America Airlines – Why Are We Seeing So Many Airline Start Ups Despite The Pandemic?
The pandemic has impacted aviation profoundly, even for a usually volatile industry. From airlines cutting routes, canceling orders, and being grounded for months, the last year has been extremely tough. However, despite the challenges, several start up airlines have emerged around the globe. From Asia to South America, new airlines are cropping up every month. But why are so many seeing the pandemic as an opportunity?
Lower costs across the board
As the pandemic impacts everyone from aircraft manufacturers to airports, the cost of operating an airline has fallen. Starting with aircraft, arguably one of the most critical aspects of any airline’s operations. Manufacturers like Boeing and Airbus have seen record cancelation and deferred deliveries in 2020, pushing them deep into the red.
These losses have likely led them to offer steep discounts to any airline willing to shell out for new aircraft. We already know airlines have can anywhere from 40% to over 70% knocked off of list prices when purchasing multiple planes. The high discounts, likely more due to the pandemic, explains why airlines are considering, or going ahead with, ordering more planes.
However, in reality, most start up airlines don’t kick off by placing multi-billion orders (there are exceptions). Most look to lease a handful of planes from lessors, keeping the capital costs much lower. Luckily for startups in 2020-21, the market for second-hand aircraft is booming.
Several airlines have returned hundreds of their older aircraft to lessors in the last year or retired them, which means these planes can be leased for a relatively low amount. Lessors, in turn, are struggling with aircraft surpluses and falling leasing rates, making short-term revenue critical. This opens up the door for low-cost airlines to acquire aircraft and start operating at a much lower base cost.
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Availability of staff
One of the unfortunate impacts of COVID-19 has been the tens of thousands of aviation staff being furloughed or laid off. Major airlines and groups are either considering or have begun laying off thousands, such as Lufthansa Group (30,000 jobs), British Airways (10,000 employees), Cathay Pacific (6,000 jobs), and many more.
Considering airlines worldwide were suffering from a pilot drought one year ago, the turnaround is stark. However, for startups and staff, this represents a key opportunity. Hong Kong’s Greater Bay Airlines (G(BA)) managed to hire the now-axed Cathay Dragon‘s CEO to lead its operations. Hundreds of ex-Cathay staff are also expected to join G(BA), with an aim to employ 2,500-3,000 in the coming years.
While only a fraction of out of work staff members will get jobs with start ups, it is a boost for the airlines. Good leadership and experienced crew are critical to establishing an airline, especially in such tumultuous times. As startup airlines receive their licenses and start flying, it will open up more jobs for airline staff and crews.
While the pandemic may have decimated international travel, countries with vast domestic markets have been jumping on adding new routes. The emergence of new, regional routes has opened up opportunities for new airlines to possibly fill the gap.
Colorado’s upcoming AspenJet, located in the popular ski town, is jumping on the growing traffic to the city last year. Airlines like Southwest, jetBlue, and others have all added services to popular ski towns in Colorado as domestic destinations became popular. Seeing this opportunity, AspenJet plans to launch a semi-commercial/private airline carrying 30 passengers in an ERJ175 luxuriously to Aspen.
Italy’s Ego Airways is following a similar strategy with its operations. After receiving its Air Operators Certificate (AOC) in late 2020, the carrier has laid out its initial route map. The airline plans to connect regional airports in Italy, with plans to eventually sign codeshares with major carriers. As demand for domestic destinations rises, smaller carriers could find themselves in a profitable place.
Notably, larger airlines have also cut dozens of routes from their networks in the last year. This has opened up a rare opportunity for startup carriers to pick up new routes, which might have been much more difficult and expensive at other times.
Filling the gaps
The last year has also seen several high profile airline bankruptcies and shutdowns, opening up a market for new airlines. From Britain’s Flybe to several major South American carriers, bankruptcy will significantly change these aviation markets.
This opens up an opportunity for airlines to emerge and fill in these gaps in the network. South America is expecting many new start up airlines, such as Ita Linhas Aereas and Ultra Air, to fill the demand for growing regional traffic.
Is it a good idea?
Once entrepreneurs secure funding (or invest their own millions), those looking to start airlines have all the tools at their disposal, as described above. However, just because the chance exists doesn’t mean it is the best idea. Airline traffic remains at an all-time low, with cases surging and local guidance prompting people to stay at home. In this environment, any new airline is sure to lose money.
Things aren’t looking particularly bright in the near future either, with 2019 highs not expected to return before 2023. Even while vaccines will help restart travel in mid- to late-2021, international borders will remain firmly shut until infection levels fall. Domestically, many markets are already suffering from overcapacity.
However, while things look bleak, there are upsides to using 2020-21 as a staging year for operations. By hiring staff, leasing aircraft, and picking up slots in a downturn, airlines can get a head start on the upcoming aviation recovery. Expect the future aviation industry to look a lot different than the one left behind.
What do you think about the future of airline startups? Is it a good idea? Let us know your thoughts in the comments!