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

In the nearly four years since the Covid-19 pandemic upended air travel, the largest U.S. airlines have returned to profitability. The CEOs of two upstart airlines that launched in the middle of the pandemic say they’re about to join them.

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

They’ve launched dozens of new 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, rather than Los Angeles International, or Islip, Long Island, over New York City.

“When you have Goliaths, and 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, according to Cirium data.

Avelo says it flew 2.3 million customers in 2023, and that its planes were more than 80% full on average. Breeze flew 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 largest domestic carrier, flew more than 137 million passengers last year.

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

Levy said he had expected the airline to turn 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 is also on track for its first profitable year 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 four 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 that have weighed on the entire industry, including a jump in oil prices, supply chain snarls and shortages of pilots and air traffic controllers.

“The fact that the airlines are both still operating is a credit to [Levy’s and Neeleman’s] visions, their leadership, but also the dedication of their employees,” Harteveldt said.

Skipping hubs

Both airlines have staked a claim in the low-cost carrier segment, which also includes Frontier and Allegiant, which offer base fares, add-ons and secondary airport flights.

Avelo flies to about 50 destinations and operates out of six bases including Connecticut’s Tweed-New Haven Airport and Delaware’s Wilmington Airport. Many of its destinations are from the Northeast to popular vacation destinations in Florida and South Carolina, but it also serves destinations in California and other western states in the U.S.

The carrier moved beyond the continental U.S. 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 starting JetBlue Airways and Brazilian carrier Azul, mostly eschews major hubs and flies out of about 50 airports such as New York’s Westchester County Airport and Akron-Canton Airport in Ohio.

It flies to standard vacation destinations, but also offers cross-country flights from cities such as 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 both continued to announce new routes and destinations this year. Avelo had 11 routes shortly after launching in the summer 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 low as double digits — and charge fees for checked luggage and advanced seat assignments, upcharges that have become common not just among budget airlines, but most large carriers, too.

Breeze’s lowest-fare option allows travelers to bring on only a personal item, but the airline also sells first class seats and extra legroom options with more amenities. Neither airline’s base fare includes a carry-on bag.

Operational costs

Offering low airfares has made industry-wide cost increases all the more daunting for Avelo and Breeze. The nationwide shortage of pilots following the pandemic and rising labor costs, for example, have posed a challenge.

Large airlines, which can offer pilots big salaries, have hired away pilots from smaller carriers in recent years to staff up after the pandemic.

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

The carrier has many first officers who are poised to be upgraded to captain, helping alleviate the shortage, he added.

Airlines have also struggled with late deliveries of aircraft and difficulties getting thousands of replacement 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 company currently has 16 planes in its fleet and has five on order.

“The whole aviation supply chain system has been mucked up since Covid. And it still is not quite back to what it was,” Levy said.

Breeze said last month that it will exercise options on 10 more Airbus A220 aircraft. The company will exclusively fly the A220 for its commercial service by the end of 2024. It currently flies 22 A220s and will have 32 in operation by the end of 2024, according to Neeleman.

Neeleman said Breeze is aiming to be profitable before it decides whether to file for an initial public offering or another option. Avelo also hopes to achieve sustained levels of profitability before an IPO.

Levy said Avelo’s focus is “on getting to a point where the company is IPO ready,” and that he has no interest in selling the company.

Some airlines, particularly low-cost carriers, have in recent years looked to merges to chip away at 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 U.S., though a federal judge blocked that merger in January. Those airlines have appealed that ruling.

Hawaiian Airlines and Alaska Airlines plan to combine, though they’ll continue to operate the brands as distinct carriers.

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

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

— CNBC’s Leslie Josephs contributed to this report.

Don’t miss these stories from CNBC PRO:



Source link