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Alan Hawes/The Post and Courier, v ia Associated Press Scores of start-up airlines have failed. Employees in Charleston, S.C. closed the Independence Air ticket counter in 2005, after the carrier filed for bankruptcy.

By JAD MOUAWAD Published: May 25, 2012

Where are the start-up airlines? FACEBOOK

TWITTER With the big carriers cutting routes and raising fares, this would seem Today's Headlines Daily E-Mail GOOGLE+ an ideal time for a new to take them on with cut-rate prices Sign up for a roundup of the day's top stories, sent every and service to smaller airports eager for more flights. That is the EMAIL morning. [email protected] path, after all, taken by two of the industry’s success stories — SHARE Change E-mail Address | Privacy Policy , back in 1971, and JetBlue Airways, in 2000. PRINT

But getting an airline off the ground has become a lot more REPRINTS MOST E-MAILED RECOMMENDED FOR YOU treacherous. High oil prices these days mean carriers must fly full planes to turn a profit, and smaller airports just do not provide articles in the past month All Recommendations enough passenger traffic. At the same time, the major domestic 184 carriers are more entrenched than ever in their own hub airports, 1. Google Privacy Inquiries Get Little making it harder for a new entrant to wrangle gates there. And Cooperation

investors have become more cautious about lending to just any airline project. 2. WORLD BRIEFING | THE AMERICAS Argentina: Bomb Was Set to Strike “Why would you ever want to start a new airline?” asked Michael Boyd, an aviation Former President of Colombia consultant with the Boyd Group International. “The business is very capital-intensive, the 3. GADGETWISE returns are rotten and the track record is terrible. Plus, there’s simply no market for a new Q&A : Stay ing Sec ure on the Road

carrier today.” 4. Jean Pakter Dies at 101; Women’s Health Advocate Scores have tried and failed — Skybus Airlines, Independence Air, ATA Airlines and Maxjet Airways among the most recent examples. Even the most successful of the new carriers, 5. Jean Pakter, Who Made New York a Model for Safe Abortions, Dies at 101 , has so far failed to turn a profit five years after its first flight.

6. EDITORIAL Warren E. Buffett — who once called an investment in US Airways in the early 1990s one of his biggest mistakes — summed up the industry’s predicament in a letter to shareholders A Court Cov ers Up in 2008: “Here a durable competitive advantage has proven elusive ever since the days of 7. Ultra-Orthodox Jews Rally to Discuss Risks of Internet the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.” 8. Private Cargo Rocket Heads to Space Station Losses by the nation’s passenger airlines from 1979, the year the industry was deregulated, to 2000 were twice as large as their combined profits in that period, according to the trade 9. Public Money Finds Back Door to group Airlines for America. In the last decade, domestic airlines lost a combined $60 Private Schools billion as higher fuel prices forced painful restructuring, bankruptcies and mergers. 10. STRETCH With the economy picking up last year, the top domestic airlines reported profits of $1.5 Downward Dog at the Club billion with revenue of $192 billion — a measly margin of 0.8 percent. Still, their combined PRESENTED BY market value is smaller than Starbucks’. Go to Your Recommendations » What’s This? | Don’t Show Get DealBook by E- Fuel has become one of the biggest barriers to entry into the business, accounting for 35 to 50 percent of costs as prices almost tripled in 10 years.

Mergers have also created a handful of major carriers that control powerful hub airports in large cities, making it generally tougher for a new airline to break in. The most successful smaller airlines — , , Alaska and — all carved out specific markets in past decades that allowed them to thrive without competing head-to-head with their larger rivals, analysts said.

“The big guys have gotten bigger and it’s a lot harder to fly under the radar now,” said Jim Hnat, a senior executive at JetBlue. Even so, there are still optimistic entrepreneurs and investors. There are currently 13 companies seeking a Part 121 air carrier certificate from the Federal Aviation Administration, the certificate required to operate a scheduled passenger airline, according to the agency.

“If you have a niche, the rewards are great,” said Ted Vallas, the founder of California A DV ERTISEMENTS Pacific Airlines, one of the prospective carriers, which has been seeking F.A.A. certification since 2009 and plans on serving the small markets shunned by the big carriers in recent years.

California Pacific has produced 32 manuals totaling 40,000 pages detailing all aspects of its operations to gain approval from the F.A.A. And it is not done yet. The carrier said that it expected its first plane — an Embraer 170 jet with about 80 seats — to be delivered next month and that it hoped to begin scheduled service by the fall. It plans to serve a handful of cities, including Oakland and Sacramento, from Carlsbad’s McClellan-Palomar Airport, 35 miles north of .

Another hopeful, People Express, wants to revive a defunct brand known for its low-fare service to provide direct service between Newport News, Va., and places like Providence, R.I., and Pittsburgh on the East Coast, and Orlando in Florida.

“The consolidation of the major airlines has virtually eliminated point-to-point service,” said Michael Morisi, its president. Mr. Morisi, who declined to comment on how much capital his airline had raised, said a new carrier needed about $100 million to start up. “What makes this very difficult are the huge barriers to entry and the ability to convince investors that this is the right time to make this a success,” he said.

The company applied to the F.A.A. to become a passenger airline in March. It hopes to be certified by October, which would be a record time. It was already fined $10,000 by the Department of Transportation this month, though, for advertising low fares on its Web site, which it is not permitted to do before it has a certificate to operate. Advertise on NYTimes.com

Having deep-pocketed investors ready to bankroll an airline is not enough. When Skybus Airlines started flying in May 2007 out of Columbus, , it had raised more than $160 million and offered fares as low as $10. But its timing was terrible. Within less than a year, fuel prices spiked and passenger demand dropped sharply as the economy slowed. It ceased operations in April 2008. “I’d say that the only harder thing to start up than an airline is a nuclear plant,” said Bill Diffenderffer, the former chief executive of Skybus. “The reason you are able to raise capital is that financial markets love the idea of investing in an airline. When it works out — Southwest or is an example — you can make enormous amounts of money.”

One prominent exception has been Virgin America, which began operations in August 2007 with flights between San Francisco, Los Angeles and New Y ork. The carrier now has 51 planes and flies to 17 cities. It carried nearly 1.4 million passengers last year.

Its growth has come at a price, however. Virgin’s cumulative net losses have reached $595 million since it started, including $100 million last year even as its revenue jumped 43 percent to over $1 billion. And the airline continues to face obstacles to its growth.

Virgin, for instance, has found it difficult to expand in big airports controlled by its rivals. The carrier tried for three years to get into O’Hare International Airport, where United and own most of the gates and would not part with them. Eventually, the airport bought a concourse once operated by Delta and opened it to new entrants, allowing Virgin to establish six flights a day between Chicago and San Francisco.

“They weren’t interested in another competitor,” said David Cush, Virgin America’s president.

But Virgin is still finding it hard to get landing slots at Newark Liberty International Airport, controlled by United. As part of its merger with Continental, United sold some landing and takeoff slots in a private sale to Southwest Airlines that left Virgin out of the loop. As a result, United is still the only airline to offer a direct route between Newark and San Francisco.

“We are supportive of consolidation but only if access to airports is guaranteed,” Mr. Cush said. “Unfortunately, the government has allowed consolidation but has done little to guarantee access. That makes it impossible for airlines like ours to go in and compete.”

Jeffrey Breen, the president and co-founder of the Atmosphere Research Group, a market research company, said, “There is a certain romance associated with airlines. But there are more failures today than there were in the past decade, and that might simply be the industry and the financial markets learning a lesson. I think everyone realizes it’s a hard business.”

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