpress plans on offering cheap fares, while providing free checked luggage, seat assignments and other perks that have been eliminated by most other airlines. Some airline experts are surprised that this startup venture would choose the name “PEOPLExpress” which ultimately failed as an airline in 1987. When it first started flying in 1981 it was viewed as the industry’s original bare bones, no frills airline. Another recent startup is California Pacific Airlines which hopes to capitalize on some of the buzz and consumer loyalty of Pacific Southwest Airlines which serviced California from 1949 to 1988. This airline hopes to start flying by late summer or early fall. The challenge for startups is that they tend to overestimate their niche and underestimate the competitive response. What typically happens when a new airline introduces cheaper fares is that existing major airlines drop their fares even lower resulting in the emerging airline’s price advantage disappears as soon as it starts flying. Flying routes not being handled by other major airlines can be a significant niche. However, the reason airlines drop certain routes is usually because such routes cannot be flown profitably.
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