Elon Musk. Some people laughed at him when he said he would bring electric cars to the mass market. They laughed when he said he would send payloads to the space station, and even anything to orbit at all. And they laughed again when he said he would make rocket boosters land vertically and reuse them.

Today he is claiming he will carry passengers to anywhere on the planet in under an hour.

#### **Elon Musk is in the mood for disrupting transcontinental flying.**

If we take a look at the revenue structure of a regular transatlantic flight, we see the dramatic imbalance between classes. 45% of passengers account for 83% of the revenue.

On long haul flights, companies make a profit almost exclusively from Premium, Business and First classes. Economy class is here to fill the seats of the plane that the company couldn’t sell at a higher fare.

#### Price is driving competition first, service and travel time second.

With average long haul travel times of 30 minutes, Elon’s new global transportation system will save passengers at least 5 hours on any destination, dividing the travel time by (at least) a factor of 6. This is twice as good than when planes replaced Zeppelins on transatlantic flights back in the 1930s, taking travel time down from 60 hours to 20 hours.

![](https://hackernoon.com/hn-images/1*XR8hf8-Nw-Ge5uYLwkdSTQ.jpeg)

The Hindenburg, when it was still twice as fast as ocean liners

But here is where things start to stink for airlines: Musk says that he will be able to price his flights as low as full fare economy for the same flight on a regular airline. With both the primary and secondary drivers being won by Musk, it’s likely that customers flying Premium and above (assuming most will be physically suited to fly on Musk’s machines) will switch to BFR with little marketing needed. Even the many corporate/business premium travelers won’t last long to pressure their company to get them seats on BFR, assuming safety levels are met. The super-profits of the premium transcontinental market will vanish for traditional airlines and be absorbed by Elon Musk’s BFR.

#### **Legacy Airlines have almost no margin, but Low-Cost Airlines can find shelter in their niche.**

It’s important to consider 2 categories of airlines.

On the one hand, traditional/legacy carriers that operate on razorblade thin margins regionally (or lose money), and currently make money thanks to these fat intercontinental fares that are about to vanish. Staying in business tomorrow while having to re-center on routes where they already lose money today, competing with low-cost companies will become challenging.

On the other hand, low cost airlines, that by the nature of their business are more profitable on short haul flights:

![](https://hackernoon.com/hn-images/1*xfhowJK_525GSi0mMu3aSQ.png)

_Low-cost carriers’ input-cost edge is larger for short-haul flights than for long-haul ones. (_[_Source_](https://www.mckinsey.com/industries/travel-transport-and-logistics/our-insights/the-economics-underlying-airline-competition)_)_

Fortunately for them, this is a segment where Elon Musk cannot (yet) immediately target them. Their biggest revenue stream, and last niche, will then be regional traffic that wouldn’t be served by high speed trains or hyperloop. This will be the last market space that will let them realize profits on their savings, at least until the next disruption that might also come from Musk (It’s not Hyperloop — more about it in a later post).

#### It’s not only about airlines, there is a whole industry depending on them.

![](https://hackernoon.com/hn-images/1*Swd4BYoVwxbbem85N1Zaww.png)

If airlines have been losing money historically for years, it’s not the case of their suppliers, who rely on them to capture the profits in the aviation business. Vertically and horizontally connected sectors are currently making healthy profits, in particular aircraft manufacturers.

### Airbus and Boeing forced to find radically new technologies to keep selling aircrafts

Estimates vary based on year and individual contract value, but roughly **half** of both aircraft manufacturer’s revenue comes from 20% of their sales: long-haul, twin-aisle. The super profits on this market is what pushed Airbus to compete with Boeing and develop its famed A380 double decker.

Their reliance on this market is huge, but is not even close from revealing the full extend of their exposure to Musk’s innovation. Traditional airlines will slowly collapse, cancelling all possible orders, and even flood the second-hand jet market in the single-aisle, typically used for short-haul segment. In order to keep selling new aircrafts, manufacturers will have to come up with order-of-magnitude improvements in operation efficiency.

If Elon is going to succeed in building his vision for BFR, and nobody is going to compete with him, what should airline companies start doing to prevent Musk from wiping out their entire business? Will this be the trigger to ignite new aviation business models and technologies like regional electric planes?

Thanks to James Shen, Joy Zhang, Varad Kishore, and Nicolas Dinh for reading drafts of this.

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Why no-one can prevent Elon Musk from dwarfing the airline industry

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