Opportunities in Hard Times

IT seems paradoxical that while the Covid-19 pandemic has dealt a devastating blow to the airline industry with some airlines folding their wings and many others reporting dives in passenger numbers higher than 95 per cent, new airlines are entering the arena.

Even in hard times, there are opportunities. Continuing border restrictions are giving domestic travel a boost. Further easing of regulations within areas of close geographical proximity is also favouring short-haul regional travel over long-haul international travel.

Ryanair chief executive Michael O’Leary is expecting a “very strong recovery” for the short-haul in Europe. The airline predicts a return to pre-pandemic levels in capacity on the back of 10.5 million passengers a month over the next three months.

To be expected, British Airways (BA) is not going to step aside and watch the market shift to the likes of Ryanair and easyJet. The British national carrier is said to be in the final stages of planning a lower-cost subsidiary airline at Gatwick Airport. Note the reference to “lower cost” rather than “low cost”.

A BA statement said, “This will help us to be both agile and competitive, allowing us to build a sustainable short-haul presence at Gatwick over time.”

There are several factors that favour the unexpected trend.

Planes are cheaper. Gates are easier to come by. As leading airlines shed staff to cope with the downturn in business, new startups can pick up experienced staff to jump start their operations. All these point to lower start-up costs which deter entry in good times when leading airlines by sheer size and economy of scale maintain an edge over their challengers.

As executive chairman Steven Udvar–Házy of Air Lease Corporation summed it all up so pointedly, “cheap money… cheap aircraft, and pilots”.

A major contributor is the pent-up demand for travel as restrictions ease.

And, of course, for the adventurous and entrepreneurial with dreams to pursue, it is hard to resist the temptation. Andrew Levy of Avelo Airlines and David Neeleman of Breeze Airways are two examples.

Courtesy Avelo Airlines

Avelo which operates out of Burbank Airport in Los Angeles aims to provide not only cheaper fares but also a higher degree of convenience for commuting, serving secondary airports on the West Coast of the United States. Similarly, Breeze is focusing on point-to-point routes “that bigger airlines overlook.” It is offering “low fare, high quality non-stop flights.”

Courtesy Breeze Airways

In Canada, low-cost carriers Flair Airlines and Swoop are expanding their reach and eyeing markets south of the border in the US. OWG Airlines which was founded in 2020 in Montreal is serving travellers between Canada and Cuba. Another Canadian startup in the works is Connect Airlines which plans to commence operations in October, connecting Toronto’s Billy Bishop City Airport with airports in the Northeast and Midwest of the US. The airline is said to be in partnership with American Airlines.

UK’s FlyPOP is looking farther to launch flights from London’s Stansted Airport to Amritsar and Ahmedabad in India when border restrictions ease, banking on VFR (Visiting Friends and Relatives) traffic.

Besides these carriers, it is an impressive list of startups around the world.

In South America, new ventures include Ita Linhas Aereas (Brazil), Nella Linhas Aereas (Brazil), Ultra Air (Colombia) and Ecuatoriana Airlines (Ecuador).

In Europe, Norwegian carrier Flyr is offering passengers a “digital, flexible and honest air travel experience.” Simplicity is the key, with no change fees and baggage restrictions besides the low fares. In Denmark, Airseven will operate charters instead of flights on scheduled routes. Icleandic startup airline PLAY founded by two former executives of WOW Air which went bust plans to replicate the latter’s short-lived success with flights to European and US destinations. Italy’s EGO Airways aims to deliver a “tailor-made service” whereby customers may purchase additional services such as hotel rooms and car hire.

South African carrier LIFT commenced domestic operations in December last year. Wizz Air of the Untied Arab Emirates connects Abu Dhabi with Greek destinations.

In Asia, Flybig is a new Indian regional airline launched at the beginning of this year. Vietravel Airlines and Bamboo Airways are Vietnamese startups. The latter has obtained the US Department of Transport (DOT)’s permission to operate to Los Angeles International Airport and San Francisco International Airport. South Korea’s Aero K plans to operate not only domestic services but also international flights to Japan, China, Taiwan and Vietnam.

Down south, Pasifika Air plans to launch direct services from Wellington and Christchurch in New Zealand to the Cook Islands next month.

That’s the marvel of the airline industry. In good and bad times, new carriers continue to sprout even as history has shown how not few of them have come and go. It’s the entrepreneurial spirit that keeps some of them going where others fear to tread if only for the sweet taste of success while it lasts.

Success naturally breeds growth which leads to expansion. There is the risk of over expansion in a highly competitive market as unit cost rises. Many of the start-up airlines are dependent on leisure travel, and cost is an important consideration. BA’s launch of a regional carrier out of Gatwick is just another example in history of how legacy airlines try to check the reach of low-cost airlines competing in the same market. A number of them are still engaging in tier and parallel operations.

Much also depends on how long the present conditions favouring short-haul travel would continue to hold sway. The world will open up, albeit slowly and cautiously as more countries become resigned to living with the corona virus than stay locked-down indefinitely. Recovery to pre-pandemic levels is not expected until 2024, but uncertainty continues to loom large on the horizon. Until the global situation stabilizes to an acceptable level, the short-haul may continue to be preferred over the long-haul.

For those startups which are thinking of flying farther, they may face a bigger challenge competing with leading airlines which nonetheless cannot ignore the competition.