Business News

Avelo and Breeze airlines, three years after pandemic debut, prepare for profitable year

[ad_1]

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

Nearly four years after the Covid-19 pandemic upended air travel, America’s largest airlines have returned to profitability. The CEOs of two new airlines launched amid the pandemic say they’re close to joining them.

Avelo and Breeze Airways, two low-cost airlines that debuted in 2021 when demand for U.S. air travel was more than 30% below pre-pandemic levels, have both rapidly expanded their operations.

They’ve launched dozens of new routes across the country, and their founders say their strategy of connecting cities where there’s less competition from big carriers is paying off. Think Hollywood Burbank Airport in Los Angeles, rather than Los Angeles International Airport, or Islip, Long Island, above New York.

“When you have Goliaths and you’re just David, it’s really difficult,” said Andrew Levy, CEO of Avelo Airlines.

Delta, American, United And South West together control about three-quarters of the American market, according to Cirium data.

Avelo claims to have carried 2.3 million customers in 2023 and that its planes were more than 80% full on average. Breeze carried more than 2.8 million travelers last year and its flights were 77% full, according to the company. The carriers are still tiny. For comparison, Southwest Airlines, the nation’s largest carrier, carried more than 137 million passengers. Last year.

Still, Avelo reported its first profitable quarter in the last three months of 2023, and a company spokesperson said the airline would likely turn an annual profit in 2024. It generated revenue of 265 million for the full year 2023, up 74% from revenue of $265 million. last year.

Levy said he expected the airline to turn a profit sooner, but high fuel costs during a period of high inflation and Russia’s invasion of Ukraine two years ago pushed back the timetable.

Breeze is also on track to have its first profitable year in 2024, CEO David Neeleman said.

David Neeleman, founder and CEO of Breeze Airways, before boarding the airline’s inaugural flight at Tampa International Airport, Florida, on May 27, 2021.

Matt May | Bloomberg | Getty Images

It typically takes two to four years after 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 that weighed on the entire industry, including rising oil prices, supply chain difficulties and a shortage of pilots and air traffic controllers.

“The fact that both airlines are still in business is a credit to (Levy and Neeleman’s) vision, their leadership, but also the dedication of their employees,” Harteveldt said.

Skip hubs

Both airlines have claimed a place in the low-cost carrier segment, which also includes Border And Allegiantwhich offer base fares, add-ons and flights to secondary airports.

Avelo serves approximately 50 destinations and operates from six bases, including Tweed-New Haven Airport in Connecticut and Wilmington Airport in Delaware. Many of its destinations range from the Northeast to popular vacation destinations in Florida and South Carolina, but it also serves destinations in California and other western United States states.

The carrier expanded beyond the continental United States in 2023 when it launched service to Puerto Rico and will likely expand to international destinations this year, Levy said.

Breeze, which Neeleman founded after also launching JetBlue Airways and Brazilian carrier Bluemostly avoids major hubs and serves about 50 airports, such as Westchester County Airport in New York and Akron-Canton Airport in Ohio.

It serves standard vacation destinations, but also offers cross-country flights from cities like Hartford, Connecticut or Charleston, South Carolina, to destinations like Las Vegas and Los Angeles. It hopes to launch an international service by 2025.

Both Avelo and Breeze continued to announce new routes and destinations this year. Avelo had 11 routes shortly after its summer 2021 launch and now has around 75, while Breeze flew around 16 routes that summer and is currently selling around 180.

A Breeze Airways plane on the tarmac at Tampa International Airport, Florida, May 27, 2021.

Matt May | Bloomberg | Getty Images

Breeze and Avelo sell base fares – some in the double digits – and charge fees for checked bags and advanced seat assignments, additional fees that have become common not only among budget airlines but also in most major carriers.

Breeze’s cheapest option allows travelers to bring only one personal item, but the airline also sells first-class seats and extra legroom options with more amenities. The base fare for both airlines does not include carry-on baggage.

Operational costs

Offering low airfares has made rising industry-wide costs even more daunting for Avelo and Breeze. At national scale lack of pilots following the pandemic and rising labor costsfor example, posed a challenge.

Large airlines, which can offer their pilots big salaries, have hired pilots from smaller airlines in recent years to bolster their workforces after the pandemic.

“What you really need to watch for in pilots is attrition. … We had an attrition rate that was higher than we wanted, and now that’s where we want it,” Neeleman said.

The carrier has many first officers who are about to be promoted to captain, which will help ease the shortage, he added.

Airlines have also struggled with late deliveries of planes and difficulty obtaining thousands of spare parts.

Andrew Levy, founder, chairman and CEO of Avelo Airlines, speaks at Hollywood Burbank Airport in Burbank, California on April 7, 2021.

Joe Scarnici | Getty Images

Avelo has been facing delays in delivering its used Boeing 737s that it leases, CEO Levy said. The company currently has 16 aircraft in its fleet and has five on order.

“The entire aviation supply chain system has been destroyed since Covid. And it’s still not quite back to what it was,” Levy said.

Breeze announced last month that it would exercise options on 10 additional Airbus A220s. The company will exclusively operate the A220 for its commercial service by the end of 2024. It currently operates 22 A220s and will have 32 in service by the end of 2024, according to Neeleman.

Neeleman said Breeze aims to be profitable before deciding whether to file an initial public offering or another option. Avelo also hopes to achieve sustained levels of profitability ahead of an IPO.

Levy said Avelo’s goal was “to get to a point where the company would be ready to go public” and that he had no interest in selling the company.

Some airlines, particularly low-cost carriers, have in recent years considered mergers to reduce the dominance of the big four carriers. JetBlue and Spirit announced plans to combine in July 2022 in a deal that would have created the fifth-largest airline in the United States, through a federal judge blocked this merger in January. These airlines appealed this decision.

Hawaiian Airlines And Alaska Airlines consider combining, although they will continue to operate the brands as separate carriers.

Levy and Neeleman said there is room for multiple players in the low-cost carrier sector.

“The more competition there is in the U.S. airline industry, the better it is for the traveling public,” said Harteveldt of the Atmosphere Research Group.

— CNBC’s Leslie Josephs contributed to this report.

Don’t miss these stories from CNBC PRO:

[ad_2]

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button