Financing new airline possible, manager says
As massive of a task as it sounds, creating an airline is not as difficult as some people may think, said the founder of Tahoe Air, Corp.
“It is a lot of money, but when you break it down to see how much money is required for what, those dollar amounts are much more reasonable,” said Mark Sando, on-site manager of Tahoe Air.
Sando’s Stateline business, A & M Travel, has spearheaded and sponsored an effort to provide commercial air service at the Lake Tahoe Airport.
He said there are two main components to financing a fledgling airline – precertification costs and costs of funding operations for the first three months.
Before an airline can be certified by the Federal Aviation Administration to operate, it must go through about a six-month process, said Janis Brand, Lake Tahoe Airport manager.
The process includes approving the FAA manuals and testing runs of the aircraft to ensure the airline is following all operational procedures.
In the case of Tahoe Air, Sando said the costs associated with completing this process are about $1.5 million. The company plans to initially lease two jet aircraft, possibly MD80s.
“Before you haul a single passenger, you’re paying the lease on the aircraft, fueling all the runs, paying pilot salaries and training, flight attendant salaries and training and funding your management team to oversee that process,” Sando said. “You also have anywhere from $200,000 to $300,000 in marketing and advertising costs before you’ve boarded a single passenger.”
Additional expenses include maintenance and reserves for the operation of aircraft during proving runs – about $600 per hour – and liability insurance on aircraft.
While the FAA serves as the watchdog for airline operations, the Department of Transportation is the financial watchdog, Sando said.
He said the DOT administers a financial fitness test, which requires airlines to have in the bank all of the money to pay for certification plus all of the operating costs for the first three months.
Sando said initial operating costs for Tahoe Air will be between $4 and $5.5 million. Once it gets going, the airline will be operating on about $17 million annually.
“The whole purpose of the DOT is to be able to get an airline started and actually operate,” Sando said. “A lot of carriers shut down before they even get started.”
He said one advantage of a Tahoe-based airline is that there is currently no competition for providing direct service from here to the Bay Area or Los Angeles.
“Operations for the first several months are generally at sub-par load factors for any start-up airline, but typically a start-up is flying from San Francisco to Las Vegas and competing with other major airlines,” Sando said. “The ramp-up time at Tahoe will be less.”
He said Tahoe Air executives right now are talking to traditional large California investors, but may end up issuing stock to smaller California investors as well.
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