The inaugural flight of an Avelo Airlines Boeing 737-800 takes off from Hollywood Burbank Airport to Charles M. Schulz-Sonoma County Airport in Santa Rosa on April 28, 2021.
Patrick T. Fallon | AFP | Getty Images
Within the nearly 4 years for the reason that Covid-19 pandemic upended air travel, the biggest U.S. airlines have returned to profitability. The CEOs of two upstart airlines that launched in the course of the pandemic say they’re about to hitch them.
Avelo and Breeze Airways, two low-cost carriers that debuted in 2021 when U.S. air travel demand was greater than 30% below pre-pandemic levels, have each grown their operations rapidly.
They’ve launched dozens of recent routes across the country, and their founders say their strategy of linking cities where there’s less competition from large carriers is paying off. Think Los Angeles’ Hollywood Burbank Airport, moderately than Los Angeles International, or Islip, Long Island, over Latest York City.
“When you will have Goliaths, and also you’re just David, it’s really hard,” said Avelo Airlines CEO Andrew Levy.
Delta, American, United and Southwest together control about three-quarters of the U.S. market, in accordance with Cirium data.
Avelo says it flew 2.3 million customers in 2023, and that its planes were greater than 80% full on average. Breeze flew greater than 2.8 million travelers last yr, and its flights were 77% full, in accordance with the corporate. The carriers are still tiny. For comparison, Southwest Airlines, the biggest domestic carrier, flew greater than 137 million passengers last yr.
Yet, Avelo reported its first profitable quarter within the last three months of 2023, and an organization spokesperson said the airline will likely turn an annual profit in 2024. It brought in revenue of $265 million for the total yr 2023, up 74% from the prior yr.
Levy said he had expected the airline to show a profit sooner, but high fuel costs during a period of broad inflation and Russia’s invasion of Ukraine two years ago pushed back the timeline.
Breeze can be heading in the right direction for its first profitable yr in 2024, said CEO David Neeleman.
David Neeleman, founder and CEO of Breeze Airways, before boarding the airline’s inaugural flight at Tampa International Airport in Tampa, Florida, on May 27, 2021.
Matt May | Bloomberg | Getty Images
It typically takes two to 4 years from launch for airlines to turn a profit, said Henry Harteveldt, president of Atmosphere Research Group, a travel industry consulting firm. Avelo and Breeze each faced additional challenges which have weighed on the complete industry, including a jump in oil prices, supply chain snarls and shortages of pilots and air traffic controllers.
“The proven fact that the airlines are each still operating is a credit to [Levy’s and Neeleman’s] visions, their leadership, but additionally the dedication of their employees,” Harteveldt said.
Skipping hubs
Each airlines have staked a claim within the low-cost carrier segment, which also includes Frontier and Allegiant, which supply base fares, add-ons and secondary airport flights.
Avelo flies to about 50 destinations and operates out of six bases including Connecticut’s Tweed-Latest Haven Airport and Delaware’s Wilmington Airport. Lots of its destinations are from the Northeast to popular vacation destinations in Florida and South Carolina, however it also serves destinations in California and other western states within the U.S.
The carrier moved beyond the continental U.S. in 2023 when it launched service to Puerto Rico and can likely expand to international destinations this yr, Levy said.
Breeze, which Neeleman founded after also starting JetBlue Airways and Brazilian carrier Azul, mostly eschews major hubs and flies out of about 50 airports corresponding to Latest York’s Westchester County Airport and Akron-Canton Airport in Ohio.
It flies to straightforward vacation destinations, but additionally offers cross-country flights from cities corresponding to Hartford, Connecticut or Charleston, South Carolina, to destinations including Las Vegas and Los Angeles. It hopes to launch international service by 2025.
Avelo and Breeze have each continued to announce latest routes and destinations this yr. Avelo had 11 routes shortly after launching in the summertime of 2021 and now has about 75, while Breeze flew about 16 routes that summer and is currently selling roughly 180.
A Breeze Airways airplane on the tarmac at Tampa International Airport in Tampa, Florida, on May 27, 2021.
Matt May | Bloomberg | Getty Images
Breeze and Avelo sell base fares — some as little as double digits — and charge fees for checked luggage and advanced seat assignments, upcharges which have change into common not only amongst budget airlines, but most large carriers, too.
Breeze’s lowest-fare option allows travelers to bring on only a private item, however the airline also sells first-class seats and further legroom options with more amenities. Neither airline’s base fare features a carry-on bag.
Operational costs
Offering low airfares has made industry-wide cost increases all of the more daunting for Avelo and Breeze. The nationwide shortage of pilots following the pandemic and rising labor costs, for instance, have posed a challenge.
Large airlines, which may offer pilots big salaries, have hired away pilots from smaller carriers lately to staff up after the pandemic.
“What you actually need to look at with pilots is attrition. … We had an attrition rate that was higher than we liked, and now it’s where we wish it,” said Neeleman.
The carrier has many first officers who’re poised to be upgraded to captain, helping alleviate the shortage, he added.
Airlines have also struggled with late deliveries of aircraft and difficulties getting 1000’s of substitute parts.
Founder, Chairman and CEO of Avelo Airlines Andrew Levy speaks at Hollywood Burbank Airport in Burbank, California, on April 7, 2021.
Joe Scarnici | Getty Images
Avelo has faced delays in delivery of its used Boeing 737 aircraft that it leases, CEO Levy said. The corporate currently has 16 planes in its fleet and has five on order.
“The entire aviation supply chain system has been mucked up since Covid. And it still isn’t quite back to what it was,” Levy said.
Breeze said last month that it is going to exercise options on 10 more Airbus A220 aircraft. The corporate will exclusively fly the A220 for its industrial service by the tip of 2024. It currently flies 22 A220s and could have 32 in operation by the tip of 2024, in accordance with Neeleman.
Neeleman said Breeze is aiming to be profitable before it decides whether to file for an initial public offering or another choice. Avelo also hopes to realize sustained levels of profitability before an IPO.
Levy said Avelo’s focus is “on getting to some extent where the corporate is IPO ready,” and that he has no real interest in selling the corporate.
Some airlines, particularly low-cost carriers, have lately looked to merges to chip away on the dominance of the large 4 carriers. JetBlue and Spirit announced plans to mix in July 2022 in a deal that might have created the fifth-largest airline within the U.S., though a federal judge blocked that merger in January. Those airlines have appealed that ruling.
Hawaiian Airlines and Alaska Airlines plan to mix, though they’ll proceed to operate the brands as distinct carriers.
Each Levy and Neeleman said there’s room for multiple players within the low-cost carrier space.
“The more competition we now have within the U.S. airline industry, the higher it’s for the traveling public,” Atmosphere Research Group’s Harteveldt said.
— CNBC’s Leslie Josephs contributed to this report.
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