Issue No. 819

Is Europe (Finally) on the Verge of Recovery?

KLM CEO Pieter Elbers on the State of Europe's Airlines

Pushing Back: Inside the Issue

Last summer, European airlines raced to restore capacity as the first wave of Covid-19 ebbed and Europeans flocked to beaches. Since then, the continent has struggled with a resurgent virus, the inevitable lockdowns and travel restrictions, and a slow vaccine rollout. But could the EU be on the verge of recovery now? That's what KLM CEO Pieter Elbers told Airline Weekly in our Feature Story this week. Europe is close to a "structural recovery," not another temporary one, he said. This presents both challenges and opportunities.

Elsewhere in the issue, consolidation rumors run rife in Brazil, as well as an actual merger: Gol and Map. Southwest places a new order for Boeing 737 Max aircraft. United is said to be on the verge of a massive aircraft order. Transat, under new CEO Annick Guerard, is transforming itself into something that looks an awful lot like a hub-and-spoke carrier focused in Quebec and Eastern Canada. U.S. unions, angry about Breeze's controversial hiring plans, are calling on the federal government to wait before awarding the airline its final certifications.

Verbulence

Consumers have put money aside during the pandemic because of all the pleasures and activities that they have had to forego during this time. Now, they want to spend it on travel, mainly for two things: Visiting, of course, their loved ones abroad; and vacationing. 

Transat CEO Annick Guerard

Weekly Skies

Gol is taking the first step in the expected wave of Brazilian airline consolidation, unveiling a 28 million reais ($5.6 million) deal for regional carrier Map Transportes Aéreos last week. The acquisition would strengthen Gol’s presence at slot-constrained São Paulo Congonhas airport, as well as expand its network into smaller cities in both the southern and Amazon regions of Brazil.

The Gol-Map deal comes as most in the airline industry are focused on the possibility of an AzulLatam Airlines Brasil merger.

“We believe the acquisition of Map is the only viable opportunity for rational consolidation in the Brazilian aviation market at present,” Gol CEO Paulo Kakinoff said in a statement. “Going forward, we will continue to focus on our organic growth strategy, stimulating demand to expand our network.”

Gol is the largest domestic carrier in Brazil with a more than 38 percent share of passenger traffic in 2020, according to Brazilian aviation regulator ANAC. Latam Brasil is the second largest with a nearly 34 percent share and Azul third with a nearly 28 percent share. Map has a less than 0.5 percent share of the Brazilian market.

Map operates seven ATR turboprops on regional routes from Congonhas and Manaus. Gol plans to replace those 70-seat ATRs with Boeing 737s — initially -700s that seat 138 passengers — that would provide more capacity to underserved regional destinations.

Expanding regional air service has been a focus of the Brazilian government for years. Prior to the country’s last economic recession, officials were working on a package of incentives to encourage the country’s airlines to expand regional flying. Then — as today — Gol and Latam both operate domestic fleets made up entirely of Airbus or Boeing jets, while Azul is the only national carrier with a regional fleet of ATRs and Embraer E-Jets.

Gol’s acquisition of Map is subject to approvals by both ANAC and Brazil’s antitrust regulator CADE.

Edward Russell

Azul-Latam Brasil Tie-Up ‘Very Likely’: Analyst

Continuing with the Brazilian consolidation buzz, a recent report from investment bank Bradesco BBI called an Azul and Latam Brasil tie up “very likely” with a deal possible in the next 90 days. The combination would give Azul an up to 63 percent share of the Brazilian domestic market and would likely receive approval from CADE with limited slot divestitures at Rio de Janeiro’s Santos Dumont and São Paulo’s Congonhas airports.

Analyst Victor Mizusaki outlined a process that could see Azul make a pitch for Latam Airlines Group‘s Brazilian unit through its U.S. Chapter 11 bankruptcy restructuring. At least two Latam creditors, Oaktree Capital Management and Knighthead Capital Management, have exposure to Azul that could influence them in support of a deal.

Latam Brasil is worth about $1.1 billion plus roughly $1.9 billion in debt, according to Mizusaki. He estimated that an Azul-Latam Brasil merger would result in roughly 10 billion reais ($1.98 billion) in financial synergies.

Mizusaki’s 90-day timeline could already be out the window. It was based on Latam submitting a reorganization plan to the court by June 30 and creditors voting on it by August 23. Several days after the report, the airline sought to extend the reorganization plan deadline to September 15 and the voting deadline to November 8.

Latam remains publicly opposed to selling its Brazilian unit. “We are not considering in any way, shape or form, any sale of any of our assets at this point in time,” group CEO Roberto Alvo told Bloomberg earlier in June.

But this would not be the first time an interested party has used the Chapter 11 bankruptcy protection process to push consolidation. All one needs to do is rewind to 2013 and then-US Airways CEO Doug Parker’s very public courtship of an initially unwilling American Airlines. Opposition gradually gave way to talks and a merger deal was concluded on Valentine’s Day in 2014.

Edward Russell

Transat Leaves Hotels Behind to Focus on Airline Business

Canada’s Transat is abandoning its vertically integrated travel company model to refocus on its core airline business, with plans to retool its network to ferry passengers from all over Canada to transborder and other international destinations through its hubs in Eastern Canada. The move is a strategic shift for the company, which only a few years ago touted the value in its vertical model.

The pandemic forced the change and gave the company time to reevaluate what its core business should be. On May 20, the company discontinued its hotel division and will not invest further in the sector. Tours will remain an important revenue stream — but not an area of focus — as the company prioritizes its airline operations. “We are not to our full potential as an an airline because we were focusing on being a tour operator, a travel agency, and on hotels,” said CEO Annick Guerard, who took the helm of the company from Jean-Marc Eustache on May 27. “Now we need to refocus and to be much better as an airline company.”

Not that the carrier is doing much — or any — flying right now. When Canada closed its borders to Caribbean and Mexican destinations in January, Transat suspended all commercial flights. The carrier now expects to resume operations on July 30, provided Ottawa lifts border restrictions. When it does, Transat will offer fewer point-to-point flights and focus its network on its connecting passengers through its Montreal, Quebec City, and Toronto hubs. Instead of point-to-point flights, Transat will offer more frequencies on fewer routes. This new strategy will expose Transat to less seasonal variation and will increase aircraft utilization, Guerard said during the company’s fiscal second quarter earnings call Thursday.

Part of this shift in strategy was informed by the collapse of merger talks between Transat and Air Canada last month after regulators raised antitrust concerns. Instead, Transat is now in talks to pursue alliances and partnerships with other airlines, although Guerard declined to specify which carriers Transat is in discussions with.

The carrier is also in the midst of a fleet and fleet-strategy transformation. Transat is returning the last of its Boeing 737s and has retired its Airbus A310 fleet. It will have just two aircraft types from now: Airbus A330s and A321s. Crews will be able to operate either, reducing fleet and scheduling complexity. In addition, Transat will no longer lease aircraft during the winter for seasonal lift during what had been its peak season and will up the daily utilization rates for its existing aircraft — all part of its focus to reduce seasonality and increase frequency on key routes, Guerard said. “Overall, the average use of our aircraft was always below, compared with WestJet and Air Canada,” she said, adding: “We had too much seasonality and were not using our aircraft enough during the weekdays or even within each day.”

Transat is not straying too far from its roots, though. Guerard emphasized that the company will continue pursuing leisure travel. “We want to capture all the leisure traffic there is between Canada and the U.S., the Caribbean, and South America, while getting stronger in Europe,” she said. “The way for us to become even stronger is not to do as many routes but to do them in an efficient way.”

The carrier is optimistic that winter leisure travel will rebound. Guerard pointed out that during lockdown Canadians saved significant sums of money and thinks that they will use some of those savings for winter getaways. Still, Transat will not deploy as much capacity this winter as it did in 2019. “We never know what may happen,” Guerard said of the pandemic and future restrictions. “We are being prudent.”

During the quarter, Transat took a C$700 million ($579 million) emergency loan from the Canadian government. Of this, C$310 million will go toward refunds for passengers whose travel was cancelled during the pandemic and to whom Transat had offered travel credits. The remaining C$390 million will be used to fund Transat’s restart and to tide it over until revenue picks up.

Revenue in the quarter plummeted. The carrier reported C$8 million in revenue in the quarter, down from C$572 million last year, a quarter that also showed the pandemic’s effects. Transat’s quarterly net loss was C$103 million. Daily cash burn was C$1 million. The carrier expects to return to profitability by 2023, after gradually ramping up operations from July 30 through next year.

Madhu Unnikrishnan

American Optimistic About Business Travel Recovery

The name of the game is domestic leisure for U.S. carriers, but when lucrative business demand might return continues to be an open question. American CEO Doug Parker thinks demand will start to ramp up in September and the fourth quarter will be even better than the third. Parker based this prediction on what he’s heard from corporate clients.

But in the meantime, American will continue to focus on retooling its network to fly as many holidaygoers to as many destinations as it can. Long-haul international routes will be the last to come back and are dependent on governments around the world lifting travel restrictions, Parker told investors last week. Short-haul international, to vacation destinations in Mexico and the Caribbean, are doing “quite well.” The carrier this summer will operate 90 percent of its pre-pandemic domestic capacity and about 80 percent of its pre-pandemic capacity overall, he said.

American’s fleet resizing continues. The carrier earned about $300 million from the sale of the Boeing 767 and Embraer E190 it retired. The Boeing 757 fleet is taking a little longer to sell, as are the Airbus A330s, Chief Financial Officer Derek Kerr said.

Parker noted the recent controversy over voting-rights legislation that embroiled American. A Texas bill, now stalled in the legislature, would restrict voting rights by “some groups,” Parker said. After hearing from employees and Black CEOs from around the country, American took a stand against the law, earning the ire of Texas Republicans, who deny criticism that the bill would restrict access to the polls. “”We are not picking one side,” Parker said. “We want to try to pull people together.”

Madhu Unnikrishnan

In Other News

  • Ryanair notched another victory in its battle against European state aid for flag carriers. In this case, the European General Court ruled that Germany’s two loans to Condor exceeded the scope of compensating the airline for Covid-related cancellations. Germany extended two loans totaling €550 million ($670 million) in loans to the carrier early in the pandemic last year. The court annulled the aid and said they fell afoul of Europe’s competition laws, but the court also is suspending repayment until market conditions and the pandemic improve.

    “During the Covid-19 pandemic over €30 billion in discriminatory State subsidies has been gifted to EU flag carriers,” a Ryanair spokesperson said. “Unless halted by the EU Courts in line with today’s ruling, the effects of market distortion caused by this state aid will be felt for decades.”  The court previously had ruled in Ryanair’s favor and against state aid for KLM and TAP Air Portugal. The Irish discounter has several more cases pending before the court.
  • Hawaii is on the verge of lifting most of its travel restrictions. on June 15, the state will no longer require testing for inter-island travel, good news for Hawaiian Airlines, which reported a stark drop in intra-state travel due to the high cost of testing relative to the low cost of inter-island tickets, and to a lesser degree, Southwest, which also operates inter-island routes. When the state vaccinates 60 percent of its population, the state will relax most domestic restrictions; when it reaches 70 percent of residents vaccinated, all travel restrictions will be dropped.
  • The U.S. Transportation Department awarded Air Senegal a foreign air carrier permit and exemption to provide scheduled and charter service between the two countries, effective June 7. The carrier last month said it intends to start twice-weekly Dakar-New York-Washington flights on Sept. 2, using A330neos configured with 290 seats.
  • It was a busy week for foreign air carrier permits. Vistara got one step closer to flying to the U.S. when the DOT granted tentative approval for its foreign air carrier and exemption. The Indian carrier perviously said it plans to fly to the U.S. in the third quarter of this year. Barring objections to its application, it could make that deadline. Vistara, backed by Singapore Airlines and the Tata Group conglomerate, has not said where it intends to fly. The carrier currently operates two Boeing 787-9s on long-haul routes to London and Frankfurt.
  • After getting blowback, Air Canada said executive vice presidents and above will return their bonuses, and former CEO Calin Ravinescu will donate his 2020 bonus to the Air Canada Foundation. The carrier faced public condemnation for the bonuses for a year when it reduced its headcount by half and received a federal loan from Ottawa.
  • Aeromexico wants more time to finalize its U.S. Chapter 11 reorganization plan. The carrier has submitted a motion to the court to postpone the deadline to October 25 from June 25. If approved, creditors would have until December 22 to vote on the plan. The court is scheduled to hear the motion later in June.
  • The pandemic continues to be tough for Hong Kong’s carriers. HNA Group-owned Hong Kong Airlines is further cutting its operations with plans to fly just eight Airbus A330s on primarily cargo flights and ground its 12 Airbus A320s for at least a year from July, reported the South China Morning Post last week. In addition, the airline is considering redundancies for 30-40 percent of its staff. “Hong Kong Airlines is now in a critical survival mode … with the collapse of air travel and no recovery in sight,” the carrier’s chairman Hou Wei said in an internal memo.
  • United Airlines launched a new venture capital fund United Airlines Ventures last week. With initial capital of up to $200 million, the fund will focus on sustainability and innovation technologies for aviation. The fund is backing United’s speculative deals with Archer for electric vertical takeoff and landing — or eVTOL — aircraft and Boom Supersonic for 50 Overture aircraft.
  • Air cargo continues to be a bright spot for airlines during the pandemic. The latest IATA figures show that cargo demand in April was up 12 percent from 2019, and up 8 percent from March. The strongest growth came from North American carriers, which supplied almost 8 percent of that 12 percent rise. Belly-hold cargo remains relatively depressed on low international passenger capacity, but dedicated freighter capacity rose 26 percent. Signs point to the continued strength of air cargo. Global trade is up 4.2 percent. Maritime shipping rates remain high and constrained. And companies eager to restock as the world’s economy starts to recover, are showing a strong preference for the speed of air freight over maritime, IATA said.

    Madhu Unnikrishnan and Edward Russell
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State of the Unions

A coalition of labor unions is calling on the U.S. Transportation Department (DOT) to wait before giving its final approval to Breeze Airways, David Neeleman’s new startup airline, because they allege its controversial flight attendant hiring plans could violate federal law.

In a complaint before the DOT, the Association of Flight Attendants (AFA), the AFL-CIO, the Transportation Trades Department, and the Transport Workers Union argue that Breeze’s plan to hire college students as flight attendants could violate the Age Discrimination Employment Act (ADEA) and Title VII of the Civil Rights Act. Specifically, the unions say Breeze plans to limit its employee pool to active students at Utah Valley University, and the company has publicized a tuition-reimbursement plan to encourage students to apply.

“We’re asking that DOT pause its certification until there is reasonable confidence that Breeze is prepared to act in compliance with federal labor, employment, and civil rights laws, AFA President Sara Nelson said. “As written, Breeze’s hiring documents raise serious questions about employment discrimination and could set back decades of progress in our profession.”

Neeleman caused a stir earlier this year when he said Breeze would hire students, instead of professional flight attendants. At the time, flight attendants unions objected to what they said was Neeleman minimizing their profession and suggesting that a flight attendant job is similar to any other part-time student job.

But now, their objections have legal arguments behind them. By hiring mainly Utah Valley students, Breeze is limiting itself to an overwhelmingly young applicant pool under the age of 30, which would fall afoul of the ADEA, the unions say.

In addition, 78 percent of the university’s students are white, and Breeze’s plans to hire from this student body will make its flight attendant workforce necessarily less diverse. This could be a violation of the Civil Rights Act, the unions claim.

“AFA supports new entrants into the industry, but we must ensure that the flight attendant profession is not undercut or reverting to painful discriminatory practices we beat back decades ago,” Nelson said.

Breeze declined to comment on this story.

Madhu Unnikrishnan

In Other News

  • The Air Line Pilots Association (ALPA) is calling on Congress to pass the Fair and Open Skies Act, which would prohibit the Transportation Department from granting operating rights to foreign carriers that violate labor protection found to violate bilateral air service agreements. Put simply, the bill would bar what labor calls “flag of convenience” airlines that forum shop their base of operations in order to flout more restrictive labor laws. Although ALPA did not single out any particular airline, the bill is widely viewed as a vehicle to prevent Norse Atlantic Airways to get its foreign air carrier permit. Unions waged a multi-year campaign in the last decade to prevent Norwegian‘s Ireland subsidiary NAI from operating to the U.S., alleging that the company chose Ireland as a base to get around Norway’s stricter labor laws.
  • United said it will not furlough employees after the latest round of federal payroll support expires at the end of September. U.S. carriers furloughed tens of thousands of employees after the CARES Act payroll support expired last summer, prompting lawmakers to extend the program twice. The Association of Flight Attendants said simply, “The payroll support program worked.”

    Madhu Unnikrishnan
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Fleet

Southwest Airlines has gone back to Boeing for more 737 Max jets ahead of its capacity recovering to 2019 levels later this summer.

The Dallas-based carrier exercised 34 737-7 options with deliveries in 2022, Southwest disclosed last week. The airline’s delivery schedule now includes 28 more 737-8s this year, 64 737-7s in 2022, and 30 737-7s each year from 2023 to 2025. Southwest holds another 222 737 Max options with delivery slots from 2022 through 2025.

The order comes as leisure travel demand has come roaring back in the U.S. Nationally, airline passenger capacity will only be down roughly 12 percent in June and 8 percent in July compared to 2019, according to Cirium schedule data. And Southwest forecasts capacity down just 7 percent in June and 3 percent in July before returning to pre-crisis levels in August — making it the first major U.S. airline to fully recover capacity.

However, the outlook for passenger traffic is grimmer. Airlines for America (A4A) does not expect traffic to recover until 2022 at the earliest under its best case scenario, or after 2024 under the worst case. The disparity is due to uncertainty over the timing and pace of the business travel recovery.

Holiday travelers, including those visiting friends and relatives, continue to make up the majority of those flying. Leisure fares and booking patterns have recovered to 2019 levels, Southwest said on Tuesday. On the other hand, its business travel revenues were down 77 percent in May compared to two years ago.

The change in the mix of travelers has altered Southwest’s network. The airline has moved away from offering the high frequencies on shorter routes popular with the corporate set in favor of a broader array of destinations that is attractive to vacationers. Southwest has added or unveiled 17 new destinations since the pandemic began, and plans to leapfrog several competitors to become the third largest carrier to Hawaii by September.

“We’re going to have to acquire more airplanes to be able to restore the rest of our route network,” Southwest CEO Gary Kelly told the Dallas Morning News at the end of May. “And now that travel demand is coming back to life, we need to restore that capacity, and it will take us a while because we’ve diverted airplanes to these new markets.”

Kelly added that the airline still saw growth opportunities for “hundreds” of additional aircraft in the future.

Southwest’s order is just the latest as airlines clamor to lock in deliveries during a faster-than-expected recovery. Alaska Airlines, LufthansaRyanairSouthwest and United Airlines have all made double-digit aircraft commitments during the past six or so months. However, nearly all of the new orders are for narrowbody jets that fly short- to medium-haul routes rather than widebodies that fly long-haul routes. This comes as the travel recovery moves ahead first in domestic markets with international forecast to lag by at least a year or two.

The order is not expected to herald a significant expansion for Southwest. Raymond James Analyst Savanthi Syth estimates “reasonable” 4-5 percent seat growth at the airline in 2022 when the order is coupled with its plans to retire 30-35 737-700s annually over the next decade.

Edward Russell

AerCap’s $30 Billion GECAS Acquisition Likely to Close By Yearend

GE CEO Larry Culp made news recently when he said the Justice Department’s (DOJ) antitrust review of the planned mega-merger had ended. “We know the DOJ has concluded its review here in the U.S., so closing later this year, early next year,” he told investors earlier this month.

Although the DOJ did not confirm or deny that its review had ended, sticking to its habit of not announcing its rulings until all it has dotted all the “i’s” and crossed all the “t’s,” Airline Weekly has confirmed the agency has approved the deal. In addition, the other jurisdictions that have oversight on the two companies also are close to finishing their own reviews. Barring any unforeseen roadblocks, Culp is right: The GECAS-AerCap merger is expected to close either by yearend or the first quarter of next year.

The acquisition will create a leasing behemoth, with more than 2,000 aircraft in its portfolio, and the merged company is expected to have significant clout both with airlines and the OEMs. AerCap’s last significant deal before this was in 2013, when it bought ILFC from AIG for $28.1 billion.

Madhu Unnikrishnan

American and Virgin Atlantic Bet Big on Electric Aircraft

American Airlines, aircraft leasing giant Avolon, and Virgin Atlantic Airways are the latest to bet on the new breed of electric vertical takeoff and landing (eVTOL) aircraft. American has committed to up to 250 VA-X4 eVTOLs from Vertical Aerospace, Avolon another up to 500 aircraft, and Virgin Atlantic a purchase option for up to 150. The combined deals are worth roughly $4 billion if the UK-based developer can fulfill its end of the bargain and certify the four-passenger plane by 2024 as promised.

At the same time, Vertical Aerospace will go public in the U.S. through a special purpose acquisition company (SPAC) deal with Broadstone Acquisition valued at $2.2 billion. American will invest $25 million, alongside investments from Avolon, Honeywell, Microsoft and Rolls-Royce.

“This is the most exciting time in aviation for almost a century,” Vertical Aerospace founder and CEO Stephen Fitzpatrick said on Thursday. “Electrification will transform flying in the 21st century in the same way the jet engine did 70 years ago.”

The promise of eVTOLs is tempting. Developers, which include Archer Aviation and Joby Aviation, tout a future where low-emission electric aircraft wizz travelers around large and congested metropolitan areas quickly and quietly. Who wouldn’t want a seven-minute ride from Manhattan to JFK airport? With frequent, at-the-ready service envisioned, the planes are seen as the equivalent to an Uber in the sky.

But for all the buzz surrounding urban air mobility, eVTOLs face numerous hurdles. Few aircraft are more than glossy renderings and even fewer actually flown with none anywhere close to being certified by the Federal Aviation Administration or another global regulator.

Archer rolled out a demonstration model of its Maker aircraft last week and hopes to begin deliveries to United Airlines in 2024. United has a commitment for up to 200 Maker aircraft. Vertical Aerospace also plans roll out the VA-X4 later this year with American saying certification will come in 2024.

A three-year certification window is a very tight timeline for both eVTOLs. Sign off on a completely new segment of aircraft will require entirely new processes from the FAA, all of which will take time. And no regulator is known for being fast, even when it comes to well established manufacturers updating existing planes. For example, it took more than a year for Airbus to certify the re-engined A320neo.

“Don’t expect this to happen in three-to-five years, it’s probably five-to-seven years away,” Atmosphere Research co-founder and travel industry analyst Henry Harteveldt said on United’s eVTOL timeline after it announced the Archer deal in February.

The latest eVTOL commitments from American, Avolon and Virgin Atlantic come amid an increasing focus on sustainability at airlines. Most major carriers have commitments to go carbon neutral by the middle of the century with an emphasis placed on a wide range of initiatives from sustainable aviation fuels to carbon storage technologies and electric aircraft. Also on Thursday, United unveiled a new up to $200 million venture capital fund United Airlines Ventures focused on new technology and sustainability initiatives.

“Emerging technologies are critical in the race to reduce carbon emissions,” said Derek Kerr, chief financial officer of American, on its Vertical Aerospace deal.

Edward Russell

Fleet Briefs

  • United is near deals with Airbus and Boeing for orders that could top 300 aircraft, according to various reports last week. Commitments could cover A321neos, 737 Max 8s and 787s. The news comes a week after United executives told J.P. Morgan that the airline was over-reliant on 50-seat regional jets that put it at a gauge disadvantage compared to competitors American Airlines and Delta Air Lines. While they did not say it, the indication was that United planned to address this disadvantage with more, larger narrowbody jets.

    United had outstanding orders for 50 A321XLRs, 180 737 Maxes and one 787-10 at the end of May, according to the OEM’s respective orders and deliveries data.

    Speaking of 737-8s, United plans to introduce its first of the type on July 15. The jet will begin flying between Houston Intercontinental and both Las Vegas and Newark, Cirium schedules show. United will configure the 737-8 with 166 seats, the same number on its 737-800s.
  • Airbus delivered 50 aircraft last month, including an A380 bound for Emirates. In addition to that A380, the airframer delivered four A220s, 41 A320-family aircraft, 38 of which were neos, one A330neo, and three A350s. Airbus scored seven orders in the month.

    Meanwhile, over in Seattle, Boeing delivered 17 aircraft in May, mainly 737-family aircraft, including one 787-8 to Uzbekistan Airways. The airframer beat out Airbus in orders for the month, however, with 73 orders, powered by the 34-aircraft order from Southwest and an Alaska Airlines order for 13 Maxes. For widebodies, Boeing reported a five-aircraft 787-9 order from Lufthansa.
  • AirAsia is putting its money where its mouth is by adding to its fleet of dedicated freighters with the delivery of a Boeing 737-800F. The aircraft joins AirAsia’s current freighter fleet of two Airbus A320s, which were converted in-house by removing the seats in the passenger cabin. The new freighter will be based in Bangkok, while the two A320 “preighters” will be based both in Thailand and Malaysia. All three are expected to start service in the third quarter on cargo routes throughout Southeast Asia and to Hong Kong.

    Even before the pandemic, AirAsia had plans to diversify into cargo and e-commerce package delivery, and to offer consumer shipping (aimed at small businesses and individual consumers) through its website. As that business ramps up, projected demand for cargo space will exceed AirAsia’s projected belly-hold space, the company said. The pandemic fueled a surge in air freight, especially in Asia, and the discounter does not expect the trend to abate even after the pandemic recedes. The three freighters will be operated by Teleport, AirAsia’s shipping and logistics subsidiary.
  • Startup Spanish discounter World2fly took delivery of the first of two Airbus A350-900s it is leasing from Air Lease Corp. The carrier, founded by hotelier Iberostar, plans to fly the aircraft on routes from Madrid to the Caribbean and Mexico. The new A350s are configured in a single-class layout with 432 seats.

Edward Russell & Madhu Unnikrishnan

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Landing Strip

  • The head of Los Angeles’ public transportation agency, Phil Washington, has been nominated as the next CEO of Denver International Airport. If confirmed by the city council, Washington would replace Kim Day, who leaves the airport after 13 years at its helm. The airport is in the midst of a multi-billion dollar expansion that includes needed new gates for hub carriers Southwest Airlines and United Airlines, as well as a controversial redo of its main terminal. Denver was the third busiest airport in the U.S. in 2020 — up from fifth in 2019 — with 32.3 million passengers, according to Bureau of Transportation Statistics data.
  • Speaking of Los Angeles, city officials cut the ribbon on the new Terminal 1.5 at Los Angeles International Airport less than two weeks after opening the new West Gates at Tom Bradley. The building is sandwiched between Terminals 1 and 2 includes new check-in and baggage claim facilities for Allegiant Air, Southwest, Sun Country Airlines and Viva AerobusFrontier Airlines will temporarily use the facility until it leaves LAX in September — as well as a connection to the airport’s under construction automated people mover system. An airside bus gate connects Terminal 1.5 to the West Gates, where Allegiant, Sun Country and Viva flights arrive and depart. The facility cost almost $478 million.

Edward Russell

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Routes and Networks

Spirit Airlines plans what is one of its single-largest new city expansions ever with up to 31 flights a day to 30 destinations from Miami International Airport, beginning between October 6 and November 18, the airline said last week. The expansion will complement its existing base at nearby Fort Lauderdale-Hollywood International Airport.

The expansion is the latest move in Spirit’s long-standing effort to build its brand in South Florida. The airline is building a new $250 million headquarters near the Fort Lauderdale airport and adjacent to the I-95 highway that CEO Ted Christie has described as driving “brand awareness in South Florida.” In addition, its continued expansion in Fort Lauderdale will see its departures top 100 a day for the first time in July.

In 2020, Spirit expanded its share of the 34.8 million Fort Lauderdale, Miami and West Palm Beach flyers by more than four points to 14.1 percent compared to the year before, Bureau of Transportation Statistics data via Cirium show. The gains put it well ahead of third-place JetBlue and second only to American.

Miami has emerged as an air service winner during the coronavirus pandemic. Both JetBlue Airways and Southwest Airlines, which for years focused their respective South Florida operations at the nearby Fort Lauderdale and West Palm Beach airports, have added Miami to their maps since the crisis began. Emirates will replace Fort Lauderdale with Miami in July. And all of this occurred as the airport remains a major hub for American Airlines.

In June, seat capacity in Miami is scheduled to increase 4.5 percent versus two years ago, according to Cirium schedule data. Domestic seats will be up nearly 36 percent and international seats down nearly 24 percent.

Budget carriers long avoided the Miami airport for its high costs. The average cost per enplanement (CPE) was $19.23 per passenger at Miami compared to $6.89 per passenger at Fort Lauderdale in 2019, FAA data show. Asked about costs, Spirit spokesperson Field Sutton said the Miami airport has restructured its airline usage fees to a preferential use model that makes it more attractive — in other words affordable — to low-cost carriers like Spirit.

“We don’t view this as an assault on Miami. We just view this as a natural extension of the course Spirit is on,” Sutton said when asked about the competitive dynamics of Spirit’s entrance into Miami. He added that the airline views the expansion as either adding a “fourth O’Hare to Fort Lauderdale [flight], or add O’Hare to Miami.”

The carrier’s Miami expansion is split between 20 domestic routes to destinations including Baltimore/Washington, Chicago O’Hare, Dallas-Fort Worth, Las Vegas and New York LaGuardia; and 10 international routes including to Bogota, Guatemala City, Port-au-Prince, Haiti, and San José, Costa Rica.

No crew base is planned in Miami at this time, Sutton said.

Spirit anticipates flat capacity in 2021 compared to 2019, according to its latest guidance. However, the airline plans to grow capacity by roughly 30 percent year-over-year in 2022. That growth will be fueled by the reactivation of stored Airbus A319s and the deliveries of 14 new A320neos for a fleet of 173 aircraft — compared with fewer than 150 active aircraft at the end of last year — by the end of December.

Edward Russell

Route Briefs

  • With Alitalia‘s latest restructuring creeping ahead, discounters are circling its Rome stronghold. Ryanair will expand its Rome Fiumicino base with three additional Boeing 737s from August. The airline will launch six new routes from Fiumicino with the additional aircraft: Chania, Santorini and Zakynthos in Greece; Fuerteventura and Tenerife South in the Canary Islands; and Liverpool in the UK. With the expansion, Ryanair will base up to 14 aircraft in Rome from August: Eight at the city’s Ciampino airport and six at Fiumicino. Wizz Air, whose CEO called Italy an “investible market” earlier in June, also plans a new base at Fiumicino from July.
  • Austin has once and again proved to be a hot spot for new air service during the crisis. American is making that clear once again with 14 new routes this fall. From Austin, the airline will add nonstops to: Cincinnati, El Paso, Indianapolis, Jacksonville, Kansas City, Reno and St. Louis on September 8; Cancun, Oklahoma City and San Juan on October 7; and Liberia in Costa Rica, Puerto Vallarta, Punta Cana in the Dominican Republic and Tulsa on November 2. And despite offering more than 30 nonstop routes from the Texas capital, American still does not call it a focus city.
  • Speaking of Austin, Alaska Airlines is also boosting its presence in the city this winter. The carrier plans four new seasonal routes including one from the Texas capital. Alaska will connect Austin and Palm Springs from November-April; and Portland, Ore., and both New Orleans and Tampa, and San Francisco and Cancun from December-April.
  • Eurowings is expanding its footprint in Central Europe with a new base in Prague. The Lufthansa Group discount arm will base two Airbus A320s in the city from October 31 and add a third by next summer. Initial new routes include service to Athens, Barcelona, Birmingham, Copenhagen, Milan, Stockholm and Tel Aviv.
  • While merger speculation swirls around Latam Airlines‘ Brazilian unit, the carrier is rapidly recovering and expanding in Colombia. The airline plans to resume its pre-crisis capacity in July. That same month, Latam will launch new service between Medellin and Cúcuta. New service between Medellin and Bucaramanga will start a month later. Latam will add three Airbus A320 family jets to its fleet in Colombia to support the growth.
  • On the eve of Southwest‘s 50th anniversary, the airline unveiled its 18th new destination since the coronavirus pandemic began: Syracuse, N.Y. The carrier will connect Syracuse with its Baltimore/Washington base from November 14.

    Southwest also unveiled its first routes from Bellingham, Wash. It will connect the city near the Canadian border to Las Vegas and Oakland from November 7. Beginning the same day, the carrier add service between Chicago O’Hare and Cancun; Dallas Love Field and Palm Springs; and Sarasota-Bradenton, Fla., and both New York LaGuardia and Washington Reagan National. Seasonal Kansas City-Cancun flights begin November 13.
  • WestJet is the latest to add flights to Hawaii with the state beginning to ease Covid-19 restrictions. The airline plans new service between Calgary and both Kona and Lihue from December 19. Both routes will be flown with Boeing 737s.

Edward Russell

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Sky Money

  • Fly Leasing shareholders approved Carlyle Aviation’s planned acquisition of the Dublin-based lessor, and pending regulatory review, the deal is expected to close in July. Fly Leasing has about 100 aircraft in its portfolio, and the deal is reported to be worth about $2.4 billion.
  • Once mighty aviation finance player CIT Group will exit the space this month with a deal to sell the last piece of its business. KKR has agreed to buy CIT’s $800 million aviation loan portfolio that includes more than 50 loans covering more than 60 aircraft. The transaction comes four years after CIT sold its aircraft leasing business to Avolon as part of a corporate shift toward banking activities. AV AirFinance will service the portfolio for KKR. Close is expected by the end of June.

Edward Russell and Madhu Unnikrishnan

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Feature Story

The travel recovery is moving forward in fits and starts. Domestic markets, like those in China and the U.S., have come back strong while much long-haul international flying remains grounded amid border and other travel restrictions. IATA has called this split a “tale of two markets” with domestic traffic powering ahead while international traffic stagnates.

Unfortunately for European airlines, the continent has been firmly in the latter camp. Each EU member state was allowed to set its own border rules to keep the Covid-19 in check, thus making what was supposed to be a single airline market into a morass of 27 different travel regimes. That has proven a challenge for many European carriers, not least KLM, which lacks any domestic market of its own and relies on the EU bloc to feed its Amsterdam hub. 

At the end of last year and before the last round of Covid-19 lockdowns in Europe, KLM was flying roughly 90 percent of its route map with only about 50 percent of its pre-crisis capacity, CEO Pieter Elbers told Airline Weekly at the time. The emphasis was on connectivity — ensuring that those who needed to travel could get from point A to point B — rather than offering the most frequent service to, say, London or Mallorca.

“[Now], I’d say we’re at the verge of a more structural recovery rather than another bump,” Elbers said in an interview earlier in June. “I’m not a doctor, I’m not a specialist but looking at what we see in other countries, I think — I hope — that we’re on the verge of a more structural recovery.”

But that recovery is still split. Europe will come first “in the months ahead of us,” said Elbers. He estimates that travel will rebound on the continent roughly three months behind the U.S., which surpassed 2 million daily travelers on June 11 for the first time since March 2020. KLM — like others — has seen a jump in bookings to markets that have already reopened, including Greece, Portugal and parts of Northern Europe. While overall European capacity is scheduled to be down 14 percent in July and August compared to 2019, Greece will be up 38 percent and Portugal 15 percent, according to Cirium schedule data.

“It’s important that we get a harmonization of some of the European travel regimes,” Elbers said when asked what was need to drive the European travel recovery. That comment proved prescient, coming days before EU ambassadors agreed to reopen borders to vaccinated travelers. Travel by those without their jabs will be limited based on the level of Covid-19 infections in the country they are coming from.

The long-haul recovery remains an unknown. When transatlantic travelers return — nearly 27 percent of KLM’s long-haul capacity in 2019 — is a “big question mark,” said Elbers. The airline is part of an expansive transatlantic joint venture with Air France, Delta Air Lines and Virgin Atlantic Airways.

That question mark has not stopped KLM from making some expansion plans. In May, it unveiled new long-haul service to Barbados, Cancun, Mombasa, Orlando, Phuket and Port of Spain, Trinidad and Tobago from October 31 through the winter. All are holiday destinations that fit the leisure-led recovery that airlines are seeing. Asked about the new routes, Elbers said they support the recovery of other parts of KLM’s global network, though he did not provide specifics. 

As for business travel, Elbers is confident that it will return in some form. What he is not sure of is by how much or what flows will come back.

The pandemic has created an unprecedent opportunity for airlines to reshape their businesses. Airlines around the world have cut costs and trimmed their fleets with an eye on a more efficient future. Some airline executives have said they were able to achieve multi-year plans for structural changes in less than a year.

At the end of 2020, KLM had achieved most of the cost cuts that it agreed to in exchange for state support. Nearly one in six staff members had left the airline as it sought to cut employee full-time equivalents (FTE) by 6,000. And in the first quarter, costs across the Air France-KLM group were down more than 45 percent compared to a year earlier.

“There’s going to still be some places in the organization where we have a mismatch between supply and demand,” said Elbers on staffing. “But overall, I think the present organization is adequate for what we need to do and also allows us to [be ready for] the first stage of recovery.”

Fleet is another area where KLM has found savings. The airline took delivery of its first Embraer E195-E2 in February as part of a plan to renew its regional fleet and add seats at its constrained Schiphol hub. And KLM accelerated the retirement of its last Boeing 747s to last October, ending the 49-year run for the venerable jumbo jet in its fleet.

Asked how the E195-E2s performed in their first few months of service, Elbers said “so far so good” but added that it was too early to pass judgement on the re-engined aircraft. KLM had two aircraft in its fleet at the end of March and firm orders for another 23 plus 10 options.

One gap in KLM’s orderbook is a new generation mid-sized narrowbody. The airline operated 51 737s, plus another 88 at its budget affiliate Transavia, at the end of March. KLM has no commitments for either the Airbus A320neo or 737 Max families that could replace these classic 737s.

“We are relaunching our initiatives” to select KLM’s next mid-sized narrowbody, said Elbers. He added that KLM had nothing more on the topic at this time.

Sustainability, principally carbon emissions, is a growing focus for KLM as it is for the entire industry The carrier aims to cut its 2005 emissions per passenger in half by 2030 after achieving a roughly 30 percent reduction by the end of 2019. And parent Air France-KLM has has joined airlines in a broad pledge to achieve net zero carbon emissions by 2050.

“Fleet renewal is the quickest, most feasible thing to do,” said Elbers when asked of KLM’s emissions targets. Other aspects include development of sustainable aviation fuels, including a commitment to build a biofuel plant in the Netherlands, the Single European Skies initiative that would streamline air traffic management on the continent, and shifting short-haul trips to trains where possible.

Sustainable aviation fuel is a hot topic in industry sustainability circles. Many carriers are pushing these fuels, which include both biofuels and synthetics, though few have used them on more than just demonstrator flights. KLM flew one such flight on a 737-800 with synthetic kerosene from Amsterdam to Madrid in February. But despite these public shows, most projects face high implementation costs and, for biofuels, issues finding scalable feedstock supplies.

“It’s impossible today to replace 100 percent of fuel by 100 percent, or even 50 percent, of biofuel,” said Elbers who emphasized the importance of pursuing a “whole cluster” of sustainability initiatives and not just one. “We should be ambitious but also realistic at the same time about what we can do.”

Shifting flights to trains is one area where airlines, at least in Europe, have made some some visible strides during the pandemic. Air France dropped domestic flights between Paris Orly and Bordeaux, Lyon and Nantes in favor of the country’s TGV high-speed trains as a condition to of its Covid-19 relief package in 2020. And pending climate legislation could see at least three more routes suspended in a similar fashion.

KLM, with no domestic network to speak of, does not face the possibility of a similar government edict. But that does not mean it is not looking for opportunities to put passengers on trains. Early last year just before the pandemic, the airline replaced one of its then-five daily Amsterdam-Brussels flights with a connection to a train operated by Thalys.

“Other than Brussels, it will remain very challenging by the simple fact that it will cost an enormous amount of money” to build the necessary rail infrastructure, said Elbers. He cited London, which is a roughly 3-3.5 hour train ride from Amsterdam, as somewhere that train connections could work but that Berlin, which is an 8 hour train trip despite being only 130 miles farther than Heathrow from Schiphol, where they could not.

“I really wouldn’t see on a large scale the ability to replace [flights],” he said.

Edward Russell

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