Issue No. 844

A Year of Inflection Points

Is 2022 The Year The Recovery Begins?

Pushing Back: Inside The Issue

If there's one phrase that airline executives have repeated this year, it's "inflection point" (followed closely by "pent-up demand"). The pandemic's inflection point would mark when Covid-19 began to recede, pent-up demand was unleashed, and the recovery really began. Remember this time last year? Then, airline executives said the first quarter of this year, when effective vaccines became available, would be the inflection point. In the face of new variants and new outbreaks, the inflection point moved to the summer. And for many airlines in North America, South America, and Europe, the summer was good. Demand was strong, until the Delta variant crashed the party. Business travel, expected to return in September, never really came back as airlines expected. By the third quarter, the new inflection point was the end of the year. Now, with the Omicron variant, airline leaders are looking to the first or second quarter of 2022.

They weren't wrong when they made their predictions. Airline executives were working with the best information they had at the time (and no small amount of hope). The problem was and is that SARS-CoV-2 and its variants keep moving the goalposts. We found no better evidence for this than next summer's busy transatlantic schedules, which many airline leaders admit are more aspirational than actual. So when will the inflection point really occur? We can't say, until we know more about the Omicron variant and until governments further fine-tune their responses to new versions of the virus.

In some ways, though, the inflection point is irrelevant. Perhaps it's better not to yearn for 2019 but to focus on what's in the realm of the possible. And part of that exercise is to look at this year, which began with most airlines around the world operating a mere fraction of their pre-pandemic capacity. The year is ending with many airlines in Europe, North and South America, Africa, and parts of the Pacific (excluding much of Northeast Asia, which remains shut down) operating at close to pre-pandemic levels, with some, like Qantas, expecting domestic capacity to exceed 2019. Compared with this time last year, that's an almost unimaginable achievement. Airlines are in a buying mood again, ordering hundreds of new aircraft. Again, something that seemed unimaginable last year, when so many companies were questioning their survival. People will travel again. The world's population is growing, so even more people will travel. But the way we travel may be different. So maybe instead of looking for that elusive inflection point, we should just consider this year and next as years of transition, with a changed industry emerging at the end.

Elsewhere in this issue, we dig into the transatlantic schedules planned for next summer as well as dozens of route launches. Hawaiian is banking on Japan reopening in time for next summer. Several U.S. airline leaders came under fire in a testy Senate hearing ostensibly on the Payroll Support Program. And Airbus stole a march (or a few hundred marches) on Boeing by snagging the largest aircraft order in Australian history from Qantas, and a new order from Air France-KLM.

Holiday Notice

This issue is the last Airline Weekly issue for the year. Our next issue will be dated January 10, 2022. But we're not going away! Check the Airline Weekly website for daily news updates and our weekly podcast. To those of you celebrating, we wish you a very happy holiday season. And we wish everyone a very happy New Year. Here's to a happier, and less memorable, 2022.

Weekly Skies

Delta Air Lines management left investors and analysts with one clear statement on next year: Don’t get too excited. The Atlanta-based carrier’s passenger capacity recovery will slow and that will in turn drive elevated cost growth but, hey, at least there will be profits.

“It will be a recovery year, but it will be a profitable recovery year,” Delta CEO Ed Bastian said in his opening remarks at the airline’s investor day last week. As part of that return to the black, Delta plans to only recover passenger capacity to 90 percent of 2019 levels — lower than at the trio of American AirlinesSouthwest Airlines, and United Airlines, though American and United have yet to update their pre-Omicron variant outlooks — while forecasting unit cost excluding fuel growth of 7-10 percent year-over-three-years.

But Wall Street analysts were quick to see the upside of Delta’s outlook: Less capacity will likely mean higher fares that translate to, as Bastian put it, “meaningfully profitable” financial performance.

MKM Partners analyst Conor Cunningham described what Delta is doing in a report as “slowing growth to take more control of pricing.” Higher fares in 2022 would be a “positive” for the carrier as well as the industry, he added.

Average U.S. airfares stood at $299.93 in the second quarter, according to the Bureau of Transportation Statistics. That was down 16 percent compared to 2019, but up 15 percent from the second quarter.

The outlook is a bit of a return to normalcy for Delta. The airline was known for its profitable, if measured, growth during the decade leading up to Covid-19 pandemic. During that time, it focused on initiatives that boosted revenues — like fare segmentation, and replacing single-class regional jets with dual-class aircraft — without solely adding news flights. And, as imitation is the sincerest form of flattery, these initiatives were later employed by American and United.

But that does not mean Delta is out of the Covid woods yet. For one, Omicron “will be the dominant strain [in the U.S.] over the next couple weeks … We know it will delay the international recovery, probably by three to four months,” said Bastian. He added that the airline has yet to see a “discernible” impact on domestic bookings from the latest variant.

That uncertainty has the carrier building flexibility — both up and down — into its summer schedule. Delta has published transatlantic schedules that see it recovering to roughly 85 percent of 2019 capacity. “If this recovery pushes off, we will not fly the schedule we’ve published this summer,” President Glen Hauenstein said Thursday. He added that he believes there will be strong transatlantic demand — a market that many global carriers are using as an anchor for 2022 schedules — this summer. Delta’s domestic capacity is forecast to recover to 2019 levels by the middle of 2022.

When business travelers return is another question for 2022, and one that Bastian said “no one knows” the answer to. Despite not knowing, he did outline Delta’s assumptions for the recovery of this lucrative segment: Roughly 90 percent of what was defined as “corporate travel” pre-pandemic will come back by 2023. The unknown is how many new “business” trips the pandemic created; for example, the former office worker who now works remotely but needs to return to the office once a month, or those with flexible work policies that now couple working with leisure trips.

“We’re going to have more remote work opportunities [and] more flexible work patterns,” said Bastian. “All of that’s going to enable mobility. All of that’s going to feed into travel, some with business, some of it new forms of travel.”

That outlook has Delta bullish for the medium- to long-term. By 2024, it anticipates more than $50 billion in annual revenues, operating margins in the “mid teens,” and unit costs excluding fuel growth in the “low single digits.” To put that in perspective, in 2019 the carrier generated $47 billion in revenues, had a pre-tax margin of 13.2 percent, and CASM-ex growth of 2 percent. Capacity and the airline’s fleet count are also forecast to be higher than they were before the crisis.

Delta “emphasized how little Covid is anticipated to impair its longer-term structural attributes,” J.P. Morgan airline analyst Jamie Baker wrote.

Edward Russell

Hawaiian Banks on Japan Reopening For Summer Recovery

Hawaiian Airlines expects its recovery to begin in earnest next summer, when it believes its essentially shuttered international network will spring back to life. Although the Omicron variant has roiled its recovery timeline, the carrier forecasts that key international markets will ease travel restrictions in time for peak summer demand.

The most important of these markets for Hawaiian is Japan, which had taken tentative steps toward reopening, but has since begun to lower the portcullis again to stay the Omicron variant’s advance. The year has been a series of setbacks for the Japanese market, as the country’s leaders had “anxiety” around the Olympic Games and parliamentary elections, Hawaiian CEO Peter Ingram told analysts during the airline’s investor presentation on Monday. Hawaiian has been in talks with its local distribution partners and partner Japan Airlines on when the country may begin to relax its entry restrictions, but no definite timeline has emerged, he said.

Ingram derided policymakers’ reaction to the Omicron variant as “chaotic.” Governments reacted too quickly to re-impose restrictions without waiting for the science to emerge. Quarantines, in particular, are unnecessary and stifle demand for leisure travel. “Quarantines make it very difficult for someone to take a leisure trip,” he said. “They add immeasurably to the time burden of travel.”

“We have demonstrated with domestic [flights] that people are willing to provide information on vaccine status,” he said. “They are willing to be tested before or after travel.” Domestic demand this year on mainland routes exceeded 2019 levels, soaring after Hawaii relaxed its strict entry rules.

Despite uncertainty around Japan’s reopening and the threat of the Omicron variant, Hawaiian is hewing to its summer 2022 capacity plans and expects international capacity to come back strong. Desire for Japanese tourists to visit Hawaii remains unabated and in fact may have grown after almost two years of restrictions, Ingram said.

Hawaiian’s other international markets are coming back slowly. The carrier restarted flights to Tahiti in August and resumed Sydney flights last week. New Zealand is expected to start reopening to international travel in April, although Ingram said the first phase of the country’s reopening may not include travel to the U.S. South Korea had begun to reopen, but that is paused as it assesses the Omicron variant, Ingram said.

Because of this uncertainty, Hawaiian expects its 2022 capacity to be flat to 4 percent higher than 2019. The airline Hawaiian should have more clarity on where it will be in that range at the end of the first quarter, or 60-90 days out from summer travel, MKM Partners analyst Conor Cunningham said in a note to investors.

With its international network largely idled during the pandemic, Hawaiian redeployed its widebodies on domestic routes, opening new markets like Austin, Texas, and Orlando. The carrier renegotiated and extended the leases on its Airbus A330s favorably, which has lowered their operating cost. This gives Hawaiian more flexibility in route planning and could lead it to open other new markets that previously would have been cost-prohibitive to operate, Chief Financial Officer Shannon Okinaka said, although she declined to specify what markets those could be. “The lease rates on the A330s give us a bit more opportunity where things on the margin look better now,” Ingram added.

Hawaiian last year renegotiated its Boeing 787 delivery schedule with the airframer, but now Boeing’s ongoing delivery delays of the type have pushed its entry-into-service further out. The carrier now expects to take its first 787 at the end of 2022. It will take two next year, three in each of 2024 and 2025, and two in 2026. Meanwhile, it the leases of four A330s expire in 2024, two in 2025, and three in 2027.

Hawaiian expects unit costs excluding fuel to rise between 2-6 percent next year, mainly due to higher labor costs and expenses associated with the 787 introduction. The carrier has open contract talks with the International Association of Machinists and the Transport Workers union and its pilots contract becomes amendable next year.

One trend Ingram noticed during the pandemic is not showing signs of going away: The rise of premium leisure. Without offering specifics, he said unit revenues in the front of the aircraft and on the carrier’s premium economy product have done better than economy class. “People have money and are willing to spend it for a good experience,” Ingram said.

Madhu Unnikrishnan

In Other News

  • IAG is calling off its planned acquisition of Spain’s Air Europa. The UK-based group said it has notified the Spanish government of its intentions. With that, the two companies end a long-running and dramatic saga, which began just before the pandemic bared its teeth, at the end of 2019. Along the way, European, UK, and Spanish competition authorities threatened to derail the deal, with numerous investigations on whether the merged entity would reduce competition in Spain and on routes to Latin America, where Air Europa historically has had a strong presence. The European Commission reportedly was set to ask for more concessions to approve the merger. The end of the deal puts paid to IAG’s plans for a huge hub in Madrid, for Iberia, Vueling, and its acquired Air Europa assets. Iberia said it may pursue a separate deal with Air Europa next year.
  • The soap opera that is the Latam Airlines Group U.S. bankruptcy restructuring took its latest turn last week. The unsecured creditors committee objected to the group’s reorganization plan, calling it “patently unconfirmable.” The committee claimed that unsecured creditors would see a three-times greater return under a November 11 takeover proposal from Azul, which Latam rejected, that gave the group a standalone valuation of $13 billion. Azul proposed to finance the deal with $4.5 billion in new equity, and $1.5 billion in new debt. Latam’s plan estimates the enterprise value of the airline at roughly $14 billion. The U.S. Bankruptcy Court for the Southern District of New York is scheduled to hold its first hearing on Latam’s plan on January 26.
  • Qantas has unveiled the sustainable aviation fuel, or SAF, agreement that CEO Alan Joyce hinted at earlier in December. The airline has signed for 2.6 million gallons of SAF from BP at London Heathrow in 2022, with options for up to 2.6 million more gallons in 2023 and 2024. The fuel, which represents roughly 15 percent of Qantas’ usage at Heathrow, is made from used cooking oil and other waste products. Interestingly, while touted as the first such deal for an Australian carrier, the agreement does not include any SAF supplies in Australia — where the fuels could do the most to help offset Qantas’ emissions. The airline said it is looking at additional SAF supply agreements at other international gateways, including possibly Los Angeles and San Francisco.
  • IATA has a new member: Eastern Airlines. The carrier has been in a yearslong process of transforming itself into a scheduled passenger and cargo carrier, and its entry into the global airline club is another stamp of approval for the process. Eastern operated a fleet of 10 Boeing 767s on visiting friends and relatives routes between the U.S. and South America. Earlier this year, the airline stunned the industry by saying it had bought 35 Boeing 777s, the bulk of which were passenger-to-freighter conversions, with two of the new fleet expected to stay in passenger configuration for new routes beyond the reach of the 767s.
  • Cathay Pacific is showing signs of life. The Hong Kong-based carrier flew just over 70,000 passengers in November, or 85 percent more than the same month in 2020, but 97 percent less than it flew in 2019. That represents 12 percent of Cathay Pacific’s pre-pandemic capacity. Cargo was a better story, with freight traffic up 16 percent from last year, but 24 percent lower than in 2019, due to the lack of belly-hold capacity. Travel restrictions in China and the UK have taken a bite out of the carrier’s demand, which was lower in November than in October, Cathay Pacific said.
  • Austrian Airlines, Lufthansa, and WestJet all got new CEOs last week. Austrian named Annette Mann, who currently heads corporate responsibility at the Lufthansa Group, CEO from March 1. She will be one of just a the few female CEOs at airlines, and joins Cape Air‘s Linda Markham stepping into the top spot in 2022. Mann replaces Alexis von Hoensbroech who departs Austrian to become CEO of WestJet where he starts sometime in the first quarter pending approval of a Canadian work visa. Von Hoensbroech replaces Ed Sims who retires at the end of this year.

    And at Lufthansa, the airline not the group, Jens Ritter will become CEO on April 1. Ritter, currently CEO of the group’s budget arm Eurowings, replaces Klaus Froese, who will return to being a line pilot and fly the Boeing 787 for Lufthansa. The group has yet to name a new chief at Eurowings.

Madhu Unnikrishnan and Edward Russell

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Sky Money

Delta Air Lines is investing up to $1.2 billion in three of its foreign airline partners — Virgin Atlantic, Aeromexico, and Latam Airlines Group — as those carriers emerge from bankruptcy and restructuring. The move is a sign that Delta is betting that its pre-pandemic international expansion plan is a winner as travel emerges from the Covid-19 pandemic.

Delta, in a filing with the U.S. Securities and Exchange Commission (SEC), said it aims to have a 20 percent stake in Aeromexico, a 10 percent stake in Latam, and maintain its 49 percent stake in Virgin Atlantic as each airline emerges from restructuring. Latam and Aeromexico recently submitted their restructuring plans as they begin to exit the U.S. Chapter 11 bankruptcy process; Virgin Atlantic began restructuring in the UK last year.

“Throughout the pandemic, Delta has continued to invest in our future, including new aircraft orders, accelerating real estate projects and putting significant resources into health and safety measures to protect our employees and our customers,” said Executive Vice President and Chief Financial Officer Dan Janki said in the carrier’s filing. “Similarly, investing in our partners now — even as we continue to navigate the pandemic — is the right choice to support Delta’s long-term strategy.”

Delta did not specify how much it would invest in each carrier. However, at Aeromexico and Latam, which are separately restructuring through the U.S. Chapter 11 bankruptcy process, it is taking steep cuts to its equity stakes. Prior to their restructurings, Delta had a 51 percent stake in Grupo Aeromexico — or a 49 percent voting share to keep with foreign control restrictions — and a 20 percent stake in Latam. Delta’s reiteration of its support for its Latin American partners comes after several challenges to its equity positions in the airlines, including from creditors at Aeromexico — since settled with Delta retaining a 20 percent stake — and an aborted takeover bid by Azul for Latam.

At Virgin Atlantic, the airline said it is getting £400 million ($530 million) from both the Virgin Group and Delta. The Virgin Group will contribute 51 percent of the total, while Delta will kick in the remaining 49 percent. The new funds will go toward paying down debt and increasing Virgin Atlantic’s liquidity, the airline said.

Virgin Atlantic partners with Delta, as well as Air France and KLM, in the lucrative transatlantic market. Bookings soared after November 8, when the U.S. reopened to vaccinated travelers, and bolstered by strong demand, Virgin Atlantic now expects to be profitable by 2023.

The pandemic did already ailing Virgin Atlantic no favors, raising questions about its very survival. By the time it began restructuring in the UK last year, it had laid off thousands of employees, retired its fleet of iconic Boeing 747-400s, pared back its route network, and ended operations at London Gatwick, which had been one of its most important airports.

“Our story has been well documented during the pandemic,” Virgin Atlantic CEO Shai Weiss said in a statement. “Throughout, our shareholders Virgin Group and Delta Air Lines, and our creditors, have been a source of unwavering support.” 

“Virgin Atlantic’s business has transformed, allowing them to emerge from the pandemic a stronger airline,” Delta CEO Ed Bastian added. “Together, more customers will be able to take advantage of the many benefits our strategic partnership offers, including a route network serving more than 350 cities in North America, Europe and the UK.”

Madhu Unnikrishnan

Finance Briefs

  • The New Zealand government has raised its financial support to Air New Zealand to NZ$2 billion ($1.4 billion) from NZ$1.5 billion. The revised package includes NZ$1 billion in non-voting redeemable shares that the airline can issue as equity, and a NZ$1 billion secured loan facility due in 2026. The carrier plans to exercise the former through an equity raise in the first quarter of 2022. As of December 14, Air New Zealand had drawn NZ$505 million from the loan facility, and planned to increase that to NZ$900 million in February or March.
  • Air France-KLM has repaid €500 million ($562 million) of the €4 billion in state-backed pandemic aid it borrowed from nine banks. The group cited an “early signs of a recovery of the worldwide air traffic” for the move. In addition, the group agreed to modified repayment terms for the remaining €3.5 billion with €800 million due in May 2023, €1.35 billion in May 2024, and a final €1.35 billion payment in May 2025.

Edward Russell

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State of the Unions

U.S. airline CEOs last week agreed that federal mask mandates were no longer needed during a contentious Senate hearing that veered off its mission of evaluating federal payroll support for the industry.

“The case is very strong that masks don’t add much in the air cabin environment,” Southwest Airlines CEO Gary Kelly told lawmakers during a Senate Commerce, Science, and Transportation Committee hearing last week. “I concur,” American Airlines CEO Doug Parker added.

Instead, the witnesses, which in addition to Kelly and Parker included United Airlines CEO Scott Kirby and Delta Air Lines commercial chief John Laughter, touted the advanced ventilation systems on modern aircraft, which change the cabin air as many as 30 times per hour. Aircraft cabins, in fact, refresh cabin air more often than hospital intensive care units, Kirby added. Cabin air is safer, in terms of Covid-19 transmission, than any other indoor venue, because not only is it refreshed but it is more thoroughly filtered, the executives said.

Parker did not intend to cast doubt on the federal mask mandate, American later said in a statement provided to Airline Weekly, and his written testimony to the Senate committee expressed the airline’s support for the federal mandate.

And confounding the situation, Kelly tested positive for Covid-19 on two days after the hearing.

Sara Nelson, president of the Association of Flight Attendants, advocated in favor of continued masking, telling lawmakers that masks offer an additional layer of protection on top of the cabin air filtration systems. “I believe the government has taken a very responsible approach to this,” Nelson said. “We look forward to the day when we can vaccinate the world.”

And it was on that issue that the sparks began to fly. A trio of Republican senators — Ted Cruz of Texas, Rick Scott of Florida, and Marsha Blackburn of Tennessee — hammered Kirby on United’s strict vaccine requirement, which the carrier imposed in August. United’s policy requires all employees in customer-facing roles to be vaccinated. United does consider exemptions, but will move employees from customer-facing roles to other jobs if they are not inoculated.

Cruz called United’s policy “deeply disturbing” and said the airline showed a “callous disregard for pilots,” and claimed many pilots and flight attendants have complained to him about the policy. Scott piled on, questioning whether the airline “respects employees’ religious beliefs.” And Blackburn noted that it seemed unwise for United to terminate employees when the airline industry is facing a labor shortage.

Kirby refused to back down in the face of this onslaught. “My number one priority is safety,” he said. “Safety is not just our North Star, it’s the only star that guides us on our vaccination policy.”

“I made the decision for United that getting everyone vaccinated has saved lives,” Kirby said. About 200 employees left United over the vaccine mandate, out of a U.S. workforce of more than 70,000 employees. Six of those were pilots, and an additional 80 pilots are on unpaid leave.

Delta has imposed a $200 health-insurance surcharge for unvaccinated employees, while Southwest and American are requiring vaccines to comply with the Biden administration’s vaccine mandate for federal contractors, which is currently snarled in federal courts. All three have reported high employee vaccination rates, but they eluded the fury from Cruz, Scott, and Blackburn.

Not all lawmakers appreciated the Republicans’ outrage. “I am absolutely tired of this,” said Sen. Gary Peters (D-Mich.) “No one has the right to spread disease around.”

Peters and a bipartisan group of senators questioned why the airlines, after receiving more than $50 billion in federal aid, have trimmed flights to smaller cities. The simple answer is a pilot shortage. Regional airlines have faced a looming pilot shortage for a decade, since the federal government imposed stricter training requirements in the wake of the Colgan Air crash in Buffalo, N.Y. in 2009. “During the pandemic, it became a shortage,” Kirby said, adding that United has had to ground 100 regional aircraft due to a lack of pilots.

“It’s going to be an issue for us to serve smaller communities unless we can find enough pilots for the regional airlines,” Parker said.

Sen. Tammy Baldwin (D-Wis.) referred to Kirby’s appearance at the Skift Aviation Forum on November 17, where he said there was no logical replacement for the 50-seat regional jet on some routes. “We are all on board with increasing supply [of pilots],” Baldwin said.

But increasing federal Essential Air Service funds, which subsidize routes to smaller cities, is not the answer. Both Parker and Kirby argued for using those funds to help offset pilot training costs. It can cost an aspiring pilot as much as $150,000 to be certified to fly for an airline, and those costs are not eligible for federal student loans. “Finding creative ways to finance pilot education is the only way we can support these small communities,” Kirby said.

Labor in general has been a pain point for the airline industry as it recovers from the pandemic. Airlines offered tens of thousands of employees voluntary separation or extended leaves of absence when demand plummeted at the pandemic’s outset. But they have been struggling to staff up ever since demand started to rebound during the summer. Kelly noted that Southwest has raised wages for entry-level airport employees but finds itself competing for talent with other industries. “It’s a difficult hiring environment,” he said. “Absenteeism is higher, more people are on leave, attrition is a bit higher — when you add them all together, it’s a different working environment than it was before the pandemic.”

And this, ostensibly, was the point of the hearing before it took a turn toward divisive issues like vaccine and mask mandates. Senators wanted to see if the billions in federal payroll support was money well spent. They asked the airline leaders why despite all that federal aid, airline still struggle with service disruptions and cancelled flights.

The problem isn’t that the aid was not well spent, Parker pointed out. It was that airlines didn’t have enough people on staff to handle the resurgence of demand. “We don’t have the ability to recover quickly [from bad weather and delays,” Parker said. “I think it will pass; it’s a different environment.”

But everyone — senators and industry witnesses — was in agreement that the federal Payroll Support Program (PSP) was worth it, despite the occasional hiccough. “Without [payroll support] we likely would have had to shut down the airline till demand returned, which was probably earlier this year when vaccines became available,” Parker said. “That would have been cataclysmic,” both for the industry and for the country, he added.

Kelly was more to the point. “I can sum up PSP in two words: It worked.”

Madhu Unnikrishnan

In Other News

  • JetBlue‘s cabin crew employees, represented by the Transport Workers Union (TWU), ratified their first five-year contract. Talks began in 2019, after cabin crew employees voted to join the TWU, and the new deal includes wage and benefits increases and more time off, among other measures, TWU said. “As of today, our JetBlue inflight crew members are no longer ‘at-will’ employees of the carrier, but union workers whose employment is secured by an enforceable collective bargaining agreement,” TWU President John Samuelsen said in a statement.
  • Incoming American CEO Robert Isom will have several new members on his management team, and some current members are getting promotions. The biggest news is that Elise Eberwein, the long-time head of human resources/people at both American and US Airways, is retiring. She will be replaced by Cole Brown. In addition and among the changes, Derek Kerr will now be vice chair, chief financial officer, and president of American Eagle.

Madhu Unnikrishnan

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Fleet

  • Airbus won, and Boeing and Embraer lost. That’s the takeaway, after Qantas signed an agreement in principal with the European airframer for 20 A321XLRs and 20 A220-300s. The deal, said to be the largest aircraft order in Australian history, also includes options for 94 aircraft over a 10-year delivery window. Including a previous Jetstar A320neo order, Qantas will have 299 orders for Airbus aircraft across all of its subsidiaries.

    The carrier said the A321XLRs will be pressed into service on the Sydney-Melbourne-Brisbane triangle as well as on routes in the region. The aircraft will replace Qantas’ fleet of Boeing 737-800s and 717s. In choosing the order, Qantas said it evaluated both the 737 Max and the E190/195-E2.  “When you multiply even small benefits in areas like range or cost across this many aircraft and over the 20 years they’ll be in the fleet, Airbus was the right choice as preferred tenderer,” CEO Alan Joyce said.

    Separately, Qantas’ 2022 outlook got a lot rosier, despite the lockdowns and ensuing slump in demand caused by the Delta variant. The carrier still expects to lose money in the fiscal first half — of between A$250-300 million ($180-216 million) — but it has paid down net debt to A$5.7 billion and has A$4.2 billion in liquidity as it ends the fiscal year. Domestic capacity in the fiscal third quarter next year is expected to be 102 percent of 2019, rising to 117 percent of 2019 in the fiscal fourth quarter.
  • The same Airbus won, Boeing lost story also played out in Europe. Air France-KLM unveiled a commitment for up to 160 A320neo and A321neo aircraft for its KLM and Transavia subsidiaries, flipping both from the Boeing 737. The deal includes 100 firm aircraft with deliveries from the second half of 2023. KLM and Transavia operated 136 737s at the end of September. The deal also includes a letter of intent for up to eight Airbus A350 freighters.
  • Singapore Airlines also jumped for Airbus’ new freighter last week. The carrier signed a letter of intent for seven A350Fs type, with expected delivery in the fourth quarter of 2025. The new freighters will replace Singapore’s fleet of Boeing 747-400Fs.
  • Fresh out of its U.S. bankruptcy restructuring, Avianca has signed a lease for five Airbus A320neos with CDB Aviation. The aircraft are due in 2022 and 2023, and will help the Bogotá-based meet its target of roughly 125 passenger aircraft by the end of 2023. Avianca roughly 100 passenger aircraft when it exited Chapter 11 on December 1, and no deliveries from its 90-aircraft strong — 88 A320neo family jets and two Boeing 787-9s — orderbook until 2024.
  • U.S. startup Breeze is fulfilling its ambitions to fly the Airbus A220 (an aircraft founder David Neeleman said before the carrier’s launch would be critical to the airline’s expansion plans). Breeze has taken delivery of the first of 80 A220-300s with 14 financed through a sale-and-leaseback deal with lessor AerCap. The lessor will deliver the aircraft through next year and 2023.
  • Canadian startup Flair Airlines has leased another 14 Boeing 737-8s, which will expand its fleet to 30 aircraft by the middle of 2023. The carrier did not disclose the lessor, however, its private equity backer 777 Partners ordered 30 more 737 Maxes — for total commitments of 68 aircraft — earlier in December. Flair operates 12 Maxes, and plans to fly 20 by next summer.
  • Meanwhile, Air Lease Corp. is placing two Airbus A350-1000s with Virgin Atlantic. The lessor will deliver the aircraft in 2023-2024.  “ALC’s long history with the airline has been focused on fleet transformation and modernization, and these two new aircraft will add to Virgin Atlantic’s growing A350 operations and commitment to sustainable travel,” ALC Executive Chairman Steven Udvar-Hazy said.
  • Staying with Air Lease Corp., the lessor is helping fuel expansion at Air Caraïbes and FrenchBee (both part of Groupe Debreuil Aero). Each carrier is getting one new A350-1000.

Edward Russell & Madhu Unnikrishnan

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Landing Strip

  • Los Angeles International Airport is moving forward with the eight-gate Midfield Satellite Concourse South, or MSC South — a short-term solution to add gates and reduce the number of flights where passengers must use a bus at the airport. Work on the facility, which is an extension of the West Gates at Tom Bradley that opened in May, could begin by the end of 2022. The concourse is slated to open around August 2024.
  • Across the country in New York, authorities made strides on more than $11 billion worth of projects at both JFK and LaGuardia airports. At JFK, the state and Port Authority finalized a $9.5 billion, 40-year concession for a 23-gate New Terminal One last week. Work on the facility, which will be situated on the site of Terminal 1, 2, and former 3 at JFK, is due to begin in 2022 and the first phase opening in 2026. The concession holder, the NTO consortium, includes financing by Carlyle, JLC Infrastructure, and Ullico, with Munich Airport International and CAG Holdings responsible for operations; the terminal was designed by Gensler.

    To make way for the New Terminal One, Delta Air Lines and local officials broke ground on a 10-gate, 150,000 square foot expansion of Terminal 4 at JFK. The $1.5 billion facility, which is due to open in late 2022 or early 2023, will allow Delta to consolidate its JFK operations in Terminal 4, and the subsequent demolition of Terminal 2. Delta and Terminal 4 operator JFK International Air Terminal are financing the project.
  • And across Queens at LaGuardia, the private consortium LaGuardia Gateway Partners opened the second phase of the new Western Concourse connected to Terminal B. American Airlines uses the majority of gates in the concourse.

Edward Russell

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Routes and Networks

Travelers looking for a vacation in Palma de Mallorca, Rome, or St. Louis will have new longhaul flight options next summer. Those are just three of the growing list of leisure-oriented destinations that the likes of Lufthansa, Qantas, and United Airlines are betting will be in demand despite continuing uncertainty over the trajectory of the Covid-19 pandemic.

With the start of the IATA summer season less than four months away, global airlines are publishing what amount to dream schedules for summer 2022. These include the aforementioned new destinations as well as numerous new routes and frequency additions that aim to take advantage of what many hope will be robust longhaul international demand, particularly across the North Atlantic. But the operative words here are “dream” and “hope”: Covid-19 has proved time and time again to be unpredictable, with the Omicron variant the latest setback. It’s anyones guess what the status of the pandemic will be six months from now.

“It’s a lot easier to announce, and have [flights] in place and cancel, then it is to try to quickly do it the other way,” said MKM Partners airlines analyst Conor Cunningham. “It’s all about planning — [airlines are] trying to plan.”

And plan they are.

  • American Airlines will connect Doha and New York JFK from June 7; however, it is also cutting Edinburgh, Hong Kong, and Shannon citing Boeing 787 delivery delays.
  • British Airways will land in Portland, Ore., on June 3, almost two-years later than planned before the pandemic.
  • Delta Air Lines loaded a return to Stockholm from New York JFK in June after a nearly five-year hiatus.
  • Finnair will add Dallas/Fort Worth and Seattle to its map in February and June, respectively.
  • Lufthansa will connect St. Louis and Frankfurt from June — aided no less by up to $5 million in local incentives — plus Rio de Janeiro and San Diego to Munich from late March.
  • Icelandic startup Play will begin flights to Baltimore-Washington and Boston from its Reykjavík base on April 20 and May 11, respectively (more below).
  • Qantas return to Rome from June through October after 18 years with one-stop service from Sydney via Perth.
  • Swiss will go double daily to Boston, Chicago O’Hare, and New York JFK from Zurich through the summer.
  • United will connect Amman to Washington Dulles, and Bergen and Punta Delgada to Newark from May; and Palma de Mallorca and Tenerife to Newark from June. All five are new destinations for the carrier.

Airlines typically need 60-90 days to market and sell and new destination or route. Though the lead time is shorter when resuming a previous route, such as when U.S. airlines rapidly resumed some of their European services last summer as the EU dropped restrictions on American travelers.

However, even with additions, Europe-U.S. capacity is scheduled to be almost 12 percent lower from June through August 2022 compared to the same period in 2019, according to Cirium schedules. The decline is almost entirely driven by the exit of several carriers, most prominently Norwegian Air, which shed its long-haul operation during the pandemic. Excluding Norwegian, transatlantic capacity will only be down just roughly 5 percent year-over-three-years. Schedule data does not include Play’s new U.S. routes or Norse Atlantic Airways‘ planned service.

“You don’t want to be the airline that’s really conservative about summer, and then the summer turns out to be great,” said Ailevon Pacific Managing Director Brad DiFiore. He agreed that it is easier for airlines to pare back schedules than to add flights quickly if demand is strong.

IATA estimates that transatlantic passenger traffic will recover to roughly 65 percent of 2019 levels next year.

Another factor at play is the availability of longhaul fleets. By most estimates, the international travel recovery to Asia is about a year behind the transatlantic market. The exceptions being Australia, which began reopening in November, with Qantas seeing strong pent-up demand, and Singapore with its vaccinated travel lanes. That still leaves a lot of the region largely closed off to international travelers, and the airlines with sizable operations into Asia — like Finnair and United — with idle planes. Lufthansa, for example, is deploying some of the new Airbus A350s it acquired this year on its new routes from Munich while it awaits Asia and other regions to reopen.

“It seems like the transatlantic market is going to be an anchor market for airlines in 2022,” Campbell-Hill Aviation Group Vice President Howard Mann said. He described the Europe-U.S. market as one of the “lowest risk” longhaul markets, particularly when compared to flying to Asia, to deploy aircraft next year.

In addition, the airline route planning calculus of 2022 is not the calculus of 2019. Many forecast robust leisure demand, including from premium leisure travelers who are willing to pay more for posher seats on planes, while business travel demand remains down significantly, particular on international routes. This likely demand mix has airlines favoring spots popular with holidaygoers — like Lufthansa’s new San Diego nonstop or United’s to Palma de Mallorca, both of which are sunny beach destinations — for next summer.

Edward Russell

BA Unveils 35 Euroflyer Routes

British Airways is on the defensive with its new BA Euroflyer subsidiary at London Gatwick. In the works for some months, the new Gatwick-based subsidiary will launch 35 new routes between March and May taking aim at EasyJet‘s dominance of the secondary London gateway. In November, EasyJet CEO Johan Lundgren said that, with the addition of slots leased — ironically — from BA, “more than half of the capacity from Gatwick will be orange” in summer 2022.

Euroflyer’s new routes take direct aim at EasyJet. Of the 35 markets unveiled, all but two — Paphos in Cyprus, and Santorini in Greece — are served by orange jets, according to Cirium schedules. Most of the markets are leisure destinations in and around the Mediterranean with notable exceptions, including Amsterdam, Berlin, Madrid, and Milan Malpensa.

“Gatwick customers will benefit from access to a premium service from the UK’s flag carrier at competitive prices,” said BA CEO Sean Doyle, indicating the airline is betting on its premium brand to attract travelers from budget competitors.

EasyJet management, for its part, came off unconcerned in November about the new BA subsidiary that at the time was only confirmed as in the works. While noting that the airline cannot be “complacent,” Lundgren said that, on the whole, EasyJet is in a “good position” on costs compared to legacy competitors.

Euroflyer will operate as a lower-cost subsidiary under the BA brand. Initially, flights will be operated by BA until the carrier secures its own air operators certificate from UK authorities. Euroflyer will launch with three Airbus aircraft in March, and grow to 18 by the end of May.

Edward Russell

Play Goes to Boston and Baltimore in First U.S. Routes

Icelandic startup Play has chosen its first U.S. destinations: Baltimore-Washington and Boston with flights set to launch on April 20 and May 11, respectively. The carrier, which got its U.S. Transportation Department permit in October, expects to reveal a third North American destination early next year, although it has not determined if that will be in Canada or the U.S.

“Covid is a huge opportunity for startups,” Play CEO Birgir Jonsson said. “In fact, I think it’s a perfect opportunity for this business model,” he added. The carrier plans to focus squarely on the price-sensitive leisure market and keep its fleet to narrowbodies, namely the Airbus A320neo and A321neo. Jonsson sees huge potential in low-cost demand to Europe, especially next summer after two years of lockdowns and travel restrictions.

This marks a change from now-defunct Icelandic low-cost carrier, Wow, where many of Play’s executives — including Jonsson — worked. Wow branched out into Airbus A330s and started flying to the U.S. West Coast, Israel, and India. This is not in Play’s plans, Jonsson said. “Wow grew too big,” he said. “When you have that kind of size, you are pressed into flying to destinations to feed other parts of your hub-and-spoke system, and then you have drop prices and fly below costs.”

Other low-cost, long-haul carriers, like French Bee and its fleet of Airbus A350s and Norse Atlantic‘s planned North America flights on Boeing 787s, may struggle to fill their aircraft. Widebodies limit the destinations a startup can serve profitably, Jonsson said. “That’s a tough market, I would say,” he said.

Play now flies three A321neos on routes around Europe, and by next spring will add three A320neos. The A321neos will then be pressed into transatlantic service. By the end of 2025, Jonsson said Play will have a fleet of 15 aircraft: nine A320neos and six A321neos. The additional A321neos will allow Play to open further East Coast and Canadian destinations, although Jonsson declined to offer details on what cities are in the airline’s sights.

Reykjavik will function as a hub for Play, with passengers from Baltimore and Boston funneled through the airport to flights to up to 22 European destinations. The carrier’s route network is a mix of European point-to-point flights, with the U.S. flights expected to be a blend of connecting passengers and passengers who originate or end their journeys in Iceland. “We do not have to rely on any one source [of passengers],” Jonsson said. “The flexibility of the business model is perfect for this type of uncertainty.”

Jonsson is not concerned about the masses of new capacity airlines are planning to add to the North Atlantic market next summer. Play’s value proposition are low fares and easy connections to Europe. And he believes there is a niche for that around the margins of the larger carriers’ capacity. “It doesn’t matter how big Play or even Icelandair get,” he said. “We will only ever be tiny players in the market.”

Play assumes a large proportion of inbound U.S. passengers will end their journeys in Iceland. Before the pandemic, the country of 400,000 people saw 2.5 million tourists annually. Although overtourism is a concern, Jonsson said there hasn’t yet been the kind of backlash seen in other popular European destinations, like Venice. “Iceland as a destination is still in its infancy,” he said. “There is so much potential for growth, and our investors are betting on this.”

“Fifteen years ago, you would have been considered a weirdo for opening a hotel in Iceland,” Jonsson noted. “Tourism now is the second- or third-largest source of revenue for Iceland, and we have to realize we are a destination; that’s our business.”

Madhu Unnikrishnan

Virgin Australia Swaps Delta for United

Virgin Australia is swapping U.S. partners a year out from its restructuring. The carrier, which shed its widebody jets and longhaul operation as part of the exercise, will tie the knot with United after breaking up with long-time partner Delta. Virgin and United will implement a broad codeshare, which includes reciprocal loyalty benefits, in April. The move comes more than a year after Delta and Virgin suspended their Australia-U.S. joint venture following the latter’s exit from the market.

“Virgin Australia customers will have significantly more options for travel from Australia to the States, with more than three-times as many services available to them, which is great news for Australian travelers,” said Virgin CEO Jayne Hrdlicka.

Prior to the pandemic, United operated more than four-times the flights between Australia and the U.S. than Delta, Cirium schedules show. Routes included Melbourne to Los Angeles and San Francisco; and Sydney to Houston, Los Angeles, and San Francisco. And for a shorthaul only Virgin — the airline served Los Angeles from Brisbane, Melbourne, and Sydney prior to its restructuring — feed into Australia is key; Delta only flies Los Angeles-Sydney.

United is flying to Sydney from Los Angeles and San Francisco today, and plans to resume Sydney-Houston service plus nonstop flights to Melbourne later in 2022.

The shift in allegiance comes a little over a month after Australia began easing border restrictions. That easing has led to a surge in international bookings, including to the U.S. where Virgin competitor Qantas plans to resume flying its superjumbo Airbus A380s next year. In October, United CEO Scott Kirby named Australia, along with Singapore, as the markets that would drive the recovery of the carrier’s Pacific network in 2022.

The Virgin-United partnership is a bit of return to form for both airlines. They codeshared on select flights from 2004 to 2009 when the former was still known as Virgin Blue, according to Cirium.

Edward Russell

Route Briefs

  • Aer Lingus has contracted Emerald Airlines to fill the gap in its regional network left by the collapse of Stobart Air earlier this year. Emerald, operating under the brand Aer Lingus Express, will launch 11 routes from Dublin with ATR 72-600 aircraft. The affiliate will add new service to Exeter; resume flights to Isle of Man, Jersey, Leeds Bradford, Newcastle, and Newquay; and complement existing Aer Lingus service to Birmingham, Bristol, Edinburgh, Glasgow, and Manchester. Emerald will also begin flights from Belfast with routes to be announced in the new year.
  • AirBaltic is making good on its plans for a new Nordic base. The Latvian carrier selected Tampere, Finland, for its first base outside of the Baltics. AirBaltic will connect Tampere to Copenhagen, Frankfurt, Malaga, Munich, Oslo, and Rhodes from the beginning of May. The new routes complement the airline’s existing service between its Riga home base and Tampere. In October, AirBaltic CEO Martin Gauss said the new base would be supported by the arrival of eight additional Airbus A220-300s by end-2022.
  • American and JetBlue Airways continue to defend their controversial Northeast Alliance with new flights. The former has unveiled five new routes from Boston for next summer: Halifax, Louisville, Memphis, Pensacola, and Traverse City all on Embraer E175s from June. In addition, JetBlue will start its previously announced new routes between Boston and Vancouver on June 9; Boston and Asheville, and New York JFK and Vancouver on June 16; and New York LaGuardia and Portland, Maine, on July 9. The new routes come after American announced its exit from 20 Boston, JFK, and LaGuardia markets in November.
  • Copa Airlines is hitting back against Delta after the latter’s expansion in Panama City. Copa began four-times weekly service between Atlanta and the Panamanian capital with a Boeing 737-800 last week. The addition comes just days before Delta launches new service between Panama City and Los Angeles, New York JFK, and Orlando — all routes served by Copa.
  • Speaking of Delta, the SkyTeam Alliance carrier is exiting three smaller markets amid a growing U.S. regional plot shortage. Delta will exit Grand Junction, Colo., and Lincoln, Neb., on January 9, and not resume seasonal flights to Cody, Wyo., on April 11, Cirium schedules show. All three cities will maintain commercial air service on other airlines.
  • Lufthansa will add five new destinations as part of a nine route European expansion aimed at leisure travelers next summer. Brindisi, Kalamata, Liverpool, Rennes, and Stavanger will join the Star Alliance carrier’s map with the first two served from Munich — Brindisi will be operated by subsidiary Air Dolomiti — and the latter three from Frankfurt. Lufthansa will also connect Munich to Bergen, Billund, Menorca, and Varna in its summer 2022 schedule.
  • Spirit Airlines will land in Memphis this spring. The discounter will connect the home of Graceland to Las Vegas and Orlando from April 20, and to Los Angeles from June 8. Spirit faces competition on all of its new routes from Allegiant Air, Delta, Frontier Airlines, and Southwest Airlines.
  • Showing its confidence in summer 2022 demand, Swiss will add five new destinations and six new routes to its map. The Star Alliance carrier will connect Zurich to Bologna, Nantes, Sofia, Odessa, and Vilnius — all new additions — plus Geneva to Brussels in its schedule next summer. Swiss plans to operate 80 percent of its 2019 capacity by the third quarter of 2022.
  • Transavia France is adding two new Greek routes next summer. The budget carrier will connect Paris Orly and Kefalonia twice weekly from April 23, and Montpellier and Mykonos weekly from June 1. Transavia will fly roughly 60 percent more capacity to Greece in summer 2022 than it did three years earlier.

Edward Russell

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