Issue No. 815

American's Evolving Network

How Domestic Leisure Demand Is Remaking American Airlines' Network

Pushing Back: Inside the Issue

Last week, the U.S. Centers for Disease Control and Prevention said vaccinated Americans can stop using masks in most outdoor and indoor settings, guidance President Joseph Biden lauded as a milestone toward the end of the pandemic. But travelers already had decided the Covid-19 pandemic was nearing its end: Summer demand at airlines like Frontier is almost back to 2019 levels, and regional carrier Mesa said it will operate 100 percent of its 2019 capacity for American. Speaking of, we spoke to American's head of network planning Brian Znotins (in a nod that the pandemic continues, via videoconference) to hear how the carrier is remaking its network to adapt to leisure demand.

Americans may be ready to venture forth, but the pandemic continues its heartbreaking rampage in India. Elsewhere in the Asia-Pacific region, Australia could wait until the middle of next year to reopen its borders. Countries, like Japan, that had early success in containing the virus now are struggling to vaccinate their populations. Dozens of countries in Africa have not started large vaccinations programs. In South America, worrying new outbreaks have slammed borders shut, even as Brazil, the largest market, starts to recover. And in Europe, no timeline exists for letting vaccinated tourists return, although several countries, eager not to lose another tourism high season, have reopened their borders to vaccinated visitors. Meanwhile, no single standard exists for vaccine passports. Also during the week, the Israeli-Palestinian conflict escalated, forcing many airlines that serve the region to halt their flights.

Verbulence

"The international that will be there [after Covid-19] is going to be way different than the international that went away in 2019."

American Airlines Chief Revenue Officer Vasu Raja

The Airline Weekly Lounge Podcast

New episodes drop every week and are available wherever you get your podcasts and on AirlineWeekly.com. In the latest podcast, we talk to Jonathan Sullivan, a London-based Accenture managing director, about when business travel might return and how different it may be after the pandemic. In the second segment, Edward "Ned" Russell and Madhu Unnikrishnan discuss what summer might look like for U.S. carriers and why Americans have fallen back in love with their national parks (and what that means for airlines). Listen to episode.

Weekly Skies

Veterans of NAI Fight Support New Bill Aimed at Norse Atlantic

A bipartisan group of U.S. lawmakers introduced a bill to bar what they call “flags of convenience” airlines from operating to the U.S. Introduced by Rep. Peter DeFazio (D-Ore.), who chairs the House Transportation and Infrastructure Committee, the “Fair and Open Skies Act” would prohibit the Transportation Department (DOT) from issuing foreign air carrier permits to airlines that in any way violate or seek to circumvent the labor provisions in the U.S.-EU open skies agreement. More broadly, the bill would require tougher scrutiny of labor practices of any airline seeking a U.S. foreign air carrier permit.

The bill does not call out Norse Atlantic Airways by name but, in a supporting document, the committee made clear what airline it had in its sights. “One newly formed European venture…has reportedly started structuring itself in a manner resembling NAI.” That latter airline, Norwegian Air International, is explicitly what the bill seeks to prevent.

DeFazio is a veteran of the bruising battle a few years ago to deny NAI’s foreign air carrier permit. Opponents, which in addition to DeFazio included unions and several airlines, then claimed NAI incorporated itself in Ireland to avoid Norway’s stricter labor laws. Although they were ultimately unsuccessful and NAI got its permit, the scars remain, even now months after Norwegian has pulled back from long-haul international. Earlier this year, DeFazio urged Transportation Secretary Pete Buttigieg to deny Norse Atlantic’s foreign air carrier permit. Introducing the new bill, DeFazio said, “In the past, we have seen foreign airlines set up under a flag of convenience business model to exploit weaker labor laws outside their home countries in order to save money, undercut competition, and skirt important labor standards to get a leg up.”

The bill’s passage by the House and Senate is anything but certain, but under the Biden administration, labor is again flexing its muscles, and Buttigieg is receptive to labor’s concerns. Both the Air Line Pilots Association and the Allied Pilots Association have thrown their weight toward the bill’s passage.

But Norse Atlantic also is eager not to repeat history. CEO Bjørn Tore Larsen took pains to stress that the airline is completely separate from Norwegian. And the company has begun a charm offensive in the U.S., scheduled to meet with the Association of Flight Attendants later this month. AFA President Sara Nelson has said she is encouraged by the carrier’s outreach.

Of course, all of this is moot until Norse Atlantic secures and air operators certificate. Only then can it apply for a foreign air carrier permit and an exemption to serve the U.S. Larsen said the process could begin soon, and he hopes the airline will be flying by the end of the year.

Madhu Unnikrishnan

And on the Other Side of the Capitol…

And speaking of Congress, on the other side of the Capitol, two U.S. senators have taken up the cause of cash refunds for canceled travel. In letters to the heads of all the major U.S. carriers, Senators Edward Markey (D-Mass.) and Richard Blumenthal (D-Conn.) pressed the case to make permanent credits issued for travel cancelled during the pandemic.

Airlines often gave passengers travel credits instead of cash refunds for tickets canceled because of the pandemic. These credits could expire before passengers have the chance to use them or before they feel safe to travel, the senators say. “We fear that countless consumers will be unable to redeem their flight credits or will redeem them at a loss,” they said. It is “unconscionable” that the industry “sits on more than $10 billion in unused travel credits,” Blumenthal and Markey said.

The senators would prefer that airlines offer cash refunds. But if they did issue credits, the two lawmakers have a list of eight questions on expiration dates that they want answered before May 28.

Madhu Unnikrishnan

Frontier Looks Beyond Losses to Leisure Travel Opportunities

Frontier Airlines, flush with cash from its recent stock market debut, is positioning itself to take advantage of what it calls a “surge” in leisure travel.

In fact, Frontier executives think the surge will last as long as 18 months, as people flock to the airways to take summer trips they put off last year and travel again for the year-end holidays. With a network primed for leisure flights and its focus on keeping costs low, Frontier thinks it’s uniquely positioned to reap the benefits as Americans head to the beach.

But it’s not just the beach; the nature of travel will have changed as well. Workplace flexibility could redound to Frontier’s benefit as “work from home” becomes “work from anywhere.” As long as companies don’t mandate workers to return to their offices, and as the fear of the pandemic recedes, more people will take to the airways to work from wherever they want, Frontier believes. This could shift more leisure travel — traditionally heavy during the weekends — to midweek. “This could last for years,” CEO Barry Biffle said during the company’s inaugural quarterly earnings call last week.

The surge could result in people not being able to go where they want, simply because there just aren’t enough flights. Biffle thinks people who wait too long to make their summer plans will be out of luck, and this problem will snowball as more people begin to travel. Thanksgiving and Christmas could see this problem become more acute. The booking curve will begin to lengthen out to pre-pandemic levels, and Biffle thinks by early next year, travelers will begin planning their summer vacations six months out, more in line with consumer behavior before the pandemic.

But, striking a note of realism, Biffle acknowledged the recovery is in its very early stages. “We’re between the second and third innings,” he said. The summer could be “inning seven, if demand outstrips supply.”

Frontier is luckier than carriers like Delta Air Lines, American Airlines, and United Airlines, which earned much of their revenue before the pandemic from international flights and business travel. The Denver-based ULCC is primarily a domestic U.S. airline, and what little business traffic it carries is from small- and medium-sized enterprises and not from managed travel. The airline thinks it has ample room to grow. ULCCs comprise about 10 percent of the U.S. market now, but in Europe are about half the market. As the nature of travel changes, Frontier believes its network and model will stand it in good stead to reap the benefits.

The major airlines’ basic economy is not much of a threat, Biffle said. Basic economy ticket prices have been rising as demand returns, making it less attractive to travelers who may want fewer restrictions than that fare class usually allows.

Frontier has been busy adding routes and has started service to five new domestic cities. The carrier has added dozens of new routes in the quarter, and started flying to three more near-international destinations: Nassau, the Bahamas; San Jose, Costa Rica; and St. Maarten.

It expects to be profitable in the second half of the year, after losing money in the first quarter. Daily cash burn turned into cash generation at the beginning of March, just when Frontier saw an uptick in demand for spring break and summer travel.

Frontier, unlike most U.S. carriers, leases all of its fleet, an arrangement that gives it more financial flexibility than owning aircraft, Chief Financial Officer Jimmy Dempsey said. In the quarter, Frontier took delivery of three Airbus A320 Neos and is returning its four remaining A319s. The carrier expects to take delivery of 10 more A320 Neos this year and will start adding A321 Neos to its fleet next year. By 2025-2026, the larger A321s will make up half of the carrier’s fleet.

Frontier benefited from $96 million in federal payroll support in the quarter and will take an additional $75 million from the most recent round of payroll support in the second quarter. Biffle doesn’t expect the government to provide a fourth round and said additional funding was unnecessary given the industry’s return to health. Frontier began hiring flight attendants and pilots during the quarter and will be fully staffed to operate its larger fleet as the aircraft arrive.

The carrier raised $271 million from its April 1 initial public offering. Frontier reported a $91 million first-quarter loss on revenues that were roughly half of the same period last year. Its operating margin in the quarter was -34 percent. The carrier expects its second-quarter operating margin to be between -10 and -15 percent. Management did not offer revenue guidance for the balance of the year.

Madhu Unnikrishnan

Mesa Hopes to Exceed Pre-Pandemic Capacity by September

Mesa Air Group executives are almost ready to start popping the champagne. The summer is shaping up to be almost at pre-pandemic levels for the regional that operates flights for both American and United.

In fact, CEO Jonathan Ornstein said it will fly 100 percent of its pre-pandemic capacity for American by June. And, by September, the regional could fly more than its pre-pandemic capacity for the Fort Worth, Texas-based mainline carrier. Part of this is fueled by the addition of five Bombardier CRJ900s to the fleet Mesa operates for American.

The story is similar for United regional flights. Mesa expects to operate between 75-80 percent of its pre-pandemic capacity for United in June, rising to 85-90 percent by September. Between November of last year and this June, Mesa will add 18 Embraer E175s to its United operation. The regional also announced it is part of United’s Aviate pilot-pipeline program, with pilots trained at Mesa guaranteed a position in United’s mainline roster after completing the program.

Interest among aspiring pilots to fly for Mesa is strong, Ornstein said. The regional is hiring for all of its workgroups, and “the applicant pools are strong, and in the case of pilots, stronger than we have seen in recent history,” he said. One additional benefit of flying for Mesa, Ornstein said, is that it is the only regional to operate Boeing 737s, part of its freighter operation for DHL, giving pilots mainline flight experience.

Mesa had little to say about the DHL operation. Last year, Mesa said it could add as many as 10 737Fs for DHL within 18 months. Although executives were bullish on the operation, Mesa is not adding aircraft as fast as it predicted last year. It will take delivery of its third Boeing 737-400F in June.

Mesa is, however, bullish about its European operation. Concrete details were scant during Mesa’s quarterly earnings call on Monday, but the regional is moving ahead in getting a European air operators certificate and is working with Gramercy Associates on the project. European regional flying is undergoing a transformation in the wake of Covid, presenting Mesa with opportunities for growth, Ornstein said. Moreover, a European operation will allow Mesa to put some of its “surplus CRJ900s” to use, he said. Mesa did not define a timeline for when the operation may launch, however.

Mesa reported a fiscal second-quarter pre-tax net income of $7.6 million. As in recent quarters, federal stimulus funds fueled the regional’s profits. Mesa benefited from $48.7 million from the second round of payroll support in the quarter, and expects $7.3 million from that round in the third quarter. Mesa will get an additional $52.2 million from the third round of payroll support, passed by Congress in March, in the third quarter.

Madhu Unnikrishnan

In Other News

  • Colombia is the latest country to sign off on Delta and Latam Airlines proposed joint venture. The pact covering flights between the U.S. and South America has also been approved in Brazil and Uruguay. However, key approvals are still needed in Chile and the U.S.
  • Turkey’s Pegasus is looking to the third quarter for more meaningful demand recover and expects to operate up to 85 percent of its 2019 capacity by then. In the first quarter, however, the carrier operated 59 percent its overall 2019 first-quarter capacity, but 75 percent of its first-quarter 2019 domestic capacity. Pegasus reported a first-quarter loss of €101 million ($122 million), driven in part by unfavorable foreign exchange rates. Revenues fell by 57 percent year-over-year. Pegasus will end the year with 95 aircraft and has 42 Airbus A320 Neos and 58 A321 Neos on order.
  • Kuwait’s Jazeera reported first-quarter yields were up 105 percent, driven up by a severe restriction in capacity. The carrier expects this anomaly to straighten out by the fourth quarter, when it thinks the region’s air travel market will see “palpable recovery.” Jazeera’s operations have been hamstrung by Kuwait banning flights to 35 countries, including busy routes to India and Pakistan. During the quarter, the carrier launchd routes to Colombo, Sri Lanka and Addis Ababa, both of which are aimed at Kuwait’s large expat populations from those countries.

    As air travel recovers, Jazeera plans to launch new routes to tourist destinations popular with Kuwaitis, like Tashkent, Uzbekistan, Sarajevo, Bosnia and Herzegovina, Yerevan, Armenia, Bishkek, Kyrgyzstan, as well as expat-focused routes to Kabul and Khartoum. The carrier ended the quarter with 14 aircraft, eight A320s and six A320 Neos. Aircraft utilization plunged to 3.3 hours from 13.8 hours last year. Jazeera reported a first-quarter loss of 5.2 million dinars ($17 million) on revenues that were 57 percent lower than last year.
  • Spirit Airlines has reupped its complaint against the AmericanJetBlue alliance and added Alaska to the mix. In a filing with the Transportation Department (DOT) last week, it argued that American is using its separate strategic partnerships with Alaska and JetBlue to sell combined itineraries and thus further consolidate its dominant position in key U.S. markets, including Boston, New York and Washington, D.C. “The [Northeast Alliance], combined with the American-Alaska partnership, allows for this unabated consolidation of competition across several of the largest air travel markets in the United States,” said Spirit.

    The Justice Department (DOJ) and attorneys general from several states are investigating the American-JetBlue pact that was approved in the waning days of the Trump administration. Competition is the focus of the investigations — and Spirit’s complaint — with the concern being the alliance gives American and JetBlue unfettered control in the northeast, where slot and gate constraints at airports limit new competition.

Edward Russell & Madhu Unnikrishnan

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Routes and Networks

Southwest Airlines is making a move to become one of the largest airlines flying between the continental U.S. and Hawaii after little more than two years in the market to the 50th state.

The Dallas-based carrier will add 15 new routes and three new mainland gateways in Las Vegas, Los Angeles and Phoenix from June 6 through September 7. The additions will bring an influx of new capacity to the islands — nearly tripling the number of seats Southwest flies in the market — just as the leisure travel recovery is forecast to take off this summer.

But the move also pits Southwest more directly against the long-standing leaders to Hawaii. In terms of daily seats to the islands, the airline will jump from sixth place out of seven carriers at the beginning of June to a close third behind United Airlines and Hawaiian Airlines — leapfrogging the likes of Alaska Airlines, American Airlines and Delta Air Lines — by September, according to Cirium schedules and an Airline Weekly analysis of the new flights. And all but two of its new routes — Las Vegas to Kona and Lihue — will compete directly with another carrier.

The Hawaii additions come as airlines report strong demand for domestic leisure travel. Last week, Alaska executives told J.P. Morgan analysts that its Hawaii flights boasted the “highest load factors in [its] system” amid the broad leisure travel recovery. Demand to the islands is driven by the lack of many long-haul international beach destinations open to Americans, the analysts wrote in a report.

Since the worst days of the pandemic passed last spring, Southwest has used the crisis to grow in ways previously unimaginable for the airline. It has added or unveiled 17 new destinations — ranging from outdoor-oriented Bozeman, Mont., to high-cost hub Miami — in a momentous move for an airline that once made headlines for adding one or two new cities in a year. Executives have repeatedly said that, with demand down for its typically high-frequency hop schedules, it makes sense to use otherwise idled aircraft to expand the breadth of its map and tap new revenue streams.

“We’re a growth company,” Southwest CEO Gary Kelly said during the airline’s first-quarter earnings call in April. “We know how to manage growth, and we would be foolish to pass on what I think is the opportunity of a lifetime to grow this airline in this environment.”

Asked about further growth on top of the 17 new destinations, Kelly said: “We got a lot more we’d like to add.”

Southwest’s Hawaii play is likely to test other airlines willingness to challenge their new competitor. Hawaiian executives have repeatedly played down the new competition, expressing confidence in the airline being the “carrier of choice” in the state. And United, the market leader, has resumed its full network to Hawaii and is adding new routes, including Orange County-Honolulu and Newark-Kahului.

When Southwest unveiled plans to add Palm Springs to its map last year, Alaska responded in kind with new service between the California desert town and Boise, Reno and San Jose, Calif. And while Palm Springs is an important — albeit small — leisure destination for the Seattle-based carrier, Hawaii accounted for 14 percent of its pre-crisis capacity and a significant chunk of revenue. It is very likely that Alaska will not go gently into the night.

Southwest’s new routes include nonstops each between Las Vegas, Los Angeles and Phoenix and Honolulu, Kahului, Kona and Lihue — 12 routes in total. In addition, it will connect San Diego with Kahului, Kona and Lihue. All of the new routes will be flown with either Boeing 737-800 or 737-8 aircraft that seat 175 passengers.

Edward Russell

American Plans a Smaller, More Profitable International Network

American is making no small plans for its network recovery from the coronavirus pandemic. But those plans are not necessarily what one might think: It will continue to grow domestically around its largest hubs but internationally it will come back smaller — maybe much smaller — than it was just two years ago.

“The international that will be there [after Covid-19] is going to be way different than the international that went away in 2019,” said Vasu Raja, chief revenue officer of the Fort Worth, Texas-based carrier, at a Goldman Sachs conference last week. The key recovery metric will be financial — specifically pre-tax margins — and to a lesser extent traveler demand, for American as it eyes which long-haul markets to return to and which to leave.

On the surface, these plans are of little surprise to those following American through the crisis. The airline retired 41 widebody jets, including all of its Airbus A330s and Boeing 767s, as well as its 34 Boeing 757s that flew long and thin international routes. Eliminating these aircraft automatically cut some destinations from its map, for example Brasilia, Dubrovnik and its first-ever planned Africa service to Casablanca.

But Raja’s comments appear to cut deeper than just exiting destinations served by 757s and 767s. Flights to key partner hubs, including London Heathrow, and booming emerging markets, like India, will return in time, he said. Destinations that are “strategic” will not. Raja did not say what American considers strategic, but Atmosphere Research Co-Founder and Travel Industry Analyst Henry Harteveldt thinks it means secondary European destinations like Prague, Reykjavik, and Venice.

“Covid showed an unflattering light on airline route profitability,” said Harteveldt. “And airlines — all airlines — are making route network decisions about what will help them get back to profitability the fastest and best way.”

But even if American does not return to Berlin and Prague, it could still have a sizable transatlantic presence. The airline could serve major European cities — for example London, Madrid and Paris — with at least six daily flights each if it only connected them to all of its East Coast and large connecting hubs in Charlotte, Chicago, Dallas-Fort Worth, Miami, New York and Philadelphia. American already plans to grow long-haul flying from JFK, including new nonstops to Athens, New Delhi and Tel Aviv, under its new alliance with JetBlue Airways.

Europe is the focus of Raja’s comments for good reason. American’s pre-tax margins to Latin America are already comparable to domestic, suggesting few changes there, and it has already pared back much of its Asia-Pacific flying, particularly from its once-planned Los Angeles gateway. The carrier has indefinitely suspended flights to Beijing, Hong Kong and Tokyo Narita from LAX, while keeping service to all of the destinations from mega-hub Dallas-Fort Worth.

A pared back but more calculated long-haul international network does pose a risk for American. United plans to use structural changes in international markets to generate improved financial returns when travel recovers. Changes include the exit of some competitors, including Norwegian Air to Europe and Virgin Australia to Australia, as well as consolidation like Korean Air’s purchase of Asiana. United has kept its entire long-haul fleet in preparation for when demand rebounds so it can quickly resume flights.

Harteveldt agreed there is a risk, especially for corporate contracts that could shift to other airlines if American waits too long to return to a market.

But, at least in the American and United comparison, the former always made more money domestically and the latter internationally. The end result could be little change fundamental change as both look to leverage their relative strengths to recover financially from the pandemic.

“We’re going to be really cautious how we build back international,” said Raja. “When we [do], we’re bringing back an international that can produce margins in line with domestic.”

Edward Russell

Route Briefs

  • Air Canada is not waiting for Canada to ease its travel restrictions to tap the pent up demand in leisure travel. Last week, the carrier unveiled three new routes to Hawaii from December: Honolulu to Calgary and Montreal, and Kahului to Toronto. Air Canada will resume select flights to Hawaii from its Vancouver hub in July, though most pre-crisis routes do not come back until December.
  • Alaska is expanding further in Latin America with plans to add Belize City to its map later this year. The carrier will unveil service details for the new destination in June.
  • Business travel may be down significantly for the foreseeable future, but that is not stopping Austrian Airlines from moving its Milan service to the city’s close-in Linate airport from Malpensa. The carrier will move its two daily flights from Vienna to Linate on June 1. Austrian cites Linate’s popularity with business travelers for the move.
  • British Airways is making good on plans to ratchet up its dormant capacity to meet pent-up leisure demand beginning in June. The carrier will add new service between the Channel Island of Guernsey and both London City and Edinburgh from June 25 through September 27. Earlier in May, IAG executives said the group could fly as much as 70-75 percent of 2019 capacity in the third quarter.
  • The latest U.S. start-up Connect Airways, owned by Massachusetts-based Waltzing Matilda Aviation, has outlined its initial route plans. Flying from a base at Toronto’s Billy Bishop Airport, the airline plans to serve Baltimore/Washington, Boston, Chicago O’Hare, New York JFK and Philadelphia, a recent filing with the U.S. DOT shows. It also plans nonstops between Boston and both Baltimore and Philadelphia. Connect still needs U.S. Part 121 certification — it already has Part 135 certification — and sign off by Transport Canada before flights can begin. Connect will fly de Havilland Dash 8-400 turboprops, much like its Billy Bishop-based competitor Porter Airlines whose flights remain suspended due to the pandemic.
  • Goodbye fifth freedoms? Delta will “indefinitely suspend” flights to Manila, which it served via a stop at Seoul Incheon. The decision to drop the Philippine capital from its map means Delta will no longer operate any fifth-freedom routes in Asia, where it once had multiple such routes to Bangkok, Guam, Singapore and other cities. Delta inherited the Manila route from Northwest Airlines when the two merged with in 2009.

    Separately, Delta is not sitting idly by as American and JetBlue ramp up their Boston and New York hubs. Delta will add new nonstops between Boston and Charlotte and Dallas/Fort Worth — American’s two largest hubs — as well as Toronto Pearson in October. Also in the offing is new New York LaGuardia-Toronto Pearson service in August, likely the result of the failure of Delta’s proposed joint venture with WestJet.
  • But not all fifth freedoms are on the chopping block. Singapore Airlines will resume its the Tokyo-Los Angeles leg of its Singapore-Tokyo-Los Angeles service on June 16. The return complements SIA’s nonstop Singapore-Los Angeles flights that have operated through the crisis.
  • Avelo Airlineslaunch in April has not gone unnoticed by the competition. Alaska quickly moved to fortify its leading position in Santa Rosa, and now Frontier Airlines has its sights set on Avelo’s new Burbank base. The Denver-based discounter will add daily service between Burbank and Denver, Las Vegas and Phoenix on July 15. While Avelo only serves Phoenix, the size of the Denver and Las Vegas markets almost guarantee that they are on the start-ups short-list for future expansion.

    In addition, Frontier will join Delta connecting Southern California’s Ontario airport and Atlanta. Flights begin on July 16.
  • Ryanair is not done pushing to replace retrenching Norwegian Air, even in the latter’s home territory. The Irish discounter will add Stockholm’s Arlanda airport to its map with a new base from October. The airline plans 21 routes initially, including a mix of traditional European hubs like Brussels Charleroi, Milan Bergamo and London Stansted, as well as leisure hotspots like Malaga, Spain, and Thessaloniki, Greece, according to Cirium schedules. At least seven routes will compete directly with Norwegian.
  • Another delay for Qantas and Virgin Australia. Both carriers have pushed back the resumption of international flights to the end of the year from October, except for select ones across the Tasman Sea to New Zealand. Australia’s government is expected to reopen the country’s borders by mid-2022, after completing the country’s vaccine program by year end, Qantas said. For the Flying Kangaroo, this means restarting long-haul international services from the December timeframe. In addition, Qantas plans to take advantage of new travel bubbles if they open (Singapore and Hong Kong have been floated).

    With its long-haul international network gone as part of its voluntary administration rejig last year, Virgin only has to postpone the relaunch of flights to select New Zealand destinations as well as Bali, Samoa, the Solomon Islands and Vanuatu. It anticipates resuming these flights in December.
  • New-ish Taiwanese carrier Starlux is launching thrice-weekly flights between Taipei and Ho Chi Minh City in Vietnam. The new route follows Starlux’s pandemic strategy of flying primarily to what it sees as business destinations. Since the pandemic began, it started flying to Bangkok, Tokyo Narita, Osaka, and Kuala Lumpur. Starlux says it is still on track to begin flying to North America next year.
  • More airlines are expanding at Belfast City airport and filling the gap left by Flybe‘s demise in 2020. Stobart Air will add new service between Belfast and Cardiff on June 28, following by Dublin-Cardiff flights on August 30. Both routes will be operated in partnership with Aer Lingus.
  • Turkish Airlines will add a second New York gateway to its map this month. Flights between Istanbul and Newark begin May 21, connecting Turkish directly to the hub of its Star Alliance partner United. Despite the continuing pandemic, Turkish has resumed service to all nine of its U.S. gateways with Newark becoming its 10th destination in the country. The new route complements existing service to New York JFK.
  • Indian carrier Vistara will add Tokyo to its map in June. The carrier will connect Delhi and Haneda airport weekly from June 17. The addition comes as India continues to face a devastating wave of Covid-19 infections, and Japan remains largely closed to visitors amid its own pandemic struggles.
  • Wizz Air is making a big push for the Eternal city. The discounter will open its 43rd base at Rome’s Fiumicino airport initially with four Airbus A321 Neo aircraft in July. Wizz will add 32 new routes to destinations ranging from Casablanca to London Luton and Tel Aviv. The airline will serve 57 destinations nonstop from Rome, including both Ciampino and Fiumicino airports, by year-end.

Edward Russell & Madhu Unnikrishnan

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Fleet

Alaska Airlines has added 30 Boeing 737 Max and Embraer E-Jet commitments to its orderbook for future growth. The orders are split between 13 737-9s for Alaska’s options for the Max that arrive in 2023-24; and 17 E175s for the carrier’s regional affiliates Horizon Air and SkyWest arriving in 2022-23. The deals come just months after Alaska unveiled commitments for 36 new 737-9s that will allow it to retire its last Airbus A320s by 2023.

In a statement, Nat Pieper, senior vice president of fleet, finance and alliances at Alaska, described the dual orders as “another indication that we’re ready for growth.” Barring any yet-to-be disclosed aircraft retirements, the commitments will get Alaska to 335 aircraft by end-2022 — just three planes shy of its pre-crisis target for 2021 — and to 348 aircraft by end-2023. Alaska’s willingness to put money towards its growth ambitions is the latest vote of confidence in the travel recovery.

In meetings with J.P. Morgan analysts last week, Alaska executives expressed confidence in the recovery. Forecasts call for break-even results in the second quarter and a profit in the third quarter, though both will benefit from Uncle Sam’s payroll support largess. They said little about their plans for the next few years.

But Alaska has, to use a phrase from former CEO Brad Tilden, “reracked” its route map to points of strength along the West Coast, particularly in the Pacific Northwest. The airline has added more than 20 new routes — including Los Angeles-Boise, San Francisco-Redmond/Bend and Seattle-Redding — in these markets since March 2020, according to Cirium schedules. Many of these are flown by E175s with more such jets expected to bolster this north-south flying.

Edward Russell

Fleet Briefs

  • AerCap passed another milestone in its $30 billion quest to acquire GECAS. The company reported its shareholders approved the acquisition during a recent shareholders meeting. Regulatory approval in the jurisdictions the two companies operate in still is pending, but AerCap recently said it is confident it will get approval by the fourth quarter of this year.

— Madhu Unnikrishnan

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Feature Story

How American Airlines Is Retooling Its Network as the U.S. Emerges From the Pandemic

American Airlines has been busy since the start of the pandemic. With business traffic depressed and its large international network virtually idled by travel restrictions, the carrier has added about a hundred new routes and four new destinations in the U.S. aimed at capitalizing on quickly recovering domestic leisure demand. American is so confident of the recovery that it is pulling all its mothballed jets out of storage. Airline Weekly Editor Madhu Unnikrishnan spoke to American Vice President of Network and Schedule Planning Brian Znotins about these changes via videoconference last week. This interview has been edited and condensed for clarity.

Airline Weekly: If you were to characterize where these new destinations and routes are, how would you?

Brian Znotins: We’ve seen leisure be the most resilient piece of demand through the crisis, and we haven’t seen a lot of business demand ourselves. We’ve taken airplanes from business-type routes, either abandoning the route entirely or reducing frequencies, and using those airplanes to fly to new places in our network. Places where we’ve added capacity are in the Florida Panhandle, Fort Walton Beach, Panama City. But we’ve also launched new services to places like Tel Aviv, where there’s leisure, VFR, tech demand, and the country has been ahead of the curve on vaccinations. [Editor’s Note: This interview occurred before the conflict in Israel escalated last week.] It’s been a real mix, but I would definitely focus it on leisure in three broad buckets. Sun, mountain, and VFR (visiting friends and relatives), but sun and mountain are two big ones.

AW: Are mountain routes more seasonal than sun routes, or are you seeing demand stay pretty constant throughout the year?

BZ: No, they definitely are more seasonal. They’ve become less seasonal as a result of the crisis. But we’ve seen stronger demand to Jackson Hole this April than we saw in prior Aprils, because of pent up-demand.

AW: Could break down sun? Florida’s almost a bottomless pit for airline demand now.

BZ: There’s a lot of demand to Key West, where we’re running 19 daily departures. To the Panhandle, north Pensacola, Fort Walton Beach, Panama City. And then of course, Orlando and Miami, Fort Myers. Mexico has been open to tourism throughout the crisis. Cancun is one of our highest booked markets this summer, right now. It’s actually ahead of 2019 levels, despite having more capacity than 2019.

AW: Other than Mexico, what other near-international destinations have started to come back?

BZ: Dominican Republic has been strong. That’s been open for most of the time. It really goes island by island, in the Caribbean. In terms of VFR, the northern rim of South America, Colombia, Peru, those types of regions where people are finally getting a chance to go see [relatives].

AW: If we take as a given that leisure demand has remade the network, at least during this period, do you foresee any of these changes being permanent to the way American structures its network, let’s say in the next 6-18 months?

BZ: in this business, nothing is really ever permanent. We’ve had the opportunity here to try a bunch of things that we wouldn’t have tried in any other year. We’ll adjust capacity with demand, which is true of any route in our system. But everything we’re doing now, we would ultimately like to stick with in some form going forward. People may discover new places to travel. Because of their reluctance to go to Rome this year, they’ve decided to give Key West a try. And they find that they really love Key West, and they want to go again.

AW: Which hubs have performed best out of this pandemic? And which would you say is the strongest performing hub during the last year?

BZ: Certainly, Charlotte and Dallas, and we’ve maintained our connectivity in those hubs. It follows a lot of the trends that you’ve seen in the U.S., where in the Northeast, Covid hit a little harder. Our hubs in the Northeast have been reduced more — Philadelphia, O’Hare, New York. And then in the case of D.C., it’s a very business-dependent hub for us, so it’s been reduced because of the reliance on business travel out of DCA [Washington Reagan National].

AW: Have you made any changes to your bank structure at those hubs during the pandemic, either up or down?

BZ: We run a nine-bank structure at DFW and Charlotte in a normal year. In the depths of the crisis, we were running three and four banks in those hubs. And then we’ve slowly been working them back up, adding more banks over time. That allowed us to maintain connectivity. At all of the hubs, we’ve been taking this approach where we’ve been reducing banks instead of reducing the size of the banks.

AW: Have you reduced the number of longer flight and transcons, flowing them over your hubs?

BZ:  We’re barely flying any transcontinental operations now. We have limited operations in the Pacific, on transatlantic, and in deep South America, largely driven by a lack of demand, which in turn has been driven by country restrictions, either on the U.S. side or on the international side. We’ve taken those widebodies and deployed them domestically. They’re not normally meant for domestic, but we have them and they’re available. And there’s a lot of domestic demand right now.

AW: American is pulling all its jets out of storage by this summer?

BZ: Any plane that we haven’t retired permanently. We’ve retired the [Airbus] A330s permanently, and the [Boeing] 767s and 757s and the [Embraer] E190s.

AW: That means a lot of widebodies have to go somewhere.

BZ: It does. And it’s not just deploying widebodies for the sake of finding a home for them — we have demand domestically. And in future years, we’ll use those widebodies on longhaul routes where they belong. But for this year, it’s domestic.

AW: Turning to business travel, you mentioned briefly that DCA has seen less activity in the last year, since it is a business-focused hub. I assume [Chicago] O’Hare is probably a similar story.

BZ: O’Hare is in between. It’s certainly been reduced less than our New York, DCA, and Philadelphia hubs, but it hasn’t been as large as DFW, Charlotte, Miami. There’s a lot of business demand there, but there’s also a lot of leisure demand. We reoriented the hub toward leisure. We have added capacity in O’Hara to Florida, to capture that demand.

AW: What other network changes have you made at hubs like DCA, Philadelphia, and Los Angeles?

BZ: It’s the high-frequency business markets that we’ve [reduced]. In some cases, that may be down to one trip a day. And DCA, for example we may only be flying in once a day [to some destinations] instead of a normal three to four.  One of the challenges with Philadelphia is that not only is it in the Northeast, which has been challenged, but it’s also our primary transatlantic gateway. In New York, we have our new [Northeast Alliance with JetBlue] that’s helped to stabilize the region for us.

AW: What’s your best sense on when business demand might start to return?

BZ: Our sales teams have been heavily engaged with our corporate customers and they’ve put together a blueprint for each company. We see June and July being one of the more popular months for when businesses are saying they’ll return to business travel, and then a number in September and October. I think it’s going to be a slope.

AW: Airlines like American don’t make their bread and butter from leisure. How have you optimized the network to maximize yields on what’s traditionally been a low-yielding segment of the business?

BZ: Right now we do have the [federal payroll support program funding], and we’re very thankful to Washington for supporting our business. We have all the pilots, flight attendants, and mechanics on staff. American Airlines won’t be profitable in the traditional sense this summer. But we will be profitable in the sense that it’s better to have the airplanes in the air, generating revenue because of all the costs that are essentially not recoverable by leaving the airplane on the ground. And then in order to manage yields, it’s all just a supply demand game. In the network world, we do our best to put airplanes for people that want to go.

AW: How has the international network changed? Has the network changed structurally?

BZ: Ultimately, demand patterns are going to be different going forward than they are. While they’ll be different, they’ll look more like they used to than they do today. People will still want to go Rome for vacation. Will it be this summer? Maybe not, but come summer 2022 or 2023, Rome is a lifelong aspirational destination for a number of people to go to, and it will still attract travelers. London will still be a business center for banking. And these days we’ve really seen the importance of being flexible. So rather than try to polish my crystal ball and say that I think, ‘Summer 2022, the hottest destination in Europe is going to be X, Y, and Z,’ we’re going to wait and see demand develop.

AW: Do you think there’ll be a rebalancing to the North Atlantic versus toward Asia, at least in the near term? Or you’re just going to go where demand is?

BZ: We’re going to go where demand is, first and foremost. We do believe that Asia will rebound slower than transatlantic. Between São Paulo and Rio, and Santiago and Buenos Aires, plenty of opportunity to run widebodies down to those markets that they’re designed for. I think I can say with confidence that Asia will be slower to rebound. So widebody airplanes probably won’t be as required there as they will elsewhere.

AW: American historically has been strong in South America, but what we’ve heard from other airlines is that, given the patchwork of regulations and restrictions, it’s very difficult to plan in the short term. How has American adjusted its South American network to accommodate leisure demand?

BZ: We’ve had to make a number of changes in South America, due to government restrictions. But what we have seen is that when we can fly, the demand is there. Argentina flights were full, but then Argentina faced their challenges, and they decided to limit the number of flights that can enter the country. We have to adjust accordingly. I think it’s about being flexible because and being better. And if the restrictions continue or come in again, we will have to reduce them.

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