Issue No. 834

A Patchwork Recovery

Airline Leaders Are Optimistic About Next Year, but Hope Varies by Region

Pushing Back: Inside the Issue

Last week's IATA Annual General Meeting was a celebratory ball, of sorts, as airline leaders gathered together en masse for the first time since they did so in 2019, in Seoul. The tone of the meeting was excitement, as executives start to see the climb out from the pandemic beginning in earnest next year, barring any new variants of the coronavirus or fresh outbreaks of Covid-19. Vaccines are key to this recovery, but that raises another vexing question. Vaccine inequity plagues many parts of the world. RwandAir's CEO points to this inequity for why African carriers don't have the luxury of vaccine mandates.

And when airlines emerge from the crisis, what will the market look like? Will lucrative business travel be back as it was in 2019? Emirates' Tim Clark says it will; Avianca's Adrian Neuhauser is planning for half of all business travel to disappear. Maybe the truth is in the middle: Southwest's Gary Kelly says about 20 percent of business travel may never return. The plain truth is no one knows but everyone has a guess. But one thing no one has to guess about is the enduring and growing strength of leisure and VFR demand.

Elsewhere in this issue, what's old is new again, as the Tata Group won its bid for Air India, an airline it founded in 1932. This marks the end of a years-long privatization saga, and raises the question of how the Tata Group will trim the fat on a creaky and bloated state-owned airline. Airlines engaged in a flurry of aircraft orders, signaling that they think the recovery is near. And cargo continues its strength with lessor Avolon making a commitment for A330 freighters.

The Airline Weekly Lounge Podcast

This week in the Lounge, Ned and Madhu discuss who's right: Emirates' Tim Clark, who says business travel will return next year; or Avianca's Adrian Neushauser, who says half of all business travel is gone forever. Is IATA pinning too much hope on sustainable aviation fuels? Find out in this week's episode. A new episode of the Lounge drops every week, and you can find the full archive here.

Weekly Skies

The Tata Group, an Indian multinational conglomerate, won its bid to buy state-owned Air India, bringing the flag carrier back to the company that founded it in 1932. The deal is worth 180 billion rupees ($2.4 billion).

As part of its acquisition, the Tata Sons — the holding company that owns the Tata Group — will assume $2 billion in Air India’s $8 billion debt and pay the government $400 million. When the deal closes, the conglomerate will own 100 percent of the flag carrier. Air India has not turned a profit for more than 15 years, and it is said to cost the government more than $3 million per day. In a statement announcing the deal, the ruling Bharitiya Janata Party (BJP) said the government has put more than 1 trillion rupees into Air India to keep it afloat.

Tata family scion J.R.D. Tata founded Air India in 1932 as Tata Air Mail. Shortly before India’s independence from Great Britain in 1947, the company rebranded the airline as Air India. The government of Jawaharlal Nehru, India’s first prime minister, took control of the airline in 1953 as part of its nationalization of key domestic industries.

“Welcome back, Air India!,” Ratan Tata, chairman emeritus of the Tata Group, wrote on Twitter, adding, “J.R.D. Tata would have been overjoyed if he was in our midst today.”

“It will be our endeavor to build a world-class airline,” current Tata Group Chairman Natarajan Chandrasekaran tweeted. But, as Ratan Tata added, “admittedly, it will take considerable effort to rebuild Air India.”

And therein lies the rub. Prime Minister Narendra Modi’s government has been trying to privatize Air India for several years, first as a partial sale before deciding to fully privatize the loss-making carrier. Rumored bidders over the years have included Singapore Airlines, Etihad Airways, several domestic rivals, as well as the Tata Group. But even as the government loosened the restriction on the acquisition and lowered the amount of debt any suitor would have to assume, most walked away. Until today.

The problem for Air India is that over the decades of its government ownership, it has become a bloated state-run enterprise, with all political factions accusing each other of adding to its bloat and handing out sinecures. The carrier’s labor relations have been toxic with employees fighting off any attempt to downsize, and the issue became a political football.

The Modi government is “cleaning the mess by successive Congress governments, which were too incompetent to solve any problems themselves,” the BJP said. The Congress party ruled India for decades after independence under the governments of Nehru, his daughter Indira Gandhi, and her son Rajiv Gandhi. India began liberalizing its economy in the 1990s, under the policies of then-Finance Minister Manmohan Singh, who later became a Congress Party prime minister in the early 2000s. Modi’s BJP government has been in power since 2014 after defeating Singh’s government in the elections.

Given all these problems, why would the successful Tata Group, which makes everything from tea to cars (including the Jaguar-Land Rover group), want Air India? The company said in its statement that the acquisition will add to its stable of carriers. The group already has a hand in two airlines: Vistara, a joint venture with Singapore Airlines, and AirAsia India, a joint venture with discounter AirAsia.

With privatization, the company can downsize the carrier without the threat of political interference. Details are scant as are any reactions from the company’s employee groups. Air India currently has about 8,000 employees.

The carrier’s 128-aircraft fleet is relatively young. Air India has roughly 30 older Airbus A320-family aircraft as well as 27 A320neos and 20 A321s, according to its latest fleet data. It has 27 Boeing 787-800s, 15 777-300ERs, three 777-200LRs, and owns four 747-400s.

But the real prize for the Tata Group is Air India’s international operating rights, slots, and route network. These were negotiated and acquired over the decades since the 1940s, when India still was the “Viceroy’s Territory,” as reflected still in the country’s “VT” ICAO tail numbers. No Indian carrier can match its network breadth, and since the demise of Jet Airways in 2019, no Indian carrier even comes close. SpiceJet and Indigo operate near-international routes mainly to Southeast Asia and the Middle East. Vistara has international ambitions — before the pandemic it operated flights to London, Paris, and Frankfurt — and has announced plans to fly to New York after getting U.S. permission to do so.

By contrast, before the pandemic, Air India operated flights within Asia, and to North America, Africa, Europe, and Australia. The carrier had 70 international routes and said it made two-thirds of its revenues from that network.

And perhaps the most lucrative asset for the Tata Group: Air India’s relatively large portfolio of slots at London Heathrow International Airport. It currently operates 10 nonstop routes to the slot-restricted airport. To put that in perspective, JetBlue Airways this year fought a long battle to eke out a single slot at Heathrow.

“On an emotional note, Air India under the leadership of J.R.D. Tata had at one time gained the reputation of being one of the most prestigious airlines in the world,” Ratan Tata said, referring to his forebear. “Tatas will have the opportunity of regaining the image and reputation it enjoyed in previous years.”

Madhu Unnikrishnan

Avianca’s CEO Predicts Only Half of Business Travel Will Return

Avianca‘s new CEO Adrian Neuhauser in April took over a carrier that was a year into its Chapter 11 bankruptcy restructuring in the U.S., and which all but shut down early in the pandemic. It faced increasing competitive pressures from low-cost carriers in its home Colombian and Central American markets.

Six months later, and travelers are returning. Avianca plans to fly 65 percent of its 2019 capacity this winter. A bankruptcy exit is in its sights before the end of the year, and Neuhauser has a vision for a very different travel market once the Covid-19 pandemic is in the past.

Business travel, long the bread-and-butter of legacy carriers like Avianca, is gone in a significant way, Neuhauser said at the IATA Annual General Meeting in Boston on September 5. He disagreed with the optimistic outlooks of the likes of Lufthansa Group CEO Carsten Spohr and United Airlines CEO Scott Kirby, and shook his head before declining to comment on Emirates President Tim Clark’s prognosis of a full business recovery by the end of 2022.

“The threshold for a meeting to be in person has gone up,” he said. “We don’t think it’s a [down] 20 percent issue or 30 percent issue, we think it’s a 50, 60 percent issue of business travel going away. That impacts the entire design of our network, it impacts the entire design of our cabin — our commercial strategy.”

That severe — but possibly realistic — outlook shaped the reorganization plan that Avianca submitted to the court in August. Under that plan, the airline will add seats to its Airbus A320 family narrowbodies — A320s will go to 176 seats from 150 seats today — add more point-to-point routes from secondary bases like Medellin, Colombia, and San José, Costa Rica, and implement a long-planned commercial partnership on U.S.-Latin America routes with United.

Avianca still wants to be attractive to business travelers, even if it only sees half as many as it did before the pandemic, says Neuhauser. To that end it is keeping what he described as “differentiators” that set it apart from discount competitors like Volaris and Viva Air Colombia. One such differentiator is the passenger density on its aircraft, which Neuhauser said will be about 10 fewer seats on an A320 than budget carriers with a yet-to-be-named premium product up front. Avianca’s frequent flyer program, LifeMiles, also sets it apart from competitors while also being a “profit center” for the airline.

“We don’t want to lose our historical customers — we want to keep a differentiated product to address them but on the other hand we have to acknowledge that our competitors has a much lighter product,” said Neuhauser. “We try and find that balance.”

Nonstop flights from secondary cities, like Cali and Medellin to Buenos Aires, and San José to Los Angeles, are another type of differentiator. The new international routes — more than 22 have been announced since August — primarily target visiting friends and relatives (VFR) and leisure travelers, the primary flyer segments that Neuhauser said he sees growing out of the crisis. But they also allow Avianca to be more efficient, particularly when it main hub at Bogotá’s El Dorado Airport is congested and faces frequent weather issues.

“To the extent that we can make our Bogotá flying more point-to-point, we reduce the dependency of every [other point] and give [passengers] better service,” he said. “But it also means that the planes are in the air more, and planes are not generating revenue when they’re not in the air.”

Avianca is one of three major Latin American carriers restructuring under the U.S. Chapter 11 process. Aeromexico and Latam Airlines Group are also moving through the process. The former submitted its reorganization plan to the court on October 1 with a focus on growing its Mexico City hub and leveraging its relationships with Delta Air Lines and other SkyTeam Alliance partners. Latam has until October 15 to submit its plan.

With all the talk of Avianca differentiating itself from discount competitors, the reports of a potential merger with Chile’s Sky Airline — one of South America’s ultra low-cost carriers that Neuhauser wants to set Avianca apart from — is an interesting development. Asked about the reports, and he declined to comment but he did speak positively about consolidation in general terms.

“Do we believe in consolidation as a good thing for the industry across the region? We do,” said Neuhauser.

Avianca is not the only legacy Latin American carrier embroiled in merger talk. Azul has made public overtures for Latam‘s Brazilian operation. Latam has since ended its codeshare with Azul and said its business is not for sale, and doubled down on growing its Brazilian operation in the recovery. And Gol will acquire Brazilian regional carrier Map Transportes Aéreos in a combo that would boost its presence at São Paulo’s sought-after Congonhas Airport as well as in smaller destinations around Brazil.

The Avianca-Sky proposal is complicated. Reports indicate that the combo would be led by private equity firms Caoba Capital and Elliot Investment Management that are reportedly set to close a significant investment in Sky in October. Several Caoba executives either sit on the Avianca board or at those of its creditors, while Elliot holds an undisclosed share of the carrier’s $723 million debtor-in-possession Tranche B financing. The Tranche B debt will convert to equity in Avianca under the airline’s proposed new capital structure when it exits bankruptcy. That equity holding and other connections would, according to reports, be the basis for a merger with Sky.

Other Tranche B debt holders include United — Avianca’s commercial and potential future joint venture partner — Kingsland Holdings led by Roberto Kriete who was instrumental in Avianca Holdings formation as well as a co-founder of Volaris, and the hedge fund Citadel Advisors.

In a U.S. Securities and Exchange Commission filing on September 4, Avianca said it had “no knowledge” of any potential transactions considered by its Tranche B debt holders. This included any combination proposal with Sky.

The bankruptcy court is expected to rule on Avianca’s restructuring plan during a hearing on October 26.

Edward Russell

Meanwhile, Emirates’ Clark Predicts Full Business Recovery Next Year

Emirates President Tim Clark and other global airline CEOs expect a full business travel recovery, a bullish outlook that has replaced the bearish views many held just months ago.

“I believe business travel will come bouncing back by the end of next year,” Clark said last week in one of the most optimistic international business travel recovery outlooks to date. He added that Emirates anticipates “very strong” business demand in 2023 and 2024 as well.

Clark’s comments at the IATA Annual General Meeting in Boston carry extra weight as Emirates relies nearly entirely on international travelers, a market that most other executives have said will come back slower than domestic demand due to border restrictions. He did not elaborate on whether certain international business markets would return before others.

Lufthansa Group CEO Carsten Spohr and United Airlines CEO Scott Kirby agreed with Clark’s forecast, especially when looking two- to three-years out.

Lucrative business travelers were largely missing from the early stages of the Covid-19 recovery. Holidaygoers and visiting friends and relatives travelers have filled planes around the world as vaccination rates have risen and restrictions eased. The return of corporate road warriors is the next necessary step for much of the airline industry to return to financial health. And, at least in the U.S., that was on pace to occur in September until the Delta variant put the brakes on returns to the office and many potential trips.

Kirby said he expects the U.S. business travel recovery to resume in earnest in January — after the year-end holiday season. This will include both domestic trips as well as ones to Europe, where borders are set to reopen in both directions to vaccinated travelers in November. Kirby reiterated his view that United will see its “best” summer period ever on the transatlantic during Summer 2022.

Few airline executives Airline Weekly spoke with at the event expressed doubt about the future of business travel. Not everyone was as bullish as Clark that it will be back next year, with many citing differences between domestic and international markets, but there was universal agreement that the segment will return. Lacking at the event was an executive like outgoing Southwest Airlines CEO Gary Kelly who has said that he does not see business travel recovering for at least a decade if ever.

Latam Airlines Group CEO Roberto Alvo — who is “confident” that business travel will recover — described two concurrent trends. Virtual meeting technology will replace some business trips for good, he said, but the rise of remote work will mean more trips as workers travel to offices for occasional meetings. While these trends may not be equal at first, the eventual result will be a return of the corporate segment for the airline.

“People like to travel, people like to meet with each other — and even if you say people were flying every other week and [now] they’re reviewing it, there’s a whole new generation waiting to travel and make a career,” KLM CEO Pieter Elbers said.

Edward Russell

Energy Shock Ahead?

The world is heading toward an energy crisis this winter, as Europe struggles to meet soaring demand for natural gas and China grapples with rolling blackouts that have idled factories.

Oil prices reached their highest prices in three years last week, topping $82 per barrel for Brent crude. This marks an almost 60 percent increase since the start of the year. Investment bank Goldman Sachs forecasts oil prices to reach $90 per barrel by the end of the year, and $100 per barrel prices aren’t out of the question. The U.S. Energy Department is contemplating releasing oil from the Strategic Petroleum Reserve and reinstating the ban on crude oil exports, lifted in 2015, to alleviate prices, particularly for gasoline and diesel.

The Organization of Petroleum Exporting Countries last week agreed to raise production by 400,000 barrels per day and signaled that it is opposed to raising production further.

But the news may not be as bad as all that for airlines. Jet fuel demand still remains well below 2019 levels. U.S. Bureau of Transportation Statistics data show. In the U.S., airlines have burned through 8.6 billion gallons of jet fuel, which is almost 25 percent above 2020. But that year was down 44 percent from 2019.

The U.S. Department of Energy predicts there will be surplus of jet fuel this year, as demand has not kept up with supply. Inventory appeared to tighten this summer, the department said, but has stabilized after the Delta variant took a bite out of demand. Airlines so far aren’t’ worried about a spike in jet fuel prices this year, but the picture could change if and when demand returns. Holiday air travel demand is expected to be strong, but the balance of the fourth quarter could be 30-35 percent down from 2019.

Madhu Unnikrishnan

IATA Pins Emissions Hopes on SAFs

IATA is pinning its hopes on reaching its goal of 2050 for net zero carbon emissions on sustainable aviation fuels (SAF), the group said during its Annual General Meeting (AGM) in Boston last week. Although SAFs are the most realistic way to achieve the industry’s goals, the problem of supply remains vexing.

Between now and 2050, the number of passengers is expected to go from 2 billion to 10 billion annually. “Sustainable aviation fuel is our biggest chance and our biggest challenge, but it’s known technology,” said Sebastian Milosz, IATA senior vice president of environment and sustainability. The industry has access to about 100 million liters of SAF now, but will need 450 billion liters by 2050, a 10,000 percent increase.

The appeal of SAFs is, of course, that they’re essentially a plug-in answer to the problem, usable by the in-service fleet and engines and fuel distribution systems. New technologies, like electric or hydrogen propulsion, likely will not be mature by 2050, especially for widebody aircraft. And given an aircraft’s lifecycle, it’s highly possible that aircraft going into service today still will be in service, although at the tail end of their useful lives.

Now, one ton of SAF is three- to four-times more expensive than a ton of standard jet fuel. IATA expects this cost to come down as more SAF is produced and as oil companies begin to focus their efforts on alternative fuels and as new feedstocks become available. More than 30 countries have policies to increase production of SAF, up from none just a few years ago, and IATA expects most to implement policies in the near-term, Milosz said.

In addition to SAF, IATA said it can reach its goals through new propulsion systems and offsetting and carbon capture programs. Operations and infrastructure — including the much-delayed Single European Sky, for instance — also will play a key role, IATA said.

Madhu Unnikrishnan

‘Clear Nonsense,’ Walsh Says of Some Pandemic Testing Requirements

A final note from the IATA Annual General Meeting. The group predicts domestic air travel will be up to 73 percent of 2019 levels by the end of this year. International? Not as great. International traffic will be just 22 percent of 2019.

IATA blames weak international demand in part on a confusing set of restrictions around the world, which makes traveling less appealing and more difficult. As an example, IATA noted that of the 50 largest markets in the world, 24 require PCR Covid-19 tests; 16 permit antigen tests; and within that group, the details conflict. “It’s a total mess,” IATA Deputy Director Conrad Clifford said.

“Antigen testing is a good method, rather than a complex PCR test,” IATA Director General Willie Walsh said. Of countries that require PCR tests, Walsh said, “It’s clear nonsense.”

IATA is pushing for simpler rules, more uptake of digital travel and health passports, and fewer restrictions for vaccinated travelers. “Where people are fully vaccinated, they should be allowed to travel without restrictions and without testing,” Walsh said.

Madhu Unnikrishnan

In Other News

  • While its neighbor to the south wrestles with vaccine mandates for airline workers, Canada is going even further. From October 30, not only will all airline (and all transportation) employees need to be vaccinated, but all passengers traveling through Canadian airports will need to show proof of Covid-19 vaccines. Between October 30 and November 30, unvaccinated passengers can show proof of a negative PCR test taken within 72 hours of departure. But after November 30, that option disappears, and proof of full vaccination will be required. Passengers will be fined C$5,000 ($4,000) for each violation, and operators could face fines of C$25,000.
  • Qantas and Emirates won approvals from the Australian and UAE governments to extend their commercial partnership until March 2023. The deal includes reciprocal loyalty program benefits and codeshares on 55 Australian destinations on Qantas’ network, and 50 European, North African, and Middle Eastern destinations on Emirates’ network.
  • Lufthansa Group shareholders picked up 98.4 percent of the 598 million new shares sold under the group’s €2.1 billion ($2.4 billion) capital increase. The remaining 9.8 million new shares will be sold to institutional investors “soon.” Lufthansa launched the capital raise in September with plans to use the proceeds to repay its outstanding German state-aid by the end of the year.

Madhu Unnikrishnan and Edward Russell

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Landing Strip

Los Angeles International Airport’s board has approved a $6 billion expansion plan that would allow the U.S.’s second-busiest airport to catch up with passenger growth and prepare it for 2028 Olympic Games.

The Airfield and Terminal Modernization Project at LAX includes multiple aspects that will increase airport capacity and efficiency ahead of the Olympics. The highlights include a new Terminal 9 to the east of the existing terminal horseshoe, and a new Concourse 0 attached to Terminal 1. The two projects together will add gate space where it’s needed and improve the traveler experience by replacing 15 of the 18 remote gates that are only served by buses today.

The project is “really high impact in terms of how it’s going to be able to carry our airport forward to provide the customer service experience that you expect of LAX,” Los Angeles World Airports Board of Airport Commissioners President Beatrice Hsu said at a hearing last week. The board subsequently approved the environmental impact report for the entire program. Only the Los Angeles City Council needs to sign off for construction to begin next year.

The LAX The Airfield and Terminal Modernization Project. (Los Angeles World Airports)

The new facilities are needed if LAX sees the same level of growth that it did during the 2010s. Passenger boardings jumped almost 57 percent to 42.9 million during the decade, making the airport the second-busiest in the U.S. in 2019, according to U.S. FAA data. That made its limited facilities some of the most sought after in the country, with airlines scrambling for what gate space they could secure.

In a September report, LAWA adviser WJ Advisors forecast that LAX passenger numbers would return to 2019 levels during the fiscal year ending in June 2025, and growth would return to its pre-crisis rate of 1.7 percent annually the year after.

Terminal 9 is the biggest piece of the expansion. Located east of Sepulveda Boulevard — the existing eastern border of the LAX terminal complex — the facility will include 12 gates for large aircraft as well as a new station on the airport’s under-construction automated people mover. United Airlines has its eye on the facility, which will be adjacent to its current gates in Terminals 7 and 8, for its own operations and those of its Star Alliance partners.

“We need more gates,” United CEO Scott Kirby said of LAX at the IATA Annual General Meeting in Boston on September 4. “I think [Terminal 9 will] be great for us. [But] it’s taking a long time.”

Kirby did not express any doubt that Terminal 9 would become a United and Star Alliance terminal.

Concourse 0 will add a net nine new gates to Terminal 1, as well as include space for a new international arrivals facility. Although no airline has made overtures for the planned facility, the terminal is currently the near-exclusive domain of Southwest Airlines. Allegiant Air and Sun Country Airlines use check-in counters in Terminal 1 but then bus passengers to gates in the West Gates at Tom Bradley and could potentially also use the new facility.

Work on Concourse 0 would begin first in 2022 followed by Terminal 9 in 2023, according to LAWA. The former would open four years later in 2026 followed by the latter in 2027.

Edward Russell

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Routes and Networks

Transatlantic demand is back “baby,” as Austin Powers would have put it. In the latest sign of a robust return of the market since the U.S. said it would ease restrictions for vaccinated travelers, British Airways unveiled plans to reintroduce its Airbus A380 superjumbo on three routes — Dubai, Los Angeles and Miami — in December, earlier than the airline previously “expected” the jet would return. The A380’s seating capacity, at 469 passengers, is its attractiveness to BA. As CEO Sean Doyle put it in May the A380 “very effective aircraft in a slot-constrained airport like Heathrow” and would be part of the BA fleet going forward, particularly with the retirement of its Boeing 747-400s during the crisis. BA has 12 A380s.

In addition to returning its largest jet to the skies, BA will resume flights to Austin, Baltimore-Washington, Las Vegas, Nashville, New Orleans, Orlando, San Diego and Tampa between October and December depending on when the U.S. officially eases entry restrictions. The carrier is scheduled to serve all but two of its pre-crisis U.S. destinations — Charleston, S.C., and Pittsburgh — with its latest resumptions.

Edward Russell

Route Briefs

  • Canada’s Porter Airlines is back! The carrier, which resumed flights in September after suspending all operations in March 2020, has reinstated all 18 of its year-round, pre-pandemic destinations. The carrier has brought back 1,000 of its employees out of the 3,000 that worked there before the pandemic, and CEO Mike Deluce said the carrier is in the process of recalling more of its employees. Raccoon spokescritter Mr. Porter could not be reached for comment.
  • But Air Canada is circling recently restarted Porter‘s Toronto Billy Bishop base. The legacy carrier will connect Billy Bishop to Ottawa — it’s second route from the close-in Toronto airport — four-times daily from October 31. The new route comes as Porter preps to add its first jets and launch service from Air Canada’s Toronto Pearson base next year.
  • Staying in Canada, the country’s second largest carrier WestJet is adding yet another transatlantic route: Toronto Pearson to Dublin. Flights will begin in May and with daily service from June through the summer. WestJet will fly a Boeing 737 Max on the route.
  • First Minneapolis/St. Paul and now Salt Lake City, it’s something of a tour-de-Delta hubs for Alaska Airlines in Anchorage. The Seattle-based carrier will connect its namesake state’s largest city with Salt Lake City twice-weekly from June 18. Alaska cites leisure demand in the two outdoors-oriented markets for the new route.
  • Icelandic startup Fly Play will add Amsterdam to its map with up to four-times weekly service from December. The network addition comes during what CEO Birgir Jónsson has called the airline’s “warm-up” phase ahead of the launch of U.S. flights next summer.
  • Alitalia successor Italia Trasporto Aereo (ITA) has set a date for its first U.S. flights: Rome Fiumicino-New York JFK service begins November 4. Flights will be operated on an Airbus A330. ITA will add flights between Rome and Boston and Miami, and between Milan Malpensa and JFK from March 2022; and Rome-Los Angeles next summer. The only city missing from ITA’s U.S. expansion is Washington, D.C., which it outlined plans to serve from 2022 in its foreign air carrier permit application to the U.S. Department of Transportation in August.
  • Ryanair is adding two new routes to Venice next spring. The carrier will connect the Italian city to Cork and Stockholm Arlanda, the latter where it opens a new base in October, from late March. Both routes come as the discounter has grand plans to expand its presence across Europe in the recovery.
  • Air France-KLM discount arm Transavia France will nine new routes to its Summer 2022 schedule with the addition of 11 more Boeing 737-800s. With flights beginning between the end of March and July, Transavia will connect Paris Orly to: Bilbao and La Palma, Spain; Glasgow, UK; Ljubljana, Slovenia; Podgorica, Montenegro; Ponta Delgada, Portugal; Skiathos, Greece; and Yerevan, Armenia. In addition, it will offer seasonal service between Lyon and Stockholm Arlanda from January through April.

Edward Russell & Madhu Unnikrishnan

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Fleet

  • Barely a month after its first order for the Airbus A321neo, UK leisure-carrier Jet2.com is back for more. The airline has ordered another 15 aircraft that brings its firm commitments for the A321neo to 51 planes plus another 24 options. The entire deal is worth $10 billion at list prices. Jet2.com will use the A321neos to replace its fleet of 34 Boeing 737-800s and for growth. Deliveries are set to begin in 2023 and continue through 2029.
  • KLM aims to have a decision on what could be an up to 160 aircraft order for Airbus or Boeing narrowbodies in the “next few months,” CEO Pieter Elbers said. The deal would be replacement and growth for KLM as well as Transavia and Transavia France, the latter two Air France-KLM‘s budget arms. The three carriers operated 138 Boeing 737s at end-June.
  • Lessor Avolon is significantly beefing up its freighter portfolio with a commitment to buy 30 IAI Airbus A330-300 passenger-to-freighter conversions. The reason? Avolon predicts the air cargo market to be worth $150 billion this year alone and a market that could double in size over the next 20 years. Terms of the deal were not disclosed. “We believe the IAI A330-300 P2F will be the wide body freighter of choice this decade and beyond, replacing retiring aircraft and providing the volume capacity required to meet market needs,” Avolon CEO Domnhal Slattery said.
  • Qantas Airways has launched a campaign for more than 100 new narrowbody aircraft in the latest sign of airline industry confidence in the coronavirus pandemic recovery. The Sydney-based carrier is evaluating the Airbus A320neo and Boeing 737 Max families, as well as the smaller Airbus A220 and Embraer E-Jet-E2 families, for its domestic fleet. Qantas CEO Alan Joyce said he anticipates an order for a mix of aircraft sizes to meet the various needs across the airline’s Australian network. A decision is expected by year-end with deliveries from the end of 2023 and continuing through 2034. The aircraft would replace the 20 Boeing 717-200s and 75 737-800s in the Qantas fleet, as well as be used for growth. Joyce did not mention the status of the 18 Fokker F100s in the Qantas fleet, which Reuters has reported are also up for replacement.
  • Spirit Airlines chose AerCap for 20 new Airbus A320neos, the lessor said. Deliveries are expected to begin next year and continue through 2024. Spirit said it plans to use the new aircraft to fund anticipated growth in its network over the next two years.

Edward Russell & Madhu Unnikrishnan

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Feature Story

If there was one take away from the IATA Annual General Meeting in Boston last week, it was excitement. That is, excitement among the attendees to be back on the road, meeting in person once again after more than a year-and-a-half of virtual gatherings. And there was a direct through-line from the excitement to the industry’s optimism for the travel recovery, which IATA forecasts will occur in domestic markets by 2023 and internationally by 2024.

That optimism — unbridled in some cases — does not mean the industry is out of the woods in any way, shape, or form. Few executives — save Emirates President Tim Clark — think the business travel much of the industry relies on for its financial health will return in the short term, and most forecast continued losses in 2022. But after the dark days of 2020 and the first half of 2021, the meeting was a positive occasion to look forward to the future.

Sustainability featured prominently. In 2019, the topic was a panel and the focus a European trend known as “flight shaming;” in 2021, it is front and center among global carriers. IATA has set the industry on a path to net zero emissions by 2050 with the acknowledgement that a lot needs to be done to achieve that. Many tout the potential of sustainable aviation fuel, or SAF, to cut emissions but by IATA’s own measure the sector needs to scale from 100 million liters today to 450 billion liters in 2050 — a staggering 10,000 percent increase. And then there is the overarching question of whether net zero in 29 years is fast enough for a rapidly warming Earth.

Every airline executive had his or her own view, informed by their market segment and the political realities of where they operate. “By 2023, I think this will be history,” said IndiGo CEO Ronojoy Dutta reflecting the lift airlines with large domestic markets have received from said markets. But from the bulls to the bears, here’s a snapshot of what we learned.

AirBaltic

AirBaltic ramped up capacity to 87 percent of 2019 levels in October from just 35 percent in May, according to Cirium schedules. CEO Martin Gauss said the step up occurred after the Latvian government reopened borders to non-essential travel in June. And travelers have returned in droves: AirBaltic turned a profit in August, though Gauss said he does not expect an annual profit again until 2023. The mix of travelers flying on the carrier has also changed — as at nearly every other airline — with leisure flyers dominating, while business travel slowly recovers. Though Gauss is confident in a full business travel recovery at some point. An IPO is planned for 2023 or 2024 to repay the €340 million ($394 million) in aid from the Latvian government.

Of note, AirBaltic joins many of its competitors in seeing ample growth opportunities in Europe coming out of the crisis. While the carrier does not plan to double in size like Ryanair or Wizz Air, it does plan to continue expanding its Riga hub and add a yet-to-be-identified new base in the Nordic countries next summer. This growth will be supported by the arrival of eight more Airbus A220-300s by end-2022. When asked, Gauss was unconcerned about competition, saying that AirBaltic can do things competitors like Ryanair and Wizz Air can’t with its fleet of smaller A220s.

Lufthansa

Lufthansa Group CEO Carsten Spohr had a more definitive view of the evolving European market: “Silent consolidation” — where stronger carriers grow at the expense of weaker ones — is underway despite few official mergers or acquisitions, or “loud” consolidation. Although he did not name names, this includes the bankruptcy and retrenchment of Norwegian Air, Alitalia‘s collapse and the formation of (much smaller) Italia Trasporto Aereo (ITA), and the many pandemic-driven fleet cuts at many of the continent’s legacy carriers, Lufthansa included. Lufthansa Group carriers had only recovered to 55 percent of their 2019 capacity in October, Cirium shows. This has opened the door for those with the resources to grow — like AirBaltic, Ryanair, Wizz Air and now EasyJet and Lufthansa with their recent capital increases — to get their foot in the door of many of the continent’s more tightly held airports.

Lufthansa sits with the bulls with Spohr forecasting a near-term recovery in business travel to 90 percent of its pre-crisis levels — and a full recovery long-term. The group has returned to 96 percent of its 2019 destinations and, despite not yet turning a profit, is using its budget arm Eurowings for some silent consolidation. His focus beyond the recovery is sustainability, which includes everything from SAF and other long-term measures, to making the group’s fleet more efficient.

Latam

Latam Airlines Group is leaning into sustainability in a big way. It backs IATA’s 2050 goal and plans to uses carbon offsets to cut emissions in its domestic operations — including Brazil, Chile and Peru — in half by 2030. Asked whether this is enough, CEO Roberto Alvo deflected saying he is not an expert. Similarly when asked of criticisms of carbon offsets — studies have questioned whether “preserved” forests were ever vulnerable to begin with — he said he was not aware of the specifics but, for Latam, the airline would participate directly in any offset projects it invests in.

The airline’s sustainability focus comes as it works through what could be the final innings of its Chapter 11 bankruptcy reorganization in the U.S. Latam has streamlined its fleet, raised new capital and pushed forward with its joint venture with Delta Air Lines through the process. That tie up has two outstanding approvals: Chile’s antitrust court that could rule in the “next few weeks,” and the U.S., said Alvo. All in, the airline is likely facing a late-2021 or early-2022 bankruptcy exit. In October, Latam had recovered to 60 percent of its 2019 capacity, Cirium shows.

Avianca

Latam is joined by two more of Latin America’s largest carriers in U.S. bankruptcy: Aeromexico and Avianca. The latter’s new CEO Adrian Neuhauser had a very frank outlook on the market and his airline at the AGM. With a view that business travel has been halved, Neuhauser is redesigning Avianca for a future where air travel is the new intercity bus — a line frequently used by Mexican discounter Volaris — in Latin America, dominated by leisure and visiting friends and relatives (VFR) flyers. But he shied away from calling the post-bankruptcy Avianca a low-cost carrier. Instead, he insisted that it would differentiate itself with roughly 10-fewer seats on its Airbus A320-family narrowbodies than LCCs, some form of premium onboard product, a frequent flyer program and widebody jets (something Avianca probably wouldn’t fly if it did not already have them). Avianca was flying 40 percent of its capacity two years ago in October, according to Cirium.

But for all Neuhauser’s talk of differentiation, Avianca is in the midst of merger rumors with Chilean budget carrier Sky Airline. The deal, if it happens, would be pulled off by two of the airline’s creditors — Caoba Capital and Elliot Investment Management — that would see their loans to the carrier convert to equity under the restructuring plan in front of the court. An Avianca-Sky combo could create a regional — likely low cost — powerhouse stretching from the Southern Cone to Central America.

United

United Airlines has a good view of the regional variances in the travel recovery. CEO Scott Kirby sees a spike in U.S-Europe travel around Christmas before beginning a sustained recovery from January, about the same time he expects the business travel recovery to accelerate. But after Europe, the recovery is mixed. Near Latin America destinations popular with holidaygoers and VFR travelers has already recovered; deep Latin America — think Buenos Aires or São Paulo — is coming back slower. And Asia, the hallmark of United’s longhaul network, is at least 12-18 months behind Europe, making it a 2023 story at best. The view that East Asian travel will recover later is shared by Delta CEO Ed Bastian and Korean Air Chairman and CEO Walter Cho. Led by domestic, United will fly 74 percent of its 2019 capacity in October, Cirium shows.

One public controversy that United has embraced is that over Covid-19 vaccines. Kirby said the decision to mandate them for staff in August was not business led — in fact, he hoped that it has not benefitted the airline’s business — but the “right thing to do.” And while he supports jabs for passengers on international flights, Kirby said United will follow local regulations when it comes to such mandates — like most other global carriers where national rules don’t already require them.

RwandAir

RwandAir CEO Yvonne Manzi Makolo raises the red flag when asked about vaccine mandates. “The inequity that’s there right now does not allow countries to impose restrictions,” she said. To that point, less than 5 percent of Africans have gotten their jabs making the idea of traveler mandates a commercial non-starter for her carrier. RwandAir has recovered to half of its pre-pandemic capacity and is focused on African growth, including adding four new destinations in Central African Republic and the Democratic Republic of Congo to its map this year.

Makolo wants to build RwandAir into an African powerhouse. While many have had similar dreams — and also cited a big “potential” on the continent — successfully doing so has eluded most. Only Ethiopian Airlines has something near what could be considered a pan-African franchise. But RwandAir, armed with a centrally located Kigali hub, has the backing of deep-pocketed Qatar Airways. The Qatari carrier has already invested in a new Kigali airport and is set to close an investment in RwandAir shortly.

Edward Russell

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