Profitability of supersonic travel

Abstract

Since the retirement of the Concorde in 2003 no commercial supersonic flights were operated. In 2014 the aircraft manufacturing start-up Boom announced the development of a supersonic aircraft by 2029 and has since gathered 130 orders. This paper analyzes the profitability of this aircraft by calculating the net present value of an investment decision and comparing this to a subsonic aircraft. It is determined that supersonic travel has 50% higher cash operating costs per seat. This implies that, for example, a return flight LHR-JFK merely breaks even at a WACC of 6%. The central question of this paper is whether this cost premium can be covered by a price premium paid for the time saved on a supersonic flight. A schedule analysis shows that this price premium is justified on westbound but not on eastbound flights. Thus, a westward rotation of the supersonic fleet is proposed. To avoid seat imbalances this network can be supplemented by an eastward rotating subsonic narrowbody fleet in an all-business configuration. Whereas a supersonic rotation A - B - A only breaks even with a net present value close to zero, a westward supersonic rotation A - B - C - A complemented by a subsonic rotation A - C - B - A achieves a significant profit reflected in a net present value of over $ 40 mill. per aircraft. It follows that this network structure is the only profitable one.

As a by-product it is reconstructed that the Concorde was marginally cash-positive, explaining why operations was kept up for 27 years but no aircraft were ordered after the initial batch.