Issue No. 822

Colombian Airlines Plot Post-Pandemic Course

Even as Colombia Struggles With Covid-19, Airlines Vie for International Expansion

Pushing Back: Inside the Issue

Colombia is in the grips of a terrible new wave of Covid-19, with the number of cases higher than it was a year ago. But that's not stopping the government from encouraging airlines to add more international routes. A host of low-cost carriers are vying for the routes, and there's even a new entrant called Ultra, founded by some of the same people who ran Mexico's Interjet. Will the pandemic subside by the time airlines start operating these new routes? The country is stepping up its vaccination program and is reopening, so it's possible. We look at the changing airline landscape in the country in this week's Feature Story.

Elsewhere in the issue, the rumors can end now: United pulled the trigger on a 270-jet order. The carrier spun it as reinventing the airline, and it does. But United has an aging fleet and had to play catch up to rivals American and Delta, which are already part-way through their re-fleeting cycles. Southwest CEO Gary Kelly reflects on his time at the helm. And Air France CEO Anne Rigail remarks that the short booking curve keeps the carrier's network planning team on its toes.

Meanwhile, business traffic the world over remains down by more than 60 percent, with no clarity on when it may return. United is pretty confident business travelers will go back to their old ways in September, but others (see Kelly's quote below) aren't so sure. Several large consulting firms, which used to be among the most intrepid road warriors, now say they expect to spend 30 percent less on travel than they did in the Before Times. Even though employees may want to head back out, companies have become used to the cost savings and to doing business over Zoom.

And lest we are spun by the exuberance of some airline CEOs and the news of this or that country reopening, we shouldn't forget that a global pandemic still rages. Every day brings new reports of borders closing again, of new outbreaks caused by disturbing new viral variants, of quarantines. We may want to be done with Covid-19, but the disease has shown it's not done with us.

Verbulence

"I don't think anybody is smart enough to know these post-pandemic trends will unfold."

Southwest CEO Gary Kelly on the return of business travel

Weekly Skies

It’s rare in any industry for a CEO to stay on top of his or her company for nearly two decades, let alone in the rapidly changing airline sector.

To say that Gary Kelly has seen it all would be understatement. Kelly will retire in February after 35 years at Southwest Airlines, or most of the company’s 50-year history, a stretch of time that has seen the airline transform itself from a discount carrier beloved by price-conscious vacationers to one of the country’s largest airlines, with a thriving and lucrative corporate travel business. 

After 17 years at the helm of Southwest, Kelly will pass the torch to Robert Jordan, a company veteran who now is executive vice president for corporate services. Kelly, who trained as an accountant, came to the company in 1986 as controller, joining from Arthur Young & Co.

On the heels of his big announcement, Kelly, 66, spoke last week with Airline Weekly about his legacy, the pandemic recovery, and where Southwest is headed.

“In 1986, we weren’t that different than we were in 1971,” Kelly said. The airline then still was focused on short routes, mainly from Texas and neighboring states. It was hamstrung by the Wright Amendment, which limited the number of states it could reach from its base in Dallas Love Field. Southwest then was still the disruptor whose right to fly founder Herb Kelleher defended before the U.S. Supreme Court. 

But in the decades since, Southwest has reinvented itself, with much of that occurring since Kelly took the top job in 2004. When he took over, the airline industry was reeling from the post-9/11 travel slump and shortly would be confronted with the Great Recession. But Kelly oversaw some of the airline’s most significant transformations, all while trying to keep the spirit of Kelleher’s scrappy airline alive. 

Among the most important part achievements Kelly sees as is legacy was getting the Wright Amendment repealed. The law limited flights from Southwest’s base in Dallas Love Field to a handful of states, and shortly after taking over, Kelly started lobbying for the repeal. After moving at the speed of government for several years, the process finally ended in 2014, when Congress let the amendment expire, allowing nonstop flights from Dallas Love Field to anywhere in the country. “This has been a tremendous success,” Kelly said. 

But Southwest did not sit still while Congress churned through the Wright Amendment repeal process. It started expanding in Chicago and the Midwest by striking a deal with bankrupt ATA Airlines. It got its first international routes through the $1.4 billion acquisition of AirTran Airways in 2010, as well as a foothold in one of the country’s most lucrative air travel markets, Atlanta. Southwest under Kelly began moving away from its previous strategy of flying short routes to secondary cities to focus on longer routes to major airports. The carrier began replacing its smaller Boeing 737-200s with larger Boeing 737-800s and eventually 737 Max aircraft. “One of the things we had to do was to pivot to be more attractive to business travelers and to offer longer distance flights,” Kelly said.

It did this as many of its major competitors filed for Chapter 11 bankruptcy protection in the early 2000s, allowing them to wipe their slates clean of costs and “cleanse their sins and have significantly reduced labor costs.” Mergers — United and Continental, Delta and Northwest, American and US Airways — winnowed the field down from more than a dozen major carriers to just four. By the end of that decade, “It was like the ‘Empire Strikes Back,'” Kelly said. “They were restructured and strong and reborn.”

Meanwhile, the Great Recession saw the rise of the ultra-low-cost-carrier (ULCC) business model, with low costs, and low fares buoyed by ancillary fees. So while Southwest faced renewed competition for its foray into business travel from the legacy airlines, it faced new competition for its bread-and-butter leisure travelers on the bottom end of the market. “It was a far different competitive offering in the 2010s as compared to where we were before 2001,” Kelly noted.

And this provided the contrarian Kelly to make one of his most controversial stands. In the face of competitors on both ends of the market adding fees to offset rising oil prices, Kelly remained adamant that Southwest would never charge for checked bags. In doing so, the carrier left more than billion dollars per year on the table. “The pressure [to charge for bags] was really intense,” Kelly said. “We were pressured to look for revenue opportunities as well as cost opportunities to drive better profits,” he said, adding, “but customers hate it.” 

The goodwill this policy earns is worth far more than the billion dollars Southwest would earn from charging for checked bags. “It was very clear that customers were voting with their wallets and choosing to fly Southwest.” Kelly is confident that this part of his legacy will endure. “Robert Jordan is pretty emphatic” that bags will continue to fly for free on Southwest.

But Southwest under Kelly had its share of growing pains. Contentious labor negotiations culminated in 2016, when the carrier’s pilots union held a vote of no confidence in Kelly’s leadership. “We believe that a change is needed for the best interests of Southwest Airlines and the loyal customers we serve,” the union said at the time.

“All of our labor negotiations have been vigorous,” Kelly quipped. “We’re a family, and families have disagreements.” At the time, Kelly said, the major carriers had lowered their wages as part of the bankruptcy process to almost 35-40 lower than Southwest’s. The carrier struggled to maintain its cost advantage and to remain competitive with the rest of the industry. But the negotiations worked out. Eventually, the market moved toward higher pay, matching Southwest’s levels and therefore eliminating the cost advantage the other carriers enjoyed. 

Among Kelly’s proudest achievements is that Southwest has not laid off a single employee in its 50-year history, although this year and last that was partially due to generous federal pandemic help. Pointing to this, he is confident the carrier’s labor travails are behind it, because, despite what the pilots said in 2016, he has hewed closely to Kelleher’s vision for the airline’s corporate culture. “We talk about love, we talk about job security and financial success,” he said. “We attract the kind of people who want to be a part of that.” He added: “Yes, we’re bigger today, and yes, we’re more famous today, but I think that scrappy underdog spirit prevails.”

And that spirit is key to seeing Southwest through the current crisis. The Covid-19 pandemic is such a singular event that Kelly, unlike in past crises, Kelly can’t predict the way out. “I don’t think anybody could be prepared for this,” he said, referring to the pandemic. “It leaves a scar.”

Leisure demand is encouraging, Kelly said. “People want to make up for lost time.” But he is taking a more measured stance than many of his peers on the return of business travel after the pandemic. Where most U.S. airline leaders say road warriors will return in force after the September Labor Day holiday, when the kids are back in school and more workers go back to their offices, Kelly is skeptical.

Though often though of as primarily a leisure airline, about 40 percent of Southwest’s traffic before the pandemic came from business travel. And that is one of the key legacies Kelly leaves behind.

To Kelly, the nature of work has changed. Remote work is here to stay. Workers won’t be in a rush to get back to their offices. In-person meetings could be less important than they were before the pandemic. And companies have figured out how to use videoconferencing and other tools to do business they used to to face-to-face. “I don’t think anybody is smart enough to know these post-pandemic trends will unfold,” he said. “The business travel aspect of air transportation is the biggest question I have.” It could take two to five years for business travel to recover to pre-pandemic levels, he said. 

Kelly will join Southwest’s board, and pending an election, is expected to become its executive chairman. That’s his plan for the future, despite persistent rumors that he’s being eyed for higher office. When asked if he has any interest in running for governor of Texas, Kelly said with a laugh, “Absolutely not!” 

Madhu Unnikrishnan

Alliances and Partnerships Lift Qatar Airways

As Qatar Airways begins to climb out of the worst of the pandemic, the Doha-based airline is even more convinced of the value of its partnerships and alliances, particularly with airlines in areas of the world that are further along in their post-pandemic recovery.

Qatar Airways is a member of the Oneworld alliance, a stark contrast from its immediate competitors United Arab Emirates-based Etihad Airways and Emirates Airline, which are unaligned and have fewer partnerships with other carriers. But like those airlines, Qatar is based in a geographically small country with no domestic market to speak of. Airlines that have seen demand return are those that serve large domestic markets, as in the U.S., China, Russia, and Brazil, or the single market of the European Union. Partnerships and the Oneworld alliance have given Qatar better access to markets that have recovered the most.

“There is a lot of value of us in Oneworld, for customers and for the airline,” Mark Drusch, Qatar Airways senior vice president of revenue management, alliances, and strategy, told Airline Weekly. “We are big believers in the alliance.”

The carrier recently announced deeper relationships with JetBlue, American, and Alaska in the U.S. With the U.S. market rebounding more quickly than those in Asia and other parts of Qatar’s network, the carrier is increasing frequencies to its partners’ hubs. Qatar has restored service to 12 U.S. destinations and has either raised frequencies or upgauged at American’s hubs in Los Angeles, Chicago, Dallas/Fort Worth, Miami, and Philadelphia; JetBlue’s hubs in New York and Boston; and Alaska’s hubs in Seattle and San Francisco. In addition to these, Qatar operates to Washington, D.C., Houston, and Atlanta.

Drusch singled out the growth of the Alaska partnership, which was announced in December. By January, average daily sales were about 300 passengers per day but have quadrupled since then, he said. Alaska Vice President for Network and Alliances Brett Catlin said about 100 passengers per day connect across both networks. (See story in Routes & Networks.)) “When you put the two systems together, particularly with the customer base Alaska has, it creates traffic you can’t imagine,” Drusch said, pointing to such diverse itineraries as Khartoum-Phoenix and Fairbanks-Perth.

Similarly, the American partnership has revealed strong demand from American’s system to the Middle East, the Levant, Subsaharan Africa, and South Asia. “We provide one-stop connections that no other partnership can deliver,” Drusch said.

Across Qatar’s system, markets that were previously strong have struggled with pandemic restrictions or new outbreaks of the disease. Australia, Southeast and North Asia remain depressed, due to travel restrictions. Nepal, Bangladesh, and Pakistan also are struggling to contain Covid-19, Drusch said.

“Exotic leisure destinations,” like the Seychelles, Maldives, and Tanzania have been resilient. Demand is picking up to those destinations, as consumers spend money saved during the worst of the pandemic and plan postponed trips. “People have a lot of money, and they haven’t traveled in 12-18 months,” Drusch said. Demand across Africa has been relatively strong as well, he said.

The booking curve remains short, although it is lengthening from the worst days of the pandemic. Still, Qatar is seeing bookings average about four to six weeks before travel, a relatively short amount of time for a longhaul airline, Drusch said.

Cargo has been a lifeline for Qatar through the pandemic and will remain at the fore of the airline’s planning even as the world returns to normal. Although always important — particularly during the years when Qatar’s neighbors blockaded the country — it was a secondary concern. Cargo planners always had to “fight for aircraft,” but now “they have a seat at the table,” Drusch said.

Madhu Unnikrishnan

European Commission Raises Antitrust Concerns on Air Europa-IAG Deal

The European Commission said last week it is opening an antitrust investigation into the proposed IAG-Air Europa deal. The merger could reduce competition in Spain and on routes to Spain, the EC said.

IAG’s deal for Air Europa, first proposed in 2019, would have significantly beefed up the conglomerate’s presence in the Iberian Peninsula, becoming, by some counts, the group’s fifth Spanish carrier. But it is this strength in Spain that most worried the EC.

“We will carefully assess whether the proposed transaction would negatively affect competition on domestic, short-haul and long-haul routes to and from Spain, possibly leading to higher prices and reduced quality for travelers,” Commission Executive Vice President Margrethe Vestager said. “Although the financial situation of many airlines is still fragile, there are signs that demand for air transport services is recovering from the coronavirus crisis. It is important to ensure that the recovery of the sector takes place in a competitive environment preserving sufficient choice for travelers.” 

The EC says Air Europa and IAG’s carriers often are the only airlines a given route and could reduce competition on 70 city pairs in Spain and outside of Spain. Another concern is domestic feed for Air Europa’s longhaul flights to South America. The EC says the merger could cause airlines that feed traffic to end their commercial relationship with Air Europa and thus reduce access and competition on those routes.

The EC is expected to render a decision in 90 days, or by November.

Madhu Unnikrishnan

Study Questions How Green Airlines Can Get

A new report has questioned just how green flying can become, despite the aviation industry appearing to be on track to hit some agreed emission reduction targets over the next few decades.

The study, published by several universities in Nature Communications, also warned that the pandemic’s travel restrictions will only have a temporary effect on aviation’s climate impact, because international flights are seen as critical to kick-starting the global recovery.

However, its authors appear to be supporting the use of sustainable aviation fuels — something many travel agencies, their corporate customers and airlines are backing. Aircraft contribute to climate change by creating carbon dioxide, but there are non-carbon dioxide effects too, the study, “Evaluating the climate impact of aviation emission scenarios towards the Paris agreement including Covid-19 effects,” points out.

These include nitrogen oxides, ozone and contrail cirrus clouds, which it said contribute to global warming. And they’re not included in the International Civil Aviation Organisation’s goal of climate neutral growth, and only partly addressed in the European Commission’s Flightpath 2050, it added.

“Technological improvements to engines and airframes and operations won’t be enough to sufficiently reduce the impact of aviation on climate change,” said Dr Simon Blakey, senior lecturer in mechanical engineering, at the UK’s University of Birmingham, which contributed to the report. “We must explore all mitigation options in parallel — including the increased use of sustainable fuels and market based measures in order to limit aviation’s impact on the environment.”

Clearly, if a business traveler wants to take action, the most efficient way to reduce their carbon footprint is to not fly but Zoom instead. If it’s an essential trip, they’d need to consider alternative modes of transport, such as rail. And there is willingness to be greener; some 97 percent of corporate travelers would increase journey time if it significantly reduced environmental impact, while 80 percent are more inclined to work for an organization with a sustainability policy, according to SAP Concur research.

After rail, taking a plane filled with sustainable fuel could be the next best option — at least until electric aircraft go mainstream. Currently, aircraft don’t need to be modified to use sustainable fuel, as they blend it (up to 50 percent) with conventional fossil jet fuel. The overall footprint benefit is realized because of the way the fuel’s made. For example Neste, one of the biggest producers of sustainable fuel, manufactures it from sustainably sourced renewable waste and residue raw materials.

The study’s publication comes days after a new partnership between Neste and Boston Consulting Group was announced. The consultancy will purchase Neste’s sustainable fuel, which will be delivered to SAS and Finnair, and cover the volume of all the flights with these airlines taken by BCG’s employees in the Nordics.

BCG will be the first corporate client of Neste, which represents a shift from most of the other corporate alliances so far. “In my view, they’re the first corporation in the world to make a direct purchase of sustainable fuel from the producer,” said John Heywood, managing partner at consultancy Harvey & Heywood. “Other people have done it through schemes that have been assembled by the airlines, where the airline goes out to buy some fuel and tries to get corporates to help fund it.”

And there have been plenty of these types of schemes announced over the past 12 months. In May, Shell Aviation and American Express Global Business Travel began a collaboration to make sustainable fuel available. In April, United Airlines launched its United Eco-Skies Alliance Program, with some of its global corporate clients paying towards more sustainable fuel. They include Autodesk, Deloitte, DHL Global Forwarding, Nike, Palantir and Siemens, as well as Boston Consulting Group. Collectively they’ll contribute towards the purchase of 3.4 million gallons of sustainable fuel.

In the same month, Lufthansa made sustainable fuel available to AXA Deutschland, while in October 2020 Alaska Airlines and Microsoft signed a partnership to reduce carbon emissions with flights powered by sustainable fuel on key routes.

These alliances are a step in the right direction, but the amount of sustainable fuel available appears to be a fraction of what carriers typically burn through. Heywood estimates in a normal year, the world’s airlines use 300 million tons of fuel, but the amount of sustainable fuel available is 200,000 to 300,000 tons.

One reason there’s not a lot of this fuel around is because it costs a lot to make it.

“We need to demonstrate to investors and the industry that we’re ready,” said Sarah Wilkin, founder and CEO Fly Green Alliance, speaking at the SAP Concur Travel Industry Summit. The concept behind many of the alliances is to drum up interest, commit big dollars and eventually bring the average fuel price down. Wilkin also believes the new fuel has the best chance of reducing aviation’s harmful effects on the environment.

At a time when carbon calculations are gaining momentum, and more airlines are experimenting with ways to get their corporate customers onboard, the next couple of years could be a tipping point for producers like Neste, as well as SkyNRG. The travel buyer also predicted that in the future more airlines will include the fuel as an option in their so-called New Distribution Capability fares, which would drive more funding.

Matthew Parsons

American Sues Sabre Over How Fares Are Displayed

American Airlines this week sued Sabre in a Texas court, seeking to stop the travel technology company’s start on Thursday of a new way of displaying airfares on its reservation systems.

American said Sabre’s new format for displaying airfares breaches its contract with American by biasing search results in favor of its domestic rival Delta Air Lines. In May, Sabre announced a multi-year distribution contract with Delta that promised to use more modern methods of “merchandising” airfare content.

American said that in its review of a preview of the interface that Sabre provided, the airline “discovered numerous instances of the storefront favoring Delta products over those of American, including displays that omit, hide, or misrepresent certain American products.” The airline said this violates its contract with Sabre, which requires the tech firm to display its content “fairly, neutrally, and accurately. The lawsuit language implied the carrier had “anti-display bias” and “anti-financial incentive” terms in its distribution contract with Sabre.

Sean O’Neill

In Other News

  • While the headlines trumpet that passengers, particularly in the U.S. and Europe, are filling up airplanes, the real news still isn’t very good. Leisure demand in both regions is up significantly, and is surpassing pre-pandemic levels in some regions, but Asia and Latin American airlines, in particular, continue to suffer, IATA reports in an assessment of first-quarter finances. Worldwide, passenger revenues were down 74 percent in the quarter. In June, airline share prices fell even in one of the world’s strongest markets, the U.S., where airline shares were down 8 percent. Why? International and business travel remains depressed. The only airlines to report profits did so thanks to generous federal government support, which ends in September. And against this backdrop, oil prices are rising, with demand expected to be up 6 percent this year and back to 2019 levels by the end of next year, the International Energy Agency reports.
  • The reaction to Belarus’ diversion of a Ryanair flight in May is escalating, as the U.S. now has banned all ticket sales between the two countries. In its order, the U.S. Transportation Department, working with the State Department, said it is temporarily prohibiting the sale of all tickets between the two countries, including interline tickets, except for humanitarian flights. The move essentially suspends the bilateral U.S.-Belarus air services agreement. Belarus forced a Ryanair flight en route over its airspace to divert to Minsk in order to arrest a dissident journalist.
  • Airports Council International estimates the world’s airports need to invest $2.4 trillion in capital improvement projects between now and 2040 to accommodate the expected growth of air travel. If these capacity-improvement needs are not met, as many as 5.1 billion fewer people than expected could travel in that time period, the group warns. The pandemic set investment back. From mid-2019 through the depths of the crisis, ACI estimates that airports spent $28 billion less than they had planned on improvement projects.
  • Delta exercised an option to buy $185 million of Aeromexico‘s second tranche of debtor-in-possession financing from Apollo. The move will strengthen Delta’s strategic partnership with Aeromexico, the Mexican carrier said in a statement. Aeromexico filed for Chapter 11 bankruptcy protection last year.
  • South Africa’s parliament has provided Mango with 819 million rands ($57 million) in state aid in a special appropriations bill. The funds are aimed to drive investment and productivity and create jobs, according to the bill published in the government gazette. Local news reports say Mango has struggled to pay its staff and is down to operating just two aircraft.
  • Canada threw Porter a lifeline of CAD$250 million ($201 million) through the same lending facility Ottawa extended to Air Canada in April. Porter also will get an additional CAD$20 million to refund tickets canceled due to the Covid-19 pandemic. Porter, which suspended all flights in March 2020 and has delayed its restart several times, now says it will restart flights on September 8.
  • MediaRadar, which tracks advertising spending, found 188 airlines placed advertising during the second quarter of 2021. While Qatar, United, Southwest, Delta, and American topped the list in spending between $2 million to $10 million in ads, airlines with ad spending below a million dollars include Icelandair, Allegiant Air, Air France, KLM Royal Dutch, Emirates, and Alaska Airlines, a MediaRadar spokesperson said.
  • The U.S. Transportation Department (DOT) granted final approval to Italy’s Neos to begin scheduled service to the U.S. The carrier said it intends to operate its first Milan-New York flights later this month. Neos operates a fleet of six Boeing 787-9s, in addition to 10 737s (including four -8s).
  • Lion Air Group and Sabre have reached a deal on selling ancillary revenue. The money raised from selling ancillary revenue will enable Sabre to update technology assisting shoppers while Lion Air Group will be able to sell more services through its partner carriers, the companies said. 

Madhu Unnikrishnan, Rashaad Jorden & Ruthy Muñoz

Expand Section

Routes and Networks

Although leisure demand is starting to show signs of recovery as Europeans start taking their summer vacations, the short booking curve is keeping Air France‘s network planning team on its toes, requiring the airline to change flights and frequencies just days before departure.

“Our network team has to be very agile,” Air France CEO Anne Rigail said in an interview with Airline Weekly. “Passengers are booking tickets two to three weeks before departure,” she said, adding, “We are looking for demand where it is.”

One area where demand remains strong is cargo. The carrier has two freighters, both fully utilized, and has operated cargo-only flights throughout its network in the belly holds of Boeing 777-300s. Rigail said cargo flights kept Air France pilots and crews current and allowed it to operate 80 percent of its network throughout the pandemic. Revenues are stronger than they were in 2019, she noted.

Passenger demand, on the other hand, so far appears to be on routes to the Caribbean and to destinations in the Indian Ocean. Air France has increased capacity on routes to several destinations in these regions, including Reunion, Guadeloupe, Martinique, and French Guiana, by 60 percent over 2019 levels, a spokesman for the airline confirmed. Much of this traffic is vacationers but a significant portion is visiting friends and relatives (VFR) traffic in both directions, Rigail said.

Air France’s expansion in the two regions partially fills a vacuum left behind by the bankruptcies of Aigle Azur and XL Airways, both of which went bankrupt shortly before the pandemic. The bankruptcy of Wow Air and Norwegian Air‘s retreat from intercontinental flying also removed two low-cost competitors on international routes, Rigail said.

During the crisis, VFR routes on Air France’s extensive African network remained relatively strong, down only about 50 percent from pre-pandemic levels. Routes to Asia remain depressed, and Rigail said Air France has no clarity on when passenger flights to China and Japan will recover. “This is the biggest uncertainty of the crisis — when Asia will reopen its borders,” she said.

Routes to North America also are recovering, with Air France now offering 100 flights per week to 12 destinations. The overwhelming majority of passengers — 80 percent — originate in North America and are traveling to France for leisure, mainly due to the U.S. border still being restricted for Europeans, Rigail said. The carrier is reopening destinations, most recently Denver, and focusing on adding frequencies to key markets. Before the pandemic, Air France offered five flights per day to New York, down now to three times per day. Business travel remains anemic, although Rigail, like many of her peers in the U.S., expects business travel to start picking up in September. “This will be the key question for September and onward.”

In Europe, Air France has added 80 leisure destinations for July and August to capitalize on what demand exists. It’s adding capacity to Greece, Italy, Portugal, and Spain to both the mainline and Transavia networks. It’s also adding routes to North Africa — popular leisure destinations for French citizens — as those countries reopen, Rigail said.

As Air France starts to emerge from the crisis, it is facing a changed domestic French airline market as well. The government recently passed a law that bars flights of under two-and-a-half hours if rail service exists. Air France is streamlining intermodal connections with the French national rail operator, SNCF and has added seven more rail-connection routes, Rigail said. Low-cost-carriers are resurgent, and in response Air France, after negotiating a deal with its pilots, is planning to increase the domestic footprint of its budget arm, Transavia. “This is the only airline in the group that can compete with European LCCs at Orly and other French cities,” Rigail said.

Sustainability was the impetus for the new French law restricting shorthaul flights. The carrier has pledged to replace 1 percent of its jet fuel needs with sustainable fuel by next year and is partnering with French energy companies to produce more sustainable jet fuel in France or elsewhere in Europe. Fleet renewal also is part of Air France’s sustainability strategy, Rigail said. The airline has 38 Airbus A350s on order, 10 of which have been delivered, with the 11th arriving next week, a spokesman said. Air France is replacing its Airbus A318 and A319 fleets with 60 Airbus A220s, six of which will join the fleet this year, with 15 coming each year from next year on.

Madhu Unnikrishnan

Alaska Looks to California for Long-Term Growth

Alaska Airlines‘ long-term future is in California, especially now that the Golden State has lifted most of its Covid-19 restrictions and Californians are eager to travel. The carrier is rejigging its route network to capitalize on more leisure demand as the country climbs out of the pandemic.

But among the casualties is a route it inherited from Virgin America: Los Angeles-New York John F. Kennedy International Airport, which ends in October. The route is among the most competitive in the U.S., and Alaska — and Virgin America before it — never had the schedule depth to be a player among lucrative corporate travelers. It is the smallest carrier operating the route. Moreover, Alaska only had four slots in the prime 3-9 p.m. window at the slot-controlled airport, which hamstrung its ability to eat into the legacy airlines’ corporate traffic.

“We’re rebuilding our New York portfolio to optimize our long-term competitive positioning across the West Coast markets we serve,” said Brett Catlin, Alaska vice president for network and alliances. “This includes increased frequencies and improved schedules to Seattle, Portland, Ore., San Francisco, and San Diego.” Alaska will serve New York from Newark and will rely on its Oneworld alliance partners, including American Airlines, for lift between Los Angeles and JFK, he said.

A robust California network always was the prize for Alaska when it acquired Virgin America in 2016. Shortly after the acquisition but before the two carriers fully merged, Alaska expanded its network from San Francisco, including to several cities in the Midwest. It’s since retrenched from those routes. “We are far more deliberate about the business markets we grow in,” Catlin said in an interview with Airline Weekly. “Some Midwest markets — San Diego-Omaha, for example — didn’t have a path for us to realistically compete.”

Virgin America‘s brand resonated in California, where it was based. Immediately after the merger and after the Virgin America livery disappeared from aircraft, Alaska struggled to stand out in the state. The carrier has had decades to build up a strong brand loyalty in its Pacific Northwest base, and hopes to replicate that loyalty in the Golden State. “We need to sharpen our pencil on how we compete in California,” Catlin said, adding that the state is key to the carrier’s long-term growth plans. “Our legacy has been in leisure markets, and we need to be more assertive in California, where we know there is leisure and [visiting friends and relatives] demand.”

Part of that strategy is on new routes from Los Angeles to vacation destinations like Belize and Ft. Myers, Fla. Another leg in the strategy is to beef up connections between California and Alaska’s Pacific Northwest bastions. “In those North-South markets, we win over every other carrier,” Catlin said. The carrier plans to build up its networks from both San Francisco and San Jose as demand starts to return. San Francisco is recovering more quickly than expected. San Jose lags now but Catlin expects demand at the airport to return when road traffic between San Jose and San Francisco gets more congested, which makes San Jose more attractive for passengers based in Silicon Valley.

Another focus city is Boise, where Alaska expects to operate 30 daily flights by this winter. The reason for this expansion was simple, Catlin said. Boise has about 70 percent of the population of Salt Lake City, but only half the air service. “It was a bit of a sleeper market,” he said. Demographic shifts, as remote workers from Silicon Valley flock to Boise, also present an opportunity if those workers have to commute to California a couple of times per month. The carrier is shifting its California schedule from Boise to accommodate passengers to facilitate day trips, he said.

Boise also presents an opportunity for Alaska to capitalize on its new Oneworld alliance membership by connecting passengers over its hubs in Seattle, Portland, and San Francisco. The carrier’s Oneworld membership and its West Coast partnership with American Airlines make it more attractive to corporate customers, Catlin pointed out. “It’s all about international routes,” he said. “The partnerships allow us to compete from Seattle to international destinations without us having to buy [Boeing] 787s.” This makes Alaska a “one-stop shop” for large corporate customers, which in the past may have had a contract with Alaska for domestic flights and another airline for international.

Turning to fleet, Catlin said the carrier’s future fleet strategy is built around the Boeing 737 Max. The carrier is divesting the Airbus A320 aircraft it inherited from Virgin America, but it plans to keep Virgin America’s A321s “for the foreseeable future,” he said. The larger A321s provide the capacity to serve constrained markets like Washington Reagan National Airport, as well as Hawaii’s Maui and Lihue.

Madhu Unnikrishnan

Routes Briefs

  • Fun in the sun for the upcoming winter schedule! American is beefing up its schedule at Miami, bringing its total peak daily flights to 341. The carrier is adding two new international destinations: Chetumal, Mexico, and San Andres Island, Colombia. American also is launching flights from Miami to Albany and Syracuse, N.Y., Burlington, Vt., Madison, Wis., Tulsa, and Salt Lake City. In addition, American is either upgauging or increasing frequencies on several other domestic routes from Miami. But the carrier isn’t sitting still with that. American is launching Philadelphia-Kingston, Jamaica and Washington Reagan National Airport-Tulsa.
  • Alaska Airlines recently announced a new codeshare agreement with Qatar Airways. The agreement allows passengers on Qatar Airways to connect to more than 150 routes on Alaska’s network. However, the recent announcement does not mark the first collaboration between the two airlines as they actually launched a partnership on December 15, 2020. About 100 passengers per day connect between the two networks (see above).
  • WestJet is adding 10 new routes across Canada’s West, centering on British Columbia, the carrier said. Routes include Victoria-Winnipeg, Nanaimo-Edmonton, and Comox-Toronto. The carrier also is resuming service on eight other routes suspended during the pandemic in Alberta, Saskatchewan, Manitoba, and Ontario.
  • Buzzing into Newark! French Bee will launch Newark-Paris Orly flights on July 15. The route is French Bee’s first to the U.S. East Coast, its second in the country after San Francisco. The carrier currently connects San Francisco to Paris and Tahiti.
  • ANA is beefing up its cargo service to China with the addition of an additional Boeing 767F on the Tokyo-Beijing route. The flights will operate twice weekly to start, and are fueled by increasing demand for electronics and computer components, ANA said. The carrier plans to operate 2,000 cargo-only flights across its network this month, on both freighters and passenger aircraft.
  • Aeromexico announced it has resumed daily service from Mexico City to Austin and Dallas this month. Texas will be a popular destination for the airline, which will offer a total of 600 flights and more than 80,000 seats in July from Mexico City to the two above-mentioned cities as well as San Antonio and Houston.
  • Allegiant has unveiled 23 new nonstop routes for fall vacation and holiday travel throughout the U.S., 10 of them being to four new cities: Melbourne, Fla., Amarillo, Texas, Washington, D.C., and Minneapolis.

Rashaad Jorden & Madhu Unnikrishnan

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Fleet

With its new order for 270 narrowbody jets, United Airlines is signaling its commitment to its mid-continent hubs in Denver, Houston, and Chicago, aiming to increase the number of seats available in those cities by 30 percent as the aircraft are delivered between next year and 2026.

The order, the largest in its history and an open secret in the industry for weeks, will be announced Tuesday by CEO Scott Kirby at Newark airport. The scale of the order clearly signals a renewed bullishness about the prospects for airlines after having suffered through the worst year in their modern history.

Even before the pandemic, United Airlines saw room for growth at three of its mid-continent hubs, but during the crisis, while coastal hubs near business centers like New York, Washington, San Francisco, and Los Angeles languished, the mid-continent hubs proved their strength to the carrier, as leisure demand showed more resilience and recovered faster than business demand. By the time the aircraft are delivered, United expects to add as many as 100 departures per day at the three hubs, reaching up to 650 flights per day. “Our mid-continent hubs are undersized,” chief commercial officer Andrew Nocella told reporters in advance of United’s announcement.

The historic order is the largest from any airline in the U.S. since 2011, when American Airlines ordered 460 narrowbody aircraft. United’s order breaks down as 50 Boeing 737 Max 8s, 150 737 Max 10s, and 70 Airbus A321neos. CEO Kirby declined to provide financial terms of the deal, but said the airline “paid less than list prices.” List prices typically do not reflect what airlines actually pay for aircraft, and Boeing is thought to be offering steep discounts as it seeks to recover from the Max grounding and issues with its 787 and 777X programs. Airbus, citing demand for its A320-family aircraft, recently said it is not deeply discounting its aircraft. Both the 737 Max 10 and A321neo list for about $130 million each.

Combined with previous orders, United is expecting to take delivery of 500 aircraft between now and 2026. Of these, 300 will replace aircraft that are retiring — including 50-seat regional jets, Boeing 757-200s and -300s, which are reaching the end of their service lives, and older A319s and A320s. After the re-fleet, United will relegate 50-seat regional jets to smaller markets, comprising just 10 percent of United’s daily departures, down from about 30 percent now, Nocella said. United expects to retire 200 50-seaters, he said.

As Airline Weekly previously has reported, United needed to play catch up with its rivals, American and Delta Air Lines. The average age of those carriers’ fleets is 10. 8 and 13.5 years respectively. United’s mainline fleet average fleet age is 16 years, and its narrowbody fleet averages 10 years old, with three aircraft types totaling 185 aircraft — Airbus A320-family aircraft, Boeing 737-700s, and 757-200s — averaging more than 20 years old. “United is clearly between a rock and a hard place, given the need to re-fleet due to aging aircraft, but the desire to deleverage,” MKM Partners analyst Conor Cunningham wrote in a note to investors.

The 200 aircraft United is adding for growth will fuel its expansion in its midcontinent hubs as well as increase gauge size at Newark and San Francisco, where the carrier is hemmed in by runway constraints. The carrier also expects to add 30 widebodies — Boeing 787s and 777-300s — to its fleet from previously announced orders by next summer. And it has 50 Airbus A321XLRs on order that will replace its retiring 757-200s on international flights.

The new aircraft will feature seatback entertainment and Wi-Fi, and United plans to retrofit all its narrowbody with seatback entertainment by 2025. By the end of the re-fleeting, United says it will increase the number of premium seats it flies daily by 75 percent over 2019. To support the airline’s growth, United says it expects to add as many as 25,000 frontline employees to its workforce by 2026.

United’s Kirby is confident about the strength of the post-pandemic recovery. The airline expects to be profitable next month and reports that domestic demand is almost back to pre-pandemic levels. Business demand is still down more than 60 percent, and longhaul international demand is down even more, Kirby admitted.

But Kirby is bullish that pent-up business travel demand will burst forth after Labor Day, a sharp contrast from Southwest‘s Gary Kelly, who says it could take as long as five years for business travel to return to pre-pandemic levels. The International Air Transport Association forecasts that international travel will not return to pre-pandemic levels until 2024.

Separately, United said in a filing with the U.S. securities regulator that it expects to report pre-tax profits in July, the first time it will have done so since January 2020.

Madhu Unnikrishnan

Fleet Briefs

  • Here’s a fun one. Would you be interested in boarding a plane without any windows? Gediminas Ziemelis, the founder and chairman of the Avia Solutions Group, believes so. In fact, he expects more aircraft not to feature any windows. Windowless aircraft would reduce a plane’s weight, cutting down on fuel consumption and likely lowering operating cost and CO2 emissions.

    However, those worried about not being able to see sunrises, sunsets, or the first glimpses of a new location need not worry. Aircraft in the future will likely contain large high-resolution LED screens on which passengers can see the outside world via exterior-mounted fiber optic cameras.

Rashaad Jorden

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Feature Story

Even as Colombia Struggles With Covid-19, Airlines Vie for International Expansion

As Colombia continues to grapple with the Covid-19 pandemic, its government is encouraging airlines to start new international routes with the aim of revitalizing its aviation sector and reconnecting the country with the rest of Latin America. 

With business travel making no sign of a real comeback, low-cost carriers are jumping on an opportunity to take advantage of pent-up demand for international leisure flights. The expansion is largely possible due to a move by Colombia’s civil air authority in mid-April, which allowed airlines to open 32 new international and 15 domestic routes.

Driving this expansion are strategic moves to open Colombia’s aviation sector, rather than any improvement in the pandemic there. After all, Covid-19 cases in Colombia are even higher  than a year ago, when the country’s commercial aviation industry was waiting to resume operations during a six-month shutdown that ended in September 2020.

“These 47 new options for traveling both nationally and internationally are a sign of the government’s commitment to the air sector, which is essential for the country’s economic recovery,” Angela María Orozco, Colombia’s minister of transportation, said when announcing the new routes.

Focus on Mexico

The approvals from the Colombian government are helping to expand the amount and variety of low-cost routes available from the country, some of them from new faces stepping up competition in key markets. 

The most notable example is Mexico, which is already one of Colombia’s top inbound tourist destinations after the U.S. According to statistics from government tourism agency ProColombia, Mexican travelers to Colombia increased an average of 13% in the five years leading up to the pandemic. 

Travelers flying between Mexico and Colombia increasingly have new, low-cost options for both city and beach destinations being offered by carriers in each country. Notably, the Colombian government has opened the doors to two ultra low-cost (ULCC) Mexican airlines: Volaris and VivaAerobus.

Volaris announced on June 17 that it would be arriving in Colombia on October 6 with four weekly flights between Bogotá and Mexico City, as well as three weekly flights between the Colombian capital and Cancún. 

“In addition to the United States, Colombia is one of the destinations that has increasingly more connections with Mexico, either to meet with friends and family or with the goal of stimulating economic exchange,” Miguel Aguiñiga, Volaris’ director of market development, said in a statement..

Meanwhile, the Colombian government also granted Mexico’s VivaAerobus permission to fly between Mexico City and Bogotá. The carrier says it will start operations between the two cities on August 21, starting with two weekly frequencies and then ramping up to daily flights on September 15. 

Colombia’s own ultra low-cost carrier, Viva Air, broke into the Mexico market in June, and is now offering four weekly flights between Bogotá and Mexico City, three weekly flights between Medellín and Cancún and, starting August 3, flights between Medellín and Mexico City.

Another notable airline starting service to Mexico is Copa‘s Colombian operation, Wingo, which has government permission to start flights between Medellín-Cancún and Cali-Mexico City in addition to Bogotá-Lima, Medellín-Caracas and Cali-Guayaquil, Ecuador. The carrier already operates from several Colombian cities to places like Panama City, Cancún and Punta Cana, Dominican Republic.

Other countries in the region also are expanding their air service options to Colombia. Chile, for example, has added more low cost options to its capital to Colombia, thanks to new routes approved for JetSmart and LATAM. 

New U.S. Routes

Passengers will also have more options for flights to the U.S., which is Colombia’s biggest market for inbound visitors and has served as a boon to its aviation and tourist industry during the pandemic.

Viva has increased seats on flights to the U.S. in light of higher demand.  According to Viva Air’s Director of Sales and Distribution Juan Diego Zapata, the U.S. has always been an aspirational destination for Colombians but now they are seeing an opportunity to plan trips around getting vaccinated. It has increased its once-daily frequency between Miami and Medellín to four due to increased demand.

Viva launched service to Orlando on June 10 to complement its flights between Medellín and Miami. The carrier is looking to add another two or three U.S. destinations in the next year, Zapata says, noting places like the Washington, D.C. area and New York as destinations of interest. “The idea is to keep growing,” Zapata said.

Long-Term Growth Plans 

However, Viva could see new low-cost competition on its home turf as Colombia’s civil air authority permits new players to join the market. One of the most buzzy potential entrants is a new ULCC in the works called, fittingly, Ultra Air. Leading the carrier is Viva Air co-founder William Shaw, who most recently served as CEO of Mexico’s Interjet. That carrier stopped flying after running into financial issues that were exacerbated by the pandemic.

Colombia’s air authority recently approved Ultra to begin the process of receiving its air operators certificate (AOC). While the airline is in its early stages of receiving approvals, it has already raised a first round of $10 million from private investors.

Alejandro Corrales, who is helping build Ultra’s strategy, told Airline Weekly that the carrier plans to launch with five Airbus A320ceo aircraft and eventually operate a fleet of 40 in five years. But first, it must secure an AOC from Colombia’s aviation authority. Ultra hopes to launch at the end of 2021, although a date is unclear and depends on the certification process. It has approvals to serve specific national and international routes, including those connecting Bogotá and Medellín to Miami, Cancún and Mexico City.

So, will Colombia have enough demand to absorb more low-cost capacity? Corrales thinks so. “The market has space,” Corrales said, noting that right now customers are looking for cheap tickets and looking to get away to beach and leisure destinations. “It has been shown in other Latin American markets that various low-cost carriers can coexist,” he said, citing Mexico as an example.

Regardless of whether another Colombia-based ULCC will make its way into the market,  the country’s low-cost competition has already started to make a mark in a region traditionally known for the high costs of international flights. Flag carrier Avianca, which continues to work on emerging from bankruptcy, revamped its fare structure to better compete for cost-conscious travelers with no-frills “XS” fares. 

While increasing international flights sounds great, Colombia does have one big challenge when it comes to sustaining new demand. Bogotá’s El Dorado International Airport, which handled more than 35 million passengers in 2019, is already constrained. While the government is studying further expansion plans, the airport, due to Covid-19 restrictions, is currently running a ground delay program that has been forcing airlines to reschedule flights and causing significant delays, IATA mentioned in a June 23 announcement.

In light of this, Viva Air says it is developing a connecting hub not in Bogotá, but at its home base of José María Córdova International Airport (MDE) in Rionegro outside of Medellín. Viva cites the city’s location between two other key regional hubs — Bogotá and Panama City — as strategic. It gives the example of Bogotá being like Miami, whereas Medellín would be Fort Lauderdale.

Viva says focusing its hub in Medellín will allow passengers to experience short connection times and avoid congested El Dorado, and that its Airbus A320neos have the range to reach locations like Buenos Aires, New York and Chicago. 

“From Viva we have our clear strategy: We will continue connecting Colombia with the world through our Medellín hub with the best service, new planes, the best punctuality and low rates,” Zapata said.

Kristin Majcher

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