One of the stranger things about the last few years in the airline industry, with low fuel costs and easy profits (even Virgin America has been making money!) is that there haven’t really been new entrants into the market. Where are all the startup airlines?
Warren Buffet has a known distaste for airline investing (that didn’t keep him from putting money into fractional jet ownership). His 1989 investment of over $350 million in US Air ultimately returned his full principle and all interest payments but never paid off big the way he had hoped and provided plenty of heartburn along the way.
It led him in 2002 to declare,
If a capitalist had been present at Kitty Hawk back in the early 1900s, he should have shot Orville Wright. He would have saved his progeny money.
There’s a reason for the old joke, that the quickest way to become a millionaire is to start off with a billion dollars and invest in an airline. There’s been a neverending string of investors willing to put money into airline concepts, and a seeming neverending string of airline concepts willing to lose that money. Except lately, when airlines are making money.
Sure, it’s tough to start an airline, to get regulatory approvals, but with enough funding you can at a minimum:
- Buy a small airline with a pre-existing operating certificate, and use it to pursue a new business strategy, or
- Sell scheduled charter flights operated by an existing airline.
Normally there’s are individuals who think the next great airline idea happens to be starting service in the town they live in. Where are they?
Perhaps it’s Avatar Airlines.
After Baltia Airlines gave up on its decades-long quest to start Boeing 747 service between New York and St. Petersburg, Russia and sought to raise funds on a new business plan to fly regional jets between Baltimore, Trenton, Islip and Albany (BALtimoreTrentonIslipAlbany) One Mile at a Time‘s reaction was priceless: “What the actual f#*&?!
It’s time for another airline to propose all-747 service. This time domestically. As an ultra-low cost carrier. That doesn’t charge checked bag fees, seat assignment fees, and gives free wifi. But will earn ancillary revenue selling inflight meals branded with top restaurants — and by selling souvenirs.
They’ve got investor presentations scheduled over the next week and a half so it seemed worth bringing the opportunity to your attention.
Here’s their sales pitch:
It’s time for millions of traveling families to celebrate Avatar Airlines. Our business plan is better, our planes are bigger, our destinations more exciting and our ideas are growing more and more than any other airline on the radar screen today.
The marketing video for the airline takes footage that looks like it’s from the 80s, and splices it together with a Virgin Atlantic Boeing 747 which it calls ‘the largest most comfortable aircraft’ and in-cabin footage of a different airline too.
At least it’s a Virgin 747 in Las Vegas because that’s one of Avatar’s key cities.
Their Boeing 747-400 will be outfitted with 539 economy seats and 42 “office class” seats. That’s 581 seats, compared to 374 seats on a United Boeing 747-400. They are targeting economy fares ‘50% below’ the competition — I think they may not be aware that major US airlines match fares of the ultra low cost carriers, and have designed Basic Economy fares specifically to do that even more going forward.
Fear not, they’re going to earn a revenue premium because of their cargo operation — and by selling travel insurance.
The plan is to start with two aircraft flying in opposite directions:
- Los Angeles – Las Vegas – New York JFK – Miami
- Miami – New York JFK – Las Vegas – Los Angeles
The second year they want to expand to Honolulu, Ontario, Albuquerque, “and more Northeast and Southeast airports.” In year three they add Puerto Rico and go international to Mexico City, and Cancun. They’re planning Boeing 747-400 operations to Albuquerque and West Palm Beach.
Here’s the basic economics:
- A full 747 with 581 passengers has low per-passenger costs.
- An empty 747 without very many passengers has very very high per-passenger costs.
The business is predicated on filling their planes, like that first flight of the morning on Tuesday and Wednesday from Los Angeles to Las Vegas, or the early morning run on Saturday from Las Vegas to Albuquerque.
So what’s the secret sauce that makes it all possible? Advertising. They’re going to sell sponsorships. The free wifi will be sponsored. The planes will be painted in Coca Cola, Burger King, and Red Bull branded livery. The overhead bins will advertise men’s grooming.
They’ll also let you take survey to earn travel credits. They’ll also sell an all you can jet membership — it’s called the “Fly Free Club” only they charge for it.
Join this club and you get to fly “stand-bye” if you present yourself at the gate 2 hours before departure for a flight you listed on 72 hours out. You’ll find out if you get to fly based on availability at the gate (I guess they’ll be issuing gate passes).
So how long have they been trying to get off the ground? They started as Family Airlines about 25 years ago. The idea was to – you guessed it – fly 747s between Las Vegas and Los Angeles as well as Newark, later adding cities like Miami and Honolulu. The government refused to process an application for service, reportedly insisting that the founder not be involved due to lawsuits and judgments. Nonetheless, it’s been suggested that Barry Michaels continued to be involved raising money and the SEC filed suit over a securities offering.
Michaels tried again in 2008 with the same business plan and was turned down. They adopted the Avatar Airlines name in 2010 and tried again claiming that Michaels, whom the government found problematic, was no longer involved — though he was concomitantly representing himself to airports as the airline’s chairman.
Crowdfunding attempt aside, at least they’ve seemed to learn that “You must be an Accredited Investor to invest in Avatar Airlines.”