Low-fare Long-Haul transatlantic Airline

It might be worth considering what your break even point is and work out an average ticket price from that, rather then setting a price and then trying to make the numbers work around that figure.

Load Factor
It’s probably reasonable to assume you can hit load factors of 95%+, many flyers look for the cheapest option and if you are that option you’ll get the business. I’ll use myself as an example, when I fly to New York or Washington I often use Icelandair – even though I have to stop off for 1:30 in Reykjavik, the return fare’s usually £200+ cheaper compared to the legacies.

When Norwegian Air announced it’s transatlantic service at the start of this year sales went through the roof, I think at it’s peak the airline was receiving a passenger booking for one of its transatlantic flights every 3 seconds… With this in mind, 95% isn’t far fetched and may actually be an under-estimate.
Just last month they extended that service to cover Gatwick with one-way fares to New York starting at £149… (an additional £30 option entitles you to 1 hold bag, a meal, and seat allocation). Although bare in mind this is the super off-peak fare booking over a year in advance, looking at a return flight in August 2014 you’ll be paying around £630 return (including the 2 x £30 option)… Which is still around £300 cheaper than BA for the same dates.

http://uk.reuters.com/article/2013/10/17/us-norwegianair-expansion-idUKBRE99G0EY20131017

Getting back on track, 95% of 290 seats is 276. I’ll use this figure for the basic calculations.

Fuel
I gave a figure of £29,000 previously, I’ll just give a run-down of how I got that. It’s very crude I’ll admit, but I’m sure it’s an accurate rough estimate.

The range of the 767-200ER is 6385 nautical miles. A 4000 nautical mile trip to the south east coast of the US is 63% of this.
The fuel capacity of the 767-200ER is 24,140 gallons. 63% of this is 15,208 gallons (presumably how much you need to do the 4000 miles?)
Currently the price of Jet-A fuel per gallon is around 302 cents ($3.02), which aquatints to 185 pence (£1.85).
http://www.iata.org/publications/economics/fuel-monitor/Pages/price-analysis.aspx

15,208 gallons x £1.85 per gallon = £28,134.80 (the price of fuel must have fallen since I last did the calculation :rolleyes: )

This works out at around £102 per passenger (based on the 276 load factor figure).

Lease
The 767 is probably one of the least demanded wide-bodies around at the moment (along with the A340), it’s fuel burn per passenger is simply too high for airlines to consider it as a viable option. However, this does mean you can lease them out on the cheap. I’d estimate a ACMI (aircraft, crew, maintenance & insurance) wet lease to be in the region of $400,000 a month, now assuming the aircraft can perform 60 sectors a month (2 a day). It’s around $6667 a flight, or £4080.

Per passenger around £15 (again based on the above 276 figure).

Airport Fees
£275.86 for an aircraft between 55-250 metric tonnes to land at Stansted (off-peak).
Fixed fee of £137.52 per departure.
Estimated parking charges; £225.
Miscellaneous ground charges; £400 (covering everything from removing waste-water, to paying for check in desks).
http://www.stanstedairport.com/media/4167/stal_conditions_of_use_%202013_14.pdf

(I’ll assume the fees are similar for your arrival airport in the US). Total fees: £1038.38
Average per passenger (276) = ~£4

Administration
All the behind-the-scenes work that goes into operating a flight, flight operations is a huge part of any airline – yet one of those things no passenger will ever see.

I’m going to throw it out there and say I don’t know! :stupid: Maybe £3000 per flight as an guesstimate including ground staff salary?

I’ll add another £4000 for the numerous little things I’ve bound to have neglected during my calculations along the way.

So forgotten entities + administration = £7000 (per passenger ~£25).

Totals
£28,134.80 + £4080 + £1038.38 + £3000 + £4000 = £40,253.18

Per passenger = £145.84

After including the £97.50 discussed in my first reply (APD etc.) that brings the grand total per passenger per sector to £243.34 (or £486.68 return).
You can bring this break-even price down as cloud_9 says through the sale of on-board products and luggage etc. So maybe a break-even price of £420 return isn’t unreasonable?
A 5% profit margin is reasonable, so sales price will be around £441.

British Airways LHR-MIA for October 2014 (I assume this is off-peak ish?) £698.75, obviously charter airlines will fly you there for less but it would appear I’ve just knocked £260 off the flag carrier’s price.

EDIT: I’ve just realised an error in my calculations; you don’t need to pay APD on the return leg. I believe the US equivalent is around £20. So instead of £441, the return fare will be around £394. Cheap as chips! 😮

Do you think this project could be successful?

Whilst you’ve got some of the basic principles right, such as the use of secondary airports, I certainly echo what Matt-100 says in #2 in answer to your first question.

I’m not sure I’d want to sit on a high-density B767 for seven hours…

United and American/US Airways still operate Boeing 757’s on a number of routes across the Atlantic. These are obviously much smaller than a B767-200, and hilst they are not “high-density” configured, the seats are quite closely packed in if you’re travelling in the standard Economy cabin and I have often seen/had to deal with customers complaining about the comfort levels whilst onboard. The only solution we have to offer in this instance though is to inform the customer that we do offer a small Economy Plus section, which is located towards the front of the main Economy cabin, however they are required to pay the necessary fee to upgrade to if they want extra legroom (unless they’re a frequent flyer with us in which case they are free to choose any seat, subject to availability of course!).

Do you have any suggestions?

Firstly, have you looked at other similar airline business models that are already in existance but operate in different marketplaces?

The most obvious example I’m thinking of here would be Air Asia X who predominantly fly Airbus A330 aircraft with x12 Premium FlatBed seats and x365 seats in a 9-abreast (3+3+3) configuration in Economy. The reason for offering the Premium FlatBed seats I guess is so that they can charge a higher fare for use of these seats, which will ultimately offset the losses incurred as a result of selling any Economy seats at below-cost. They know that by only offering x12 seats, they are likely to be able to fill all of these on most flights.

As for other suggestions, here are some extra revenue options that you might want to consider if you haven’t already done so…

– Meals: Offer a very basic snack for “free” (included in the fare!)…a packet of peanuts or crisps and a soft drink perhaps, but also offer other items available for purchase, including the option of a hot meal service if a customer books it in advance.

– Allocated seating & extra legroom : Charge an additonal fee for pre-assigning your seats in advance and for any bulkhead/exit rows that may offer a few inches more legroom than a regular seat..

– Entertainment: Charge for the rental of an iPad or similar tablet device that comes with pre-loaded content.

– Duty free & Merchandise: You make a comission on any items that you sell onboard, plus why not sell a variety of goods with your logo on it…things that people may need whilst their away that they may have forgotten to pack (e.g. beach towels, hats, sunglasses…to name but a few!)

– Advertising opportunities: Why not charge companies to advertise their brands on both the interior (e.g. magazine, overhead bins, seat-backs/headrest covers, napkins, etc.). And don’t forget about the exterior of the plane too…here’s a great example of a logojet from several years ago: http://forum.keypublishing.com/showthread.php?68439-Gourgous-New-Logo-jet-From-airliners-net

Whilst I hope that some of these suggestions are at least useful, being as totally honest as I can I personally think that you would still struggle even if you chose to implement all of the above. Why you may ask? Well it’s quite simple really…people’s attitudes to long-haul travel vary so much more compared to when they travel short-haul. As charliehunt suggests above, 2hrs is bad enough and I would be minded to agree with him; I only just about managed to survive an EasyJet flight between London-Gatwick and Tenerife several years ago thanks to having several movies and games loaded onto my iPad…but even that gets boring after a while! I personally perfer the frills that some airlines offer, and would gladly pay that little bit more if I knew that I was going to get a better service.

Also, another thing to take into the account is the booking process because if you have lots of additional extras that you need/want to market in order to generate additional revenue, the process of actually booking a flight will become a whole lot harder, longer and ultimately less user-friendly, which could put customers off from choosing to travel with you.

Best of luck to you all with your studies!;)

I certainly would not – 2 hours is bad enough. Isn’t there money to be made on specialised and niche routes for the global minority with money to spend on top quality air travel?

I’m not sure I’d want to sit on a high-density B767 for seven hours with no comfort and few amenities that I didn’t have to pay extra for.

Your idea is interesting and has some merit (even though I can’t see that you’re going to make any money) but if I can take a full-service flight on a legacy carrier for not a whole lot more money, I will.

As an after though flying into “Key West (Florida) and Yellowstone National Park (Colorado) where we will be the only airline offering transatlantic flights from/to.”
That would put you into a niche market, if you are in a niche market then why offer budget fares? Bums on seats could well be a problem though, cheap or not.
A rule of business I apply is ‘supply and demand’ when I set prices for my business.
In your case, no supply, but is this because of lack of demand?

Good luck, an interesting plan.

Do you have any suggestions ?

Break down the operating costs of typical flights over typical lengths.

Find one where you think there is fat compared to your price projections and attack it.

or alternatively, think a bit off the wall; do you think there is a case for using the likes of an A330 regional on the same London/Berlin route, but at half – 3/4 the frequency? (as existing narrowbodies)

A good reply by Matt.

My tuppence worth, as the sums don’t add up you would have to generate extra money. Inflight food and drinks can be a good earner, I would estimate £10-15 per pax, not a huge amount.

Sorry but at the price you are suggesting it’s not feasable.

Nice idea, and at £99 (or even at an average of £170) a pop I expect that is within the consumer’s “ignition price”. Stelios has a theory that it doesn’t matter between which two airports you fly between in the world, if the price is low enough (the “ignition price”) then the demand from passengers will always be there.

However, you can’t make a profit on a transatlantic ticket of £99 – no matter how stingy you are on the in-flight amenities or how many sardines you fit into your sardine can. By law, airlines registered within the EU have to show all passenger charges and surcharges on advertised tickets – so that £99 has to include the £67 UK Air Passenger Duty. Say you fly from Stansted? They have a £10.50 passenger handling fee. Arriving in the USA? Then you’re looking at another £20 once you pay all the federal security and immigration taxes and fees.

After paying all that you then have around £1.50 towards operating the flight…. you don’t need a masters in accounting to realise that’s not going to cover it.

Even with the average fare, after you’ve paid all your taxes and passenger fees you’ll have around £70 per passenger. The 767-200ER has a maximum capacity of 290, so you’ll have around £20,000 in revenue to cover your costs. Sound like a lot, but once you take away your estimated £29,000 fuel bill, lease, staff costs, administration and landing fees you’re financially screwed.

There’s a reason why low cost transatlantic travel hasn’t taken off, and that’s because the competition between the legacy carriers already offer rock bottom fares.