Issue No. 827

Lufthansa's Mixed Bag

Cargo, MRO, Catering Help Stanch Losses at the Group's Airlines

Pushing Back: Inside the Issue

The three biggest European airline groups have reported their second-quarter earnings results, and it's the same mixed bag for Lufthansa as it was for IAG and Air France/KLM. Leisure markets are booming, while longhaul and business are a fraction of what they were before the pandemic. This is great news for budget arm Eurowings, but not such good news for the group's network airlines, which are rejiggering their networks to serve more leisure destinations. Lufthansa Cargo, however, pulled in record revenues, and both the catering and MRO businesses did well. Like his peers, Lufthansa Group CEO Carsten Spohr thinks the worst days of the pandemic are behind the industry and the recovery will begin in earnest next year.

Meanwhile, a new report finds that airline leaders' optimism about the return of business travel is bumping into the reality that many companies still don't want to send employees back on the road — or haven't reopened their offices. Delays at the airframers could result in Air Lease Corp. taking delivery of just more than half the aircraft it had planned to add in the second half. Congress could vote on the so-called "flag of convenience airline" bill, a shot across Norse Atlantic Airways' bow. And SunCountry won approval to fly to the U.S. And where are the busiest five domestic routes? Turn to the Routes & Networks section to find out.

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The Airline Weekly Lounge Podcast

In this week's episode of 'The Lounge, Editor Madhu Unnikrishnan and Skift Editor at Large Brian Sumers discuss when the business travel rebound might start, given that so many companies have delayed recalling employees to their offices. Will the Delta variant delay when companies send their road warriors back out on the road? And Sumers, always an avid traveler, took his first trip on a commercial flight in 18 months and the experience left him ... well, we'll let you listen to find out. Past episodes are archived here.

Weekly Skies

Lufthansa‘s airlines continued to bleed cash during the second quarter, but the group believes the recovery — fueled first by transatlantic demand — is gathering steam and will be solidly underway by the end of the year.

The group’s network carriers, which in addition to Lufthansa include Swiss, Austrian, and Brussels Airlines, report the transatlantic market has once again become Lufthansa’s most profitable market. This is despite the fact that traffic almost completely originates in the U.S. The Biden administration is expected to lift the restrictions on European citizens entering the U.S., which Lufthansa Group CEO Carsten Spohr says will unleash strong demand for travel. “The North Atlantic is back to being our most important and most profitable intercontinental market, even though we more or less can only sell tickets on one side of the ocean,” he said.

Business travel, which now is a small fraction of 2019 levels, is showing some signs of strength. “I think there’s not a single businessman or businesswoman who does business with the U.S. who doesn’t want to go there in the fall,” Spohr said on the company’s second-quarter earnings call. But business travel is expected to return more slowly in Europe than in the U.S., where carriers are forecasting that business travel could be 60 percent of 2019 levels in the next quarter, Spohr admitted. He pointed to intra-European travel restrictions for the disparity.

But the group’s real area of strength was shorthaul European traffic, particularly to leisure destinations. Spohr said the carrier will continue to allocate capacity to leisure destinations, both shorthaul and longhaul, through this year. Visiting friends and relatives traffic also is picking up, particularly to Africa and South and Central America. Asia-Pacific traffic remains depressed, although Sporh believes it will start to recover by the end of the year as vaccination rates in several Asian countries ramp up and travel restrictions begin to fall.

Capacity gradually is coming back online. In its network airlines group, Lufthansa’s capacity at the beginning of the quarter was 25 percent of the same period on 2019, but had risen to 40 percent by the end of the quarter. The growth in capacity was even sharper at Eurowings, which operated only 10 percent of its 2019 capacity when the quarter began and ended the quarter at 40 percent of 2019. Load factors at Eurowings rose to 70 percent, again fueled by shorthaul European leisure demand.

Lufthansa ended the quarter with 734 aircraft across all its operating units, or 23 fewer than at the end of last year. Spohr said the group is retiring nine fleet types, including its Airbus A380s, A340-600s and -300s; MD-11s, Boeing 767s and Austrian’s 777s. The group plans to retire 150 aircraft, 115 of which have already been removed from the fleet. The group took delivery of one leased A350 and will eventually shift from being a 90 percent owned fleet to a mix of owned and leased aircraft, Spohr said.

Lufthansa’s non-airline divisions performed strongly and helped offset the losses at its airlines. Lufthansa Technik and catering saw business spike, especially as U.S. carriers added more flights during the summer.

But the real star was Lufthansa Cargo. The unit delivered record profits in the quarter, €326 million ($386 million), up from €299 million in 2020. Spohr attributed the growth to ever-increasing demand for e-commerce shipments, especially in Europe. Yields are high as, with much of the world’s longhaul international flights operating a fraction of their pre-pandemic frequency, belly-hold space is at a premium. Lufthansa is adding another Boeing 777F to its fleet, bringing the total at the end of the quarter to 14. And it is acquiring two A321Fs for European package freight. Lufthansa Cargo reported €640 million in profits in the first half and is on track to report €1 billion in profits by yearsend, “higher than ever before in the history of Lufthansa Cargo,” Spohr said.

The group is focused on trimming costs and has reduced its headcount by 30,000 employees since the pandemic began. Most recently, it reduced its workforce by 3,000 in Germany and will let another 2,000 employees go this year. The group also is seeking to reduce headcount at Swiss by 2,000 employees.

Lufthansa reported a second-quarter loss of €952 million, which is a 43 percent improvement over last year. The airlines division reported losses of €1.2 billion. Revenues rose 70 percent year-over-year to €3.2 billion.

Madhu Unnikrishnan

Copa Rationalizes Fleet as Recovery Takes Hold

Leisure and visiting friends and relatives (VFR) traffic is fueling Copa‘s recovery, so much so that the carrier decided to hold onto six Boeing 737-700s it had planned to sell and to return to a six-bank structure at its hub at Tocumen.

But, like many of its competitors in the region, the recovery has been uneven. Certain markets it serves, like Mexico, the U.S., Brazil, and some Caribbean islands, have eased restrictions, resulting in a corresponding spike in demand. But some of Copa’s important markets, like Argentina and Chile, have retained restrictions, or, in the face of the Delta variant of the coronavirus, made them even stricter. Still, CEO Pedro Heilbron believes the rate of vaccinations will increase and restrictions will ease.

Now, however, leisure travel comprises half of Copa’s traffic. VFR accounts for another third. Business demand is about 20 percent of its pre-pandemic level, although Heilbron said small- and medium-sized businesses in the region are returning to the road. Like many airlines in the U.S. and Europe, Copa expects larger corporate clients to return to travel more gradually.

Before the pandemic, Copa’s traffic was equally split among business, leisure, and VFR. Heilbron expects the carrier to drift back toward that mix as the world emerges from the pandemic. It will not alter its product or route structure significantly to cater to leisure or VFR passengers at the expense of business travelers.

The carrier saw an uptick in demand for travel to the U.S. in April when vaccines were first widely available. This “vaccine tourism” has subsided as the shots have become more widespread in Central and South America, Heilbron said.

When travel begins to return, Copa is not worried about the competition, even as carriers like Volaris surge from strength to strength. Heilbron noted that 70 percent of the markets Copa serves are too small to sustain point-to-point service, putting Copa in a position of strength with its strong connecting hub at Tocumen. Ths hub serves as a “formidable competitive moat,” Raymond James analysts Savanthi Syth wrote in a note.

Furthermore, he does not think some of the region’s legacy carriers, some of which — Aeromexico and Latam — are operating under Chapter 11 bankruptcy protection, will pose a threat. “There are a number of our main competitors restructuring under Chapter 11, but we expect them to come out of Chapter 11 with a network that won’t be much different than what they had before,” Heilbron said.

Copa is in the midst of a fleet transformation. The last three of its Embraer E-190s were sold during the quarter. The carrier sold six Boeing 737-700s but decided to keep another six that it had originally planned to sell. Copa will take delivery of two more 737-9s by the end of the year, and expects to have 89 aircraft — 68 -800s and 13 -9s — in its fleet by then, down from 102 last year. The year-end fleet projection includes the six operated by Wingo, Copa’s Colombian subsidiary.

Copa can shift its fleet up or down depending on demand. It is in talks with Boeing to accelerate deliveries of some -9s, although the company did not say how many. It can extend leases of some of its -800 fleet if it needs the lift before the -9s are delivered, or it can return them if demand does not recover as expected. Copa has no immediate plans to add -10s for high-capacity routes, nor does it plan to add widebodies, Heilbron said.

In the second quarter, Copa flew 48 percent of its 2019 second-quarter capacity, but that is up from 39 percent of 2019 capacity in the first quarter. Copa expects to fly 70 percent of its 2019 capacity in the third quarter, Heilbron said.

Copa reported a second-quarter profit of $28 million. Excluding special items, it reported a loss of $16 million. Revenues were $304 million, down 53 percent from the same period in 2019, but up 64 percent from the first quarter of this year. Cargo revenues were $17 million, a 1.4 percent increase from 2019.

Madhu Unnikrishnan

Airline Optimism Bumps Into Corporate Travel’s Reality

Deloitte has warned business travel is set for a slow takeoff, based on the findings of its new report — a message which is in stark contrast to many recent airline statements.

Travel managers predict a slower recovery compared to bullish outlooks from the aviation sector. To start with, only a third of companies expect to reach or surpass 50 percent of 2019 travel spend levels by the end of 2021. And just over half (54 percent) of respondents expect their companies to reach 2019 levels by the fourth quarter of 2022.

Deloitte polled 150 U.S.-based travel managers and executives from May 28 to June 20 this year, and interviewed executives at companies whose 2019 air spend averaged $123 million a year. Overall, Deloitte pegs a U.S. corporate travel recovery of 65-80 percent of 2019 levels by the end of 2022. But there are some “ifs” — the biggest being sustainability. Airlines may not see eye to eye.

United Airlines expects its overall 2022 capacity to be higher than in 2019, with the return of corporate road warriors bolstering its viewpoint. Commercial chief Andrew Nocella forecasts business travel will be down just 40-45 percent in this year’s third quarter.

Delta Air Lines is optimistic too, and thinks business travel will rebound this autumn after schools reopen and companies recall workers to their offices. “The surge is coming … there is enormous pent-up energy and demand for [business] travel,” said CEO Ed Bastian. Surprising comments considering its own survey of corporate clients showed about one-third expected to return to pre-Covid levels of travel by 2022, with 21 percent expecting their travel to return to pre-pandemic levels by 2023.

JetBlue is meanwhile “cautiously optimistic” of an uptick in corporate travelers this fall, Joanna Geraghty said during the airline’s first quarter earnings in April. However, U.S.-UK travel restrictions persist and last week it pulled back on its initial London schedule. Further field Brazil’s Gol, which wants to restart flights to the U.S. by the end of the year, also expects business travel to return to its pre-pandemic levels by the first quarter of next year.

What could explain the differing results from Deloitte’s own polling of corporate America? “There’s a lot of uncertainty, which is why corporate travel managers are taking the view they’ve expressed with us,” said Bryan Terry, global aviation leader at Deloitte

Another question is: should airlines be nervous? Deloitte’s survey — Return to a World Transformed: Corporate Travel Post-Pandemic, published on Tuesday) — is extensive, and if correct represents a significant decline in high yielding passengers. “It’s fair, however you want to characterize it. Nervous, anxious, concerned,” Terry said.

“Airlines are cautiously optimistic, if you look at what they’re projecting. They’re a little more optimistic than we are. That’s fair, but they’re concerned about coming back to 2019 levels and when that will occur. And what will that new business traveler look like? Will they still be flying at the front of the plane, or in the same patterns of destination or duration? It’s still an uncertain future,” he added.

Even though the “cone of uncertainty” was narrowing, due to the successful vaccination program, there was still a material amount of uncertainty, Terry said. In particular, when it comes to a longer term recovery, the report reveals much will depend on how seriously companies take sustainability, on top of budget squeezes.

Nearly a third of travel managers surveyed said their company had a stated commitment to reduce emissions by a certain amount within a specific time frame. Altogether, 79 percent of companies had made some kind of pledge, or were working toward one. This interest in sustainability brings some scrutiny for travel policies, the report argues.

About half (48 percent) of the survey’s respondents said they planned to optimize business travel policy to decrease their environmental impact within the next year. Travel ranks among the top targets for corporate environmental harm reduction, along with reducing paperwork and greening supply chains.

Sustainability and corporate social responsibility was also more important to companies than before the pandemic, according to Global Business Travel Association research, based on a poll of 618 companies carried out July 6-13, 2021.

“It’s not just how Covid will impact the return of business travel, but as business travel returns, how will sustainability impact that and beyond the Covid impact,” Terry said. “Sustainability, combined with cost considerations, will also be a dampener on the return to travel.”

Interestingly, 7 in 10 companies said they planned to reduce travel frequency in an effort to bolster the bottom line. However, the greener travel point of view differs widely, if you look at Europe. Another survey from the Business Travel Show Europe recently asked 337 travel managers what they expected would be their biggest challenge over the next 12 months.

The pressure to be more sustainable, which entered the chart for the first time last year, had fallen back out to number 11. In the top three were “a change in my role,” “keeping up with Covid legislation, restrictions and supplier/traveler information” and “pandemic uncertainty.”

It’s not all bad news. Bigger airlines that cut back due to the pandemic have left the door open to their more economy-flying focused counterparts. Terry said that low-cost carriers are now best positioned to recover faster and stronger than the legacy network carrier model. As the large carriers receded in terms of fleet size and network, that created opportunities, especially in business airports which might have been slot or gate constrained, which opens up avenues to those entrants, he said.

“Look at our survey: travel managers said that as travel returns, cost consideration will impact how they return,” Terry added. “Southwest, Ryanair, easyJet, Wizz Air and so on, they all fall into that category of carrier that is well positioned to benefit from these changes in travel.”

There’s currently plenty of optimism, because business travel really is accelerating off a low base, and that may carry over into the second half of this year. But there’s a risk this is a blip because in the long term international travel bans will linger as long as there are pockets of coronavirus outbreaks, new variant headlines, CDC updates and corridors that fail to materialize.

Matthew Parsons

Southwest Lawsuit Alleges Skiplagged and Kiwi Collude to Deceive Flyers

Citing multiple flight delays because of the sale of “hidden city tickets,” Southwest Airlines filed a federal lawsuit against New York-based Skiplagged, and alleged that it works “in concert” with Czech-based online travel agency Kiwi.com to deceive the public and illegally use the airline’s fare information.

Southwest has long seen it as a competitive advantage and barred online travel agencies from scraping its website and selling its flights without authorization, and in the lawsuit referenced five successful lawsuits barring online travel agencies from doing so since 2004. The unlucky defendants ranged from FareChase in 2004 to Roundpipe in 2019.

Southwest sued Kiwi.com in a still-pending lawsuit in January in federal court in the Northern District of Texas for trademark violations and unauthorized use of the airline’s flight information, and on July 23 filed a lawsuit against Skiplagged on similar grounds in the same court. Southwest will try to consolidate the two lawsuits into one.

Southwest alleged that Skiplagged has become a Kiwi partner, and illegally obtains Southwest flight information through Kiwi, and gets commissions when it promotes Southwest flights on Skiplagged and refers flyers to Kiwi.com to book them.

In the lawsuit, the airline said it can’t figure out how many of those flight bookings on Kiwi.com originate with Skiplagged. “In sum, Kiwi is sharing Southwest’s data with its partner, Skiplagged, who, alone and together with Kiwi, has been using Southwest’s data and trademarks to sell tickets (including prohibited “hidden city” tickets) on Southwest Airlines at a markup, without Southwest’s authorization,” the lawsuit alleged.

The lawsuit alleged that both Skiplagged and Kiwi deceive the public because the Southwest fares they offer at times come with added fees, and are costlier than if the traveler purchased the ticket on Southwest.com. Kiwi has also failed to refund flyers for cancelled Southwest flights, the airline claimed.

Skiplagged, according to Southwest’s lawsuit, has countered that it doesn’t claim to sell the airline’s flights at the actual fares sold on Southwest.com.

Asked to comment on the lawsuit, a Kiwi spokesperson said: “We cannot comment on the latest lawsuit itself, but trying to hold back freedom of choice for the consumer, brought about through tech innovation, with aggressive legal action is a sad situation from an airline that was a disruptor themselves.”

Skiplagged declined to comment.

Finding deals for hidden city tickets, a Skiplagged specialty, has become a problem for Southwest and other airlines. A hidden city ticket cited in Southwest’s lawsuit would be a flight from Los Angeles to New York with a stop in Las Vegas. If travelers deplane in Las Vegas, that can often be cheaper than booking Los Angeles to Las Vegas. But Southwest said deplaning at the stopover violates its terms and conditions, and disrupts airline operations.

“For example, flight crews and ground operations employees in connecting cities will attempt to locate connecting passengers (or ‘through’ passengers) for the final leg of the flight, or delay flights when passengers are missing—unaware that a passenger has ended his or her trip in the connecting city,” the lawsuit said. “The practice negatively affects Southwest’s ability to estimate passenger headcounts, causing potential disruptions at the airport gate and maintenance adjustments, such as variations in the amount of jet fuel needed for each flight and proper passenger distribution within the plane.”

Southwest has been trying to bar Kiwi.com from scraping its website and selling its flights for several years, and claimed Skiplagged failed to adhere to a cease and desist letter prohibiting the use of Southwest fare information that the airline sent it several weeks ago.

In litigation filed in early July in the Southern District of New York, Skiplagged seeks a declaratory judgment that it is not breaking Southwest’s terms and conditions because it doesn’t obtain Southwest flight information from the airline.

Southwest’s lawsuits in Texas and Skiplagged’s complaint in New York are a battle in some ways for home-court advantage. Southwest is based in Texas, and Skiplagged operates in New York.

Southwest said in its lawsuit against Skiplagged in Texas that Skiplagged’s litigation in New York is an attempt to “to deprive Southwest of its right as plaintiff to the forum of its choice … ” The airline seeks to recover all of Skiplagged’s profits from selling Southwest’s flights and to obtain compensatory damages. Southwest likewise seeks to bar Skiplagged from using any of its trademarks or obtaining any of its flight information while the lawsuit is pending and permanently, as well.

Dennis Schaal

Travel Restrictions Crimp ANA’s Domestic Network

ANA projects returning to profits this year, despite reporting yet another loss in its most recent fiscal quarter that ended on June 30. The carrier sees renewed interest in flights to North America and Europe as vaccination rates in those regions tick up.

But routes elsewhere in its network remain depressed. Travel restrictions continue to exact their toll on the carrier’s international flights, particularly within Asia, Chief Financial Officer Ichiro Fukuzawa said. Business travel, particularly by expatriates, to Japan is starting to tick up.

The carrier’s domestic network traffic doubled from the same quarter last year. It’s low-cost unit, Peach, reported its domestic demand exceeded pre-pandemic levels in April. But a new outbreak of Covid-19 and the ensuing restrictions, saw demand start to fall off in May, ANA reported. Load factors at ANA averaged at 43 percent during the quarter and were 47 percent at Peach.

Cargo continues to fuel ANA’s results. International cargo traffic rose by 136 percent in the quarter from last year, generating ¥66 billion ($610 million), or 160 percent more than last year. Domestic cargo revenue were ¥6 billion, a 64 percent increase.

ANA reported al ¥51 billion loss on ¥200 billion, which the carrier said is the best performance it’s had since the end of 2019. Revenues rose by 65 percent year-over-year.

Madhu Unnikrishnan

Frontier Sees Healthy Summer Demand Weakening Over Delta Variant Concerns

Leisure-focused Frontier Airlines stood poised to benefit from this summer’s pent-up demand for vacations. But the airline’s buoyant season has taken a dark turn as the Delta variant of the coronavirus crimps forward bookings and deters passengers from planning trips.

The Denver-based discounter said demand for trips has shown some softening in recent weeks as the Delta variant took hold and caused outbreaks in many parts of the country, especially the leisure hotspots of Florida and Las Vegas. In response, cities and states have re-imposed mask mandates, with many jurisdictions considering following New York’s lead in requiring proof of vaccination for indoor dining or entertainment. The result has been that Frontier trimmed its third-quarter growth plans by a few percentage points, now expecting to increase capacity by between 2-4 percent.

Both fear of contracting the disease as well as concerns about what venues may be open at the destination are contributing to the decline in demand, Frontier CEO Barry Biffle said during the company’s second-quarter earnings call. But he expects the slump to be temporary, given how the disease progressed in other countries, like the UK and Israel, where the latest outbreaks lasted between six to eight weeks. The Delta variant will delay the recovery but not derail it, he said.

But Biffle stressed that vaccines are key to both the duration of the Delta variant-fueled outbreaks and to the full recovery of the airline industry. Travelers now are “confused” by conflicting reports about the prevalence of “breakthrough cases,” or infections of already fully vaccinated people. The data show, however, that breakthrough cases are rarer than the media report. “People who are vaccinated are getting a little freaked out in the last week,” he said. “Everybody got scared a little bit, but as people start to understand, they’ll go back to their normal lives.”

Biffle thinks the majority of passengers traveling now are vaccinated, and said informal “quiet” polling of Frontier passengers has shown that people are more likely to plan trips only after getting their shots. The carrier supports vaccine mandates, especially for international visitors. Mandates can stimulate demand, Biffle said, pointing to the example of Broadway, which has a mandate and has seen reservations for performances soar. “Everybody is concerned about protecting the unvaccinated’s feelings,” he said. “Let’s talk about the vaccinated.”

Frontier’s caution is a marked departure from other U.S. airline leaders, who expressed almost untrammeled optimism during their companies’ second-quarter results. The difference? Most U.S. airlines reported their second-quarter earnings two weeks ago, before the breadth and severity of the Delta variant outbreak had been fully assessed, Biffle said.

Frontier is less likely to see the operational mayhem that Spirit and American recently have, because Frontier predicted a busy summer and had its staff and aircraft in place before the advent of the season, Biffle said. “We are not immune from workforce challenges,” he noted, but he said the company is encouraged by recruitment activity at job fairs and by the number of applications it’s getting for open jobs. This shows that more people are rejoining the workforce as the pandemic subsides, he said.

The competitive landscape also will change as the recovery takes hold, which Biffle thinks will happen in October, when the Delta variant ebbs. Legacy carriers like United, Delta, and American, which made much of their revenue from business travel before the pandemic, will go back to chasing that market as it heats up. This means they will reallocate aircraft from some of the leisure routes they added during the pandemic, giving Frontier an opening. “Our competitors are doing irrational things,” he said.

Longer-term, Frontier plans to grow aggressively. The carrier plans to add as much as 12-14 percent more capacity in the fourth quarter, rising to almost 20 percent next year, all fueled by aircraft deliveries. Frontier took delivery of five Airbus A320neos in the quarter and plans to take delivery of an additional five in the third quarter. From the second half next year, Frontier will take delivery of 10 A321s. The carrier ended the quarter with 109 aircraft.

The June quarter was only Frontier’s second as a public company, after its stock market debut on April 6. The carrier reported $266 million in proceeds from its public offering. It also benefited from $171 million in federal payroll support. Excluding those items, revenues from operations generated $550 million in the quarter, resulting in a $19 million profit.

Madhu Unnikrishnan

IATA Survey Reveals Confidence Is Rising, Slowly

The airline industry is showing signs of recovery, albeit slowly.  

That was the general belief expressed by airline chief financial officers and cargo heads in a July 2021 survey for IATA’s airline business confidence index. A majority — 73 percent — of respondents expect profitability to improve due to an increase in passenger traffic following vaccine rollouts while roughly the same percentage of carriers reported smaller losses when Covid rates decreased. 

The optimism numerous executives expressed about their finances also is notable when they were asked about a potential rebound in passenger growth. While only a slight majority (52 percent) of respondents expect air travel demand to reach 2019 levels in 2023, 89 percent expect demand to recover when markets reopen.

In many cases, a rebound in passenger volumes has already happened. 81 percent of respondents stated they saw an increase in passenger numbers in the second quarter of 2021 compared to the second quarter last year when air travel was largely shut down. 

But, not surprisingly, concerns brought about by the pandemic are never far from the minds of executives in the airline industry. 28% of respondents revealed that Covid-19 continues to have a major impact on their operations, and a slight majority said their companies continued to report decreasing employment levels as airlines were still adjusting to a new pandemic normal. Furthermore, 40 percent of surveyed executives predict the rise in scheduled services will not lead them to hire more staff, which is only 5 percent lower than those who believe airlines will hire more employees. 

Meanwhile, regarding cargo, there is general optimism, as 73 percent of respondents reported that cargo volumes were up from the second quarter of 2020 as the rising number of passenger flights eased the pressure on belly cargo capacity. And 72 percent of cargo heads expect demand to increase in the next 12 months.

Rashaad Jorden

In Other News

  • IAG is making four daily slot pairs at London Heathrow available as part of the divestment it agreed to when the group acquired British Midland, IAG said in a regulatory filing. The European Commission required the carrier to divest the slots as well as four additional Saturday and two Sunday slots. The slots are earmarked for mainly shorthaul flights but also include weekend slots from Heathrow to Riyadh, Cairo, and Moscow. However, would-be applicants are warned that IAG is disputing the EC’s ruling.
  • The U.S. Transportation Department (DOT) granted a foreign air carrier permit to SunExpress, the Turkey-based joint venture between Turkish Airlines and Lufthansa. SunExpress applied for rights to fly charter flights to the U.S. from Turkey, which the DOT has tentatively granted for a two-year term. The carrier currently operates a fleet of 58 Boeing 737-800s, which would require a tech stop to reach the U.S. from Turkey.
  • The FAA granted Global Crossing an air operators certificate, allowing it to operate scheduled commercial flights. The carrier, which flies on Airbus A320 now mainly for charter flights, is adding an A321 to its fleet and expects to add two more aircraft by the end of the year. The approval is subject to Transportation Department review.
  • United and Frontier join the ranks of U.S. companies that will require its employees to be fully vaccinated. United said employees have until Oct. 20 to show proof of vaccination, while Frontier is giving employees until Oct. 1 to provide proof of vaccination or be subject to weekly Covid-19 tests. By contrast, in a New York Times podcast interview, American CEO Doug Parker said that carrier would not mandate vaccines but is offering incentives to employees who choose to get their shots. Delta so far has said it will mandate vaccines only for new employees.
  • The AirAsia Group (AAGB) made $56.83 million in profits from its shares of Fly Leasing Limited following the merger between Carlyle Aviation Partners and Fly Leasing, AirAsia announced on Thursday. The Fly Leasing shares acquired by AAGB in August 2018 as a cash-in-kind consideration for its earlier divestment of aircraft leasing operations amounted to 3.3 million or 10.94 percent common shares, the company said.  The proceeds will go towards the airline group’s efforts to raise 2.5 billion Malaysian Ringgit or the equivalent of $5193.12 million through a combination of raising equity and borrowing, CEO Tony Fernandes said.  The Carlyle Group’s acquisition of Fly Leasing closed on Aug. 2.

Madhu Unnikrishnan & Ruthy Muñoz

Correction: A story in last week’s issue of Airline Weekly should have said British Airways has retired its Boeing 747 fleet but that the carrier has not made an announcement about the fate of its Airbus A380s.

Expand Section

Fleet

Air Lease Corp. (ALC) expects to take delivery of only 36 of the 42 aircraft it has planned for the rest of the year, thanks to Boeing’s continuing problems with the 787 program and Airbus warning that A320 deliveries could slip.

The 787’s problems have been well-documented, most recently by Boeing in its second-quarter earnings presentation, but the airframer says it should resolve the issue with the FAA soon. Of the 10 787s ALC had planned to add to its fleet in the second half, the lessor now expects three. Airbus, on the other hand, told ALC that the Covid-19 pandemic has slowed its suppliers’ production lines and could result in delays. ALC did not say how long the delays could last. ALC took delivery of 12 aircraft in the second quarter and had planned to take delivery of aircraft worth $1 billion in the second half of the year.

One aircraft type that is not yet worrying the lessor: The A350, despite Qatar Airways grounding its 13 of the type. The country’s regulator expressed concerns over what it says is deterioration of the aircraft’s lower fuselage. “We have not heard from Airbus,” Plueger said. “We’ve not heard it from any other aviation authorities,” he said, adding that ALC does not know the “basis” for the grounding.

The Delta variant has caused some airlines to ask for deferrals or lease restructuring. ALC said a single carrier, Vietnam Airlines, is responsible for $42 million of the lessors $87 million in lease restructurings. ALC has 12 A321neos and four 787-10s with the carrier. ALC CEO John Plueger noted that Vietnamese airlines essentially did not fly in June due to a Covid-19 outbreak in the country.

During the quarter, ALC sold its stake in Aeromexico’s bankruptcy, but the lessor still is backing the carrier. ALC expects to continue placing aircraft with the Mexican airline, Plueger said.

In line with what its airline customers have said throughout the second-quarter results season, ALC commented on the “two-tier” recovery. The lessor is seeing business — and demand for new aircraft — resurge in the U.S., Canada, China, Russia, parts of Europe, and Mexico. Vaccination rates in Asia have been slower, and countries have been less likely to ease restrictions, Plueger said. “Our optimism is rooted by the rebound in air travel we’ve seen and the conversations we have with our airline customers.”

Countries with large domestic markets are rebounding faster. ALC cited data showing domestic travel is down only 22 percent from 2019, while international travel is down 81 percent. The lessor is well represented in China, where 14 percent of its assets are. But only 7 percent of its fleet is in the U.S. and Canada, and the lessor intends to increase its presence in both countries, Plueger said.

ALC is encouraged by airlines’ eagerness to renew their fleets out of a renewed focus on hitting sustainability goals. Alaksa Airlines, United, Allegiant, and Korean Air are among the carriers that have placed significant orders recently. “As of the end of June, industry information indicates that 88 percent — I repeat, 88 percent — of the aircraft under the age of five years were back in service,” ALC Executive Chairman Steven Udvar-Hazy said. “And 78 percent of aircraft in the age range of 5-15 years-old were in service, whereas only 63 percent of aircraft over the age of 15 were back in service.”

But ALC will not be investing in eVTOLs any time soon. Current technology is limited to air taxis, far removed from the large, long-range aircraft in ALC’s portfolio. “We just don’t see any current technology that can address that,” Udvar-Hazy said. “Once we identify projects that make long-term business sense for us, obviously, we’re going to attend the party.”

ALC reported second-quarter revenues of $492 million, down 6 percent from last year, generating a profit oof $86 million, down 41 percent from 2020. The lessor’s adjusted pre-tax second-quarter profit margin was 26 percent, compared with 37 percent a year prior. ALC ended the quarter with 354 aircraft in its portfolio.

Madhu Unnikrishnan 

Azul Becomes the Latest Airline to Jump on eVTOL Bandwagon

Brazil’s Azul is the latest airline to jump on the electric aircraft trend, with deal announced today for up to 220 shorthaul aircraft from Germany’s Lilium. The six-person aircraft are expected to go into service in Brazil in 2025.

In a notice to investors, Azul said the deal could be worth up to $1 billion, pending regulatory and commercial approvals for the new technologies. The aircraft would operate a separate domestic Brazilian network and would be co-branded by the two companies. “We know how to create and grow new markets, and once again we see huge market opportunity by bringing the Lilium Jet to Brazil,” David Neeleman, Azul chairman and founder, said in a statement announcing the deal.

Lilium’s electric vertical take-off and landing (eVTOL) aircraft are different than the Archer eVTOLs that United and its regional partner Mesa ordered earlier this year and the Vertical Aerospace eVTOLs American and Virgin Atlantic ordered, although the last-mile missions for the two aircraft are similar. Lilium’s aircraft is an electric jet that deploys 36 vectored-thrust ducted fans for propulsion. (The engines embedded in the wing function more like conventional jets, with a fan up front, than the more common rotary-wing lift used by drones. The engines can change their thrust direction to enable vertical flight, according to Lilium.)

Archer’s prototype, on the other hand, uses a more conventional rotary-wing propulsion system, as do Vertical’s and Wisk Aero’s prototypes. The 19-seat Heart Aerospace electric regional aircraft that United and Mesa also plan to operate is similar to conventional turboprops.

Lilium’s prototype, which it says could enter commercial service as early as 2024, is capable of carrying six passengers, a pilot, and luggage 155 miles at a cruising altitude of 10,000 feet and at speeds of 175 miles per hour. The current demonstrator is the fourth generation of Lilium’s technology, and Lilium said it is in the process of securing regulatory approvals for its commercial prototype.

The potential in Brazil is huge. The country, as Gol CEO Paulo Kakinoff recently noted, is vast, with major population centers not served by a commercial airport. Surface transportation and roads are not viable options for long-distance travel. An eVTOL “air taxi” could connect smaller cities to the national air transport system and provide last-mile connections to cities too small to fill one of Azul’s mainline jets.

But the crucial hurdle for Lilium — as well as Archer, Wisk, and Heart — is that no aviation regulator has thus far approved electric propulsion for commercial use. Although Canada’s Harbour Air is testing battery-powered seaplanes, and U.S. regional carrier Cape Air is said to be considering an electric aircraft, the eVTOLs still are years away from approval, making an entry-into-service date in this decade highly ambitious. And Lilium’s aircraft is the first jet-powered eVTOL. By comparison, regulatory approval for the conventionally powered Boeing 787 took more than two years from its first flight. Boeing launched the 787 program in 2004, and regulators didn’t certify it until 2011.

Azul, like the other airlines that have ordered eVTOLs, stressed the environmental and sustainability gains from branching into eVTOLs. And while the technologies to offer significant environmental benefits over aircraft powered by jet fuel, the main benefit to airlines in the short term may be in public relations. Each airline that has announced an order for eVTOLs has earned hundreds of news stories about their deals.

Others in the industry are more skeptical. Leasing behemoth AerCap, which will inherit a helicopter-leasing portfolio when its $30 billion acquisition of GECAS closes this year, dismissed adding eVTOLs to its fleet but noted that electric propulsion is the future of aviation. “Electric vehicles are coming,” AerCap CEO Aengus Kelly said last week. “I think that’s a given.”

“At best, at the moment, it’s coffees and prescriptions that are being delivered on local drones,” he added, saying that it will be many years before large electric aircraft are approved for passenger transport.

Madhu Unnikrishnan

Gol Adds 28 to Max Fleet

Last month, during Gol‘s second-quarter earnings call, CEO Paulo Kakinoff said the Brazilian discounter could add as many as 20-30 Boeing 737 Max aircraft in the next two years. He’s made good on his word. Gol announced an order for 28 737-8s that will replace 23 Boeing 737 NGs by the end of next year. Gol plans to end the year with 130 aircraft and expects its fleet to be 75 percent Max by 2030. Gol currently operates 10 Max aircraft.

The 28 new aircraft are expected to be financed through a mix of operating leases, sale-leasebacks, and finance leases. The added range will allow Gol to operate direct flights to many Caribbean and U.S. destinations without the need for tech stops or layovers, the carrier said.

Madhu Unnikrishnan

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State of the Unions

The full U.S. House of Representatives could vote on a bill to bar what it calls “flags of convenience” airlines from seeking to fly to the U.S., after the House Transportation & Infrastructure Committee approved the measure at the end of July. The bill is a shot across Norse Atlantic Airways‘ bow as that airline seeks to begin low-cost flights to the U.S. later this year.

The Fair and Open Skies Act, introduced in May by a Transportation Committee Chairman Rep. Peter DeFazio (D-Ore.) and cosponsored by a bipartisan clutch of 10 representatives from states as diverse as Pennsylvania, Hawaii, Georgia, and Nebraska, is expected to come up for a vote in the full House when the chamber returns from its August recess, or by late September. Sources close to the matter say DeFazio is working to get more sponsors for the bill before it comes up for a floor vote.

The bill would prohibit airlines that flout international and U.S. labor laws from flying to the country by directing the Transportation Department (DOT) to withhold a foreign air carrier permit from airlines that are in violation of protections. Specifically, the Fair and Open Skies Act invokes the provision in the U.S.-EU open skies agreement that requires airlines on both sides of the Atlantic to adhere to the labor laws of their home countries and the U.S. bill, if enacted, would apply only to airlines applying to fly to the U.S. and would not be retroactive.

The House bill has no counterpart in the Senate, although advocates are encouraging senators to attach the bill’s language to the Senate Appropriations bill.

Memories are long in Congress. Backed by unions, DeFazio led the fight in 2015 to ban Norwegian Air from operating to the U.S., alleging the carrier violated the very provision invoked in the Fair and Open Skies Act by sourcing crews from Asia and elsewhere besides Norway, where labor laws are stronger. Earlier this year, he urged Transportation Secretary Pete Buttigieg “correct the error” of Norwegian’s permit by denying Norse Atlantic’s application for a foreign air carrier permit.

“As Americans start to travel again after the Covid-19 pandemic, it’s more important than ever to make sure that any foreign airlines looking to serve U.S. markets play by the rules and don’t exploit the weaker labor laws of other countries to save money and unfairly get a leg up,” DeFazio said before the House adjourned for its August recess.

The years-long dustup ended when the DOT eventually granted Norwegian Air a foreign air carrier permit, after it proved that it was not in violation of the open skies agreement. Even though the conflict ended, the scars remained, but the issue became moot last year when Norwegian gave up its longhaul ambitions to focus on shorthaul European flights.

Enter Norse Atlantic Airways, a startup that aims to take the mantle from Norwegian Air to offer low-cost longhaul transatlantic flights. The carrier, run by many former Norwegian Air executives, is in the process of securing an air operators certificate and will apply for a foreign air carrier permit from the DOT in advance of planned launch later this year. CEO Bjørn Tore Larsen stressed to Airline Weekly that the carrier is a completely new entity and said comparisons to Norwegian Air are unfair. To ally labor’s concerns, Norse Atlantic began a charm offensive in the spring to win over some of the unions, striking an agreement with the Association of Flight Attendants (AFA) to pledge that it would allow workers to organize. At the time, AFA President Sara Nelson called Norse Atlantic’s approach “refreshing.” Pilots unions, though, remained skeptical.

And they still are. “ALPA pilots have been calling on the U.S. Government to put a stop to any foreign airline business scheme that undermines labor rights, safety, and the competitiveness of our nation’s airline industry,” Air Line Pilots Association President Joe DePete said. “By upholding a foundation of workers’ rights in U.S. international aviation policy and imposing labor protective conditions before permitting a foreign airline to serve the United States, the DOT can protect fair wages and working conditions for American workers while enhancing safety for the flying public.”

“Flags-of-convenience schemes have no place in U.S. commercial aviation, and preventing them from gaining a foothold has long been one of APA’s top priorities,” Allied Pilots Association President Eric Ferguson said, urging the Senate to attach the House bill to its appropriations bill.

Now, as back in the last decade, the unions say skirting labor laws in a “race to the bottom” for the least expensive workers compromises aviation safety. They point to the maritime industry, which deregulated in the mid-20th century, resulting in shipping lines “forum shopping” for the most lenient regulatory regime and labor laws. A similar dynamic in aviation could bankrupt U.S. carriers, result in industry-wide job losses, and make the system less safe, they allege.

The International Brotherhood of Teamsters made this point explicit. “The U.S. House of Representatives is stopping the exploitation of a regulatory loophole that threatens the livelihood of workers and safety of passengers throughout the airline industry,” Teamsters Airline Division President David Bourne said.

For its part, Norse Atlantic is not sitting still. The carrier still is pressing ahead with its planned transatlantic launch later this year. This week, the carrier announced an order for an additional six Boeing 787s from lessor BOC Aviation, bringing its total fleet to 15 of the type.

Madhu Unnikrishnan

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Routes and Networks

Three of the five most traveled domestic air routes for 2020 were based in China, which became the world’s largest domestic market for the first time on record last year, IATA data show. China’s success is also reflected by the fact two of the top five airlines in terms of total scheduled passenger kilometers were Chinese — second-ranked China Southern Airlines and fifth-ranked China Eastern Airlines.

Source: IATA

But while two of the aforementioned Chinese domestic routes saw passenger traffic increase by more than 40 percent in 2020, the Asian domestic route that experienced the biggest jump was in Vietnam: Hanoi to Ho Chi Minh City. The route between the two cities saw a roughly 54 percent rise in passengers from 2019, and the 5.9 million travelers who flew between Hanoi and Ho Chi Minh City last year placed the route just behind Korea’s Jeju and Seoul Gimbo Airport as Asia’s — and the world’s — most traveled domestic route of 2020.

​“(Last year) was a year that we’d all like to forget. But analyzing the performance statistics for the year reveals an amazing story of perseverance,” said Willie Walsh, IATA’s director general.

Rashaad Jorden

Fleet Briefs

  • Frontier is launched 15 new leisure routes, mainly to the Caribbean and Mexico and including its first-ever flight to Aruba, from Miami. Speaking of Miami, the discounter is significantly beefing up its presence in the Florida city, with nine new flights launching in November. Including Aruba, Frontier will start Miami flights to: Portland, Maine; St. Louis; Syracuse, Rochester, and Albany, N.Y.; Memphis, Tenn.; Norfolk, Va.; and Turks & Caicos.
  • Also in the Caribbean, Air France is launching more flights from Pointe-a-Pitre, Guadeloupe, to Montreal and New York. The carrier also is adding Tenerife and Rovaniemi, Finland, from Charles de Gaulle and Berlin and Munich from Orly.
  • Starting Nov. 4, WestJet will add four weekly flights from Calgary to Seattle, going up to six weekly flights in December, daily next March, and twice daily in May. Canada’s border restrictions are expected to end on Aug. 9.
  • It’s not quite a route, but it is a destination. Allegiant will resume work on its Florida Sunseeker resort after a pause of 18 months due to the Covid-19 pandemic. The resort will have 500 rooms, 150 extended-stay suites, 19 restaurants and bars, and 50,000 sq.-ft. of conference space when it opens in 18-24 months. The resort is near Allegiant’s base at Punta Gorda and also to Allegiant destination St. Pete-Clearwater.
  • Air Transat took another step to becoming a national carrier in Canada with the launch of direct weekly service between Vancouver and Quebec City on August 2, becoming the only airline to operate the route. Flights depart from Vancouver on Mondays and from Quebec City on Sundays until October 25.  In addition to the capital of Canada’s largest province, Air Transat will also direct flights from Vancouver to Montreal and Toronto.
  • WestJet launched its first flights from Calgary to Amsterdam on August 5, the first European route the Canadian carrier has started since the pandemic began. The twice-weekly flights will go to thrice-weekly in September. WestJet is operating the flight with Boeing 787s.
  • Cathay Pacific has resumed cargo flights to Pittsburgh International Airport. The Hong Kong-based carrier will serve Pittsburgh twice weekly through the end of the year, with Boeing 777-300ER passenger planes converted for cargo scheduled to arrive on Monday and Friday and depart the following day. Cathay Pacific had actually launched cargo service to Pennsylvania’s second largest city in September 2020 with 20 flights. 

Madhu Unnikrishnan & Rashaad Jorden

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