In these heady days for airlines, when they “own” hub cities and can charge $500 to change a ticket, one might wonder what happened to all the entrepreneurs. The kind of people who sketch route maps on cocktail napkins (Southwest) or split from their former airlines and started new ones (Air Florida, People Express, JetBlue).
Despite cheap fuel and financing, almost no new, well-capitalized airlines with national aspirations have appeared since the wave of bankruptcies and consolidations of the past decade. And Virgin America Inc., which began flying in August 2007, is planning to merge into Alaska Air Group Inc.
It’s largely because the U.S., the world’s most mature airline market, has become an ocean of whales, with scant space for small fry. Even a smaller operator such as Spirit Airlines has 84 planes in its fleet and serves most of the largest U.S. cities, plus more than a dozen nations abroad. Anyone who wants to launch an airline faces high hurdles, given the scarcity of gates and terminal facilities at most airports, not to mention the capital costs, said Robert Mann, president of aviation consultant R.W. Mann & Co. in Port Washington, N.Y.
On top of all that, the larger airplanes a startup would choose, such as a Boeing 737 or Airbus A320, create “far greater capacity risk and risk of competitive response by incumbents,” Mann said. As a result, new airlines “have been few and far between since 2008, really since 1999” as JetBlue’s founders were preparing their launch.
In the past, new airlines have appeared whenever the industry began to overreach on price or leave various cities or regions underserved. Right now, despite consolidation, neither situation has materialized, except for some smaller markets. Even with record profits goosing labor costs at the majors, new airlines wouldn’t wield the same kind of cost advantage over them that they once did, said Seth Kaplan, managing partner of Airline Weekly, an industry journal.
“When [David] Neeleman launched JetBlue in 2000, he was able to pick on some very sick legacy airlines … with bloated cost bases and tired old products, in which they couldn’t afford to invest,” Kaplan said.
Airline executives have been adamant in telling investors that the U.S. industry has changed fundamentally as a fragmented business has coalesced into four dominant carriers with roughly an 85 percent market share, and an economic recession would no longer mean a flood of red ink for airlines. Given the resulting capacity reductions, though, fares are expected to rise, presenting an opportunity for upstarts.
Meanwhile, entrepreneurs are taking small jets and flying them strategically, filling niches the behemoths have either abandoned or left ripe for competition. That means primarily smaller regional markets where businesspeople are keen to avoid security clogs and big-airport hassles. That’s the path OneJet and others, such as Elite Airways, are pursuing. Still other models, such as Surf Air, offer monthly membership costs for unlimited flights on private aircraft or unlimited flying on commercial airlines for a monthly subscription fee, as a startup called OneGo is doing.
Into this arena flies private jet operator JetSuite, which on Wednesday began regular daily flights via a public charter called JetSuiteX between Burbank, Calif., and Concord, east of the San Francisco Bay Area. Concord last had commercial service 24 years ago, when USAir’s PSA subsidiary quit. On weekends, JetSuiteX will connect Concord and Las Vegas. Service between San Jose, Calif., and Bozeman, Mont., starts June 30. The airline doesn’t plan flights longer than about 75 minutes, but JetSuite's chief executive officer, Alex Wilcox, says the model could work in other parts of the country.
JetSuiteX introductory fares begin at $109 each way, with the top prices around $300. The company is targeting a fare of about $1 per mile for most of its expansion. Passengers also can earn JetBlue’s TrueBlue frequent flier points. Neeleman is a JetSuiteX investor.
The Irvine, Calif., company has bought 10 Embraer E-135s. The E-135 is a 37-seat regional jet that once flew under the livery of American Eagle, the regional carrier at American Airlines Group, and fell rapidly out of favor with airlines due to its operating economics. It has become extremely cheap on the used-jet market. Wilcox, a former executive at JetBlue and Virgin Atlantic Airways Ltd. who began his career as an intern at Southwest Airlines Co., declined to reveal the price of the planes.
JetSuiteX will fly these with 30 seats, the maximum allowed under its federal operating certificate, which governs charter and on-demand flight services. It spent an additional $1 million per plane to install new seats, power outlets, Wi-Fi, and other amenities.
The company sees potential in these markets, citing a decrease of 3 million annual passengers between Los Angeles and San Francisco from 2000 to 2013. The Los Angeles-Las Vegas market lost 1 million annual passengers during that period, according to JetSuiteX, while Los Angeles-Phoenix was down by 800,000.
The carrier will focus on operating scheduled flights with more of the amenities common to a charter-jet experience, such as faster security screening at its own terminal. Huge airport terminals and security queues have become “the lowest common denominator, and you have to have the same experience as everyone else,” Wilcox said of airline travel. Nationwide, thousands of travelers miss their flights each day due to security delays caused by thin staffing, American Airlines President Scott Kirby said in an April 7 interview.
It is “inevitable” that someone will launch a new U.S. airline, given the opportunities that industry consolidation has presented, Wilcox said.
“Capital is available, gas is cheap, airplanes are available,” he said. “The biggest barrier, I think, is airport real estate. The legacies have definitely staked their claims, and no one’s tried to break that up in a meaningful way in a lot of these hubs.”
A gradual “cost creep” he sees at the legacy carriers also makes a new entrant more likely, Wilcox said. If so, where are the Rollin Kings, Juan Trippes, and David Neelemans of today, ready to establish a new U.S. airline?
“If Neeleman wanted to do that,” Wilcox said, “I think he could raise $200 million in a week.”