Issue No. 853

The Cost of War

Russia's Invasion of Ukraine Will Reorder The Global Airline And Aerospace Industries

Pushing Back: Inside The Issue

In the 30 years since the Soviet Union collapsed, the world aerospace and airline industries have gone truly global. Remember when Aeroflot flew a motley collection of aging Tupolevs and Ilyushins, and not the new Airbus A350s and Boeing 777s it flies today? Remember when flights to Asia had to make a tech stop in Anchorage? Perhaps we all grew a little too confident that the world had been truly knitted together since 1991. The week-old Ukraine war has disabused us of this notion.

Global aviation has not been set back to 1991. But many things we took for granted are gone, likely for a good long time. Relatively short flying times to Asia were a casualty of Russia closing its vast airspace to European airlines. Finnair and Lufthansa have said the new routings will add 2-4 hours to their Asia flights, although modern aircraft probably won't need that tech stop in Anchorage. Oil prices are spiking to levels not seen since 2014, just when the airline industry is recovering from two years of Covid-19. Aeroflot flights are taking circuitous routes to the Caribbean to avoid Canadian and U.S. airspace. Although Russians' ability to travel isn't restricted for now, getting to Europe or North America will now require at least one stop along the way. How they will pay for their trips and expenses once they get there is an open question, thanks to the strict sanctions on Russian banks and the Russian government's currency controls.

But further turmoil awaits. EU sanctions on Russia prohibit the sale of aircraft and parts to Russian airlines. Airframers and suppliers have said they will stop supporting aircraft in Russia. And even more worryingly, more than 700 of Russia's 950 or so Western aircraft are leased, and lessors have until March 28 to repossess their aircraft, and Russia's government has ordered its airlines to halt international flights to avoid repossession. Russia's domestic market had been a pandemic-era success story, with 24 percent more traffic last year than in 2019. It's very likely this robust market will grind to a halt in the coming weeks as aircraft require maintenance and parts inventories run down, and especially if Russian airlines comply with the sanctions and return their leased aircraft. Distribution systems are booting Russian airlines from their platforms. And moreover, Russia's economy is in free fall and expected to plunge even further in the weeks ahead, so will passengers even have the financial wherewithal to travel domestically, even if Aeroflot could dust off its Ilyushins and Tupolevs?

Meanwhile, the airline world marches on. The U.S. pilot shortage is forcing carriers, like United, to rationalize their networks, but could present an opportunity to startups like Avelo. Lufthansa thinks the premium leisure trend will hold and is adding new cabins to some of its aircraft. And Ryanair is planning more summer capacity than it operated in 2019.

The Airline Weekly Lounge Podcast

This week in the 'Lounge, Edward "Ned" Russell and Madhu Unnikrishnan discuss the war in Ukraine and many of the ways airlines and aerospace will feel the fallout. They then chew over how the pilot shortage continues to take its toll on U.S. carriers' summer plans. Listen to the episode, and go here for a full archive of the podcast.

Special Section

President Joseph Biden’s State of the Union announcement last week that the U.S. is closing off its airspace to Russian aircraft topped off a week of extraordinary upheaval in global aviation that shows no signs of settling down. The repercussions for the industry have spread far beyond the conflict zone, potentially setting back airlines’ planned recovery from the Covid-19 pandemic by months if not years.

With the U.S. airspace closure, which went into effect on March 2, Russian aircraft are prohibited from flying over almost 40 countries, including the 27 members of the EU, the UK, and Canada. Russia retaliated with its own airspace closures, directly affecting Europe-Asia flights. Several carriers, including Air France-KLM, Finnair, and the Lufthansa Group have cancelled flights to North Asia, while flights to Southeast and South Asia are being rerouted to avoid Russian airspace. Lufthansa said North Asia flights likely will take two hours longer on their new routings. After an initial suspension, Finnair will resume flying to Tokyo Narita on March 9, but the new flight path adds more than three hours of flying time, the carrier said.

Currently, traffic to Asia remains depressed due to ongoing Covid-19 travel restrictions. But as traffic between Europe and North Asia recovers, Chinese carriers, not subject to Russian airspace restrictions, could reap a competitive advantage, especially if flight times are significantly shorter on their routes.

Finnair and Wizz Air have both warned investors of financial implications from the Russian invasion and subsequent airspace closures. The former, in addition to suspending flights to North Asia, suspended its guidance for the first half of 2022, and CEO Topi Manner said the “situation has a considerable impact on Finnair.” In 2019, nearly half of Finnair’s capacity was flying to or from Asia, per Cirium schedules.

Wizz expects the closure of Moldovan, Russian, and Ukrainian airspace to “slightly” increase its forecast operating loss in the March quarter. The discounter is the only EU carrier with bases in both Russia and Ukraine, which amounted to roughly 7 percent of its schedule in March.

“I think it’s the worst you can have as an airline when you have to deal with a war,” AirBaltic CEO Martin Gauss said on February 28. The Latvian airline is less affected than either Finnair or Wizz but Gauss said it does expect some financial impact from the airspace closures, and run-up in oil prices since the invasion.

And for U.S. airlines, Biden’s announcement is less dramatic. Beginning last week, flights to India and Southeast Asia were rerouted to southern flight paths, adding about an hour to most of those flights. U.S. airlines can fly over Anchorage for North Asia routes, particularly from the West Coast.

But the war’s impact on Russian airlines is immeasurably worse than it will be for Western carriers.

Turmoil Just Starts For Russian Airlines

Data from FlightRadar24, an airline tracking site, show the circuitous flight paths Aeroflot flights from the Caribbean must now take to avoid Canadian airspace. And they have not always been successful. NavCanada, which manages Canadian airspace, is investigating two airspace violations by Russian aircraft en route from the Caribbean to Russia. An Aeroflot flight last week en route from Moscow to New York turned back to Moscow four hours into the flight after Canada closed its airspace. The industry expects Caribbean flight paths will only get more circuitous as the U.S. closure goes into effect.

Meanwhile, Russian airlines are completely cut off from Europe and the UK. Of the approximately 130 flights that operated between the London and Russia in January, half were flown by Aeroflot, with only about 30 flown by British Airways and the balance operated by smaller airlines from the Russian Federation, Cirium data show. Aeroflot has continued to operate to neighboring countries, like Azerbaijan and Turkey, and to countries in Asia, like China, that have not restricted its overseas operations. In practice, Russian citizens are not completely disconnected from international travel. They can access destinations in Europe and elsewhere by flying via Turkey or Dubai, and other Middle East hubs.

But the turmoil is only just beginning. Russia’s domestic air travel market has been a rare pandemic-era success story. Demand started to recover in the summer of 2020 and began to surpass 2019 levels, making it one of the few markets in the world where this occurred. Passenger traffic last year was 24 percent higher than in 2019, IATA data show.

But two factors could imperil this success as the war intensifies. First, and most dramatically, could be the shortage of aircraft. Almost 1,000 of Russia’s domestic fleet of 1,300 aircraft are Western-built Airbus and Boeing jets as well as ATR turboprops. Of these, 780 are leased, with about 300 held by Western lessors. The EU’s sanctions prohibit the sale of European aircraft and parts to Russian airlines, and also require lessors to repossess their leased aircraft by March 28.

In a filing with the U.S. Securities and Exchange Commission, the world’s largest lessor, Ireland’s AerCap, said 5 percent of its fleet value is in Russia, and it would immediately cease leasing to Russian airlines. It is by far the most exposed to the market, with more than 135 aircraft in service with Russian airlines, and eight aircraft on order, and 19 in storage, Cowen & Co. analyst Helane Becker wrote in note to investors. Los Angeles-based Air Lease Corp. has 14 aircraft in service in Russia, one on order, and two in storage. BOC Aviation has 24 aircraft in service and two in storage. And SMBC Aviation Capital has 36 aircraft in service in the country and two on order. A clutch of about 20 smaller lessors, both Western and non-Western, make up the rest of Russia’s leased fleet.

Returning aircraft to lessors is a process that usually takes months. It remains unclear if Russian airline will even be able to comply by March 28. But if they do, their ability to serve the once-booming domestic market is an open question. The logistics of returning the aircraft will take the rest of the month and could be a “nightmare,” Becker said.

Meanwhile, the Russian government has ordered carriers to suspend their international networks to prevent lessors from repossessing aircraft.

The availability of spare parts will also become an issue as aircraft in Russia become due for regular maintenance. The EU’s sanctions were specific about aircraft parts. The U.S. sanctions are less so. However, Boeing on March 1 said it would no longer provide aftermarket support for aircraft in Russia. GE followed suit on March 2 and said it would not provide aftermarket support for engines and components in Russia. As airlines in the country run down their inventory of spare parts, keeping aircraft operational becomes more tenuous.

Another factor that will directly affect Russia’s domestic market is the parlous state of the country’s economy. Sanctions imposed by the U.S., EU, UK, Switzerland, Japan, and South Korea, among others, directly target the country’s largest banks and its central bank. The ruble lost more than 30 percent of its value against the dollar in the two days after the sanctions began to take effect. Russia banks have been disconnected from the Visa and Mastercard networks, Apple Pay, and Google Pay. These sanctions will directly affect Russian travelers’ ability to buy tickets and to spend money when abroad. In addition, the Russian government has imposed currency controls and is allowing citizens to take a maximum of $10,000 in cash out of the country.

Russia does have domestic credit systems that can be used for tickets within the country. But with the economy in freefall — the central bank raised interest rates from 9.5 percent to 20 percent — and the currency plummeting, the amount of discretionary income Russians have to buy domestic tickets is imperiled. Data on domestic traffic was not immediately available to assess the short-term impact, however.

Madhu Unnikrishnan & Edward Russell

Global Distribution Systems Cut Off Aeroflot

Amadeus, Sabre, and Travelport said last week they would stop distributing Aeroflot’s tickets to travel agencies. Sabre was the first of the three companies to announce action against the Russian flag carrier in response to Russia’s invasion of Ukraine. The companies run desktop computers used by travel agents to make and handle reservations.

“We are taking a stand against this military conflict,” said Sabre CEO Sean Menke.

While Russian airlines have been banned from North American and Western European airspace, they’ve been able to fly abroad in other directions. Removing Aeroflot from agency platforms made it harder for agents worldwide to book Aeroflot tickets.

Amadeus had the largest share of distribution in Russia, Sabre had the second most, and Travelport had the third most, according to statistics from Travelport that covered the past 12 months and the pre-pandemic year of 2019. For internal domestic flights, travel agents can use Sirena, a Russian distribution player.

The moves came as a stampede of Western companies are feeling pressured to retreat from Russia while that country invades Ukraine.

Not everyone was impressed by the announcements.

“Sabre has left Aeroflot with a fully functioning PSS [passenger service system], enabling it to continue to operate,” said Jonathan Hinkles, CEO of Loganair, which offers scheduled flights on Embraer aircraft in Europe and is a Sabre customer for distribution services.

“In my view, if Sabre was serious about taking action, it would be turning off Aeroflot’s PSS, not just its distribution to the Sabre [global distribution system],” Hinkles said. “It’s a total half-measure at a time when half-measures aren’t enough.”

First, some context: There are broadly three sides to the services the travel tech vendors provide.

One side is their reservation services used by online and retail travel agencies and corporate travel management companies worldwide. Aeroflot has been kicked out of this channel. Agents now need to book directly through those airlines’ websites to buy tickets.

Separately, Amadeus and Sabre, but not Travelport, provide so-called passenger service systems, which help airlines to help run their operations.

“Passenger service, operations, network planning, and management are core automation, commercial, and operating systems, without which airlines cannot function, except minimally and manually,” said Robert Mann, an industry consultant.

Lastly, Amadeus and Sabre sometimes run “central reservation systems” for airlines, helping the airlines take bookings. That is a harder product to shutter, and it is unclear if any airline in Russia uses a Western tech provider for its central reservation system.

“It’s reasonable for GDSs to decide not to sell Russian flights if they so choose,” said Brett Snyder of Cranky Flier. “But it’s a lot harder to make the decision to turn off the airline reservation system. That effectively shuts the company down.”

Some analysts thought any action at this point would be superfluous.

“I give it five to seven days before domestic aviation is grounded,” said Mike Boyd, president of Boyd Group International. “With many planes repo’ed [being reposessed], with Boeing and Airbus suspending the supply of parts, and with passengers being hard up for cash, Russian airlines will mostly stop flying.”

However, Russia might try to follow a policy of carriers grounding two planes to use for spare parts for every plane it kept in service, on average, according to Djois Franklin, CEO of Quicket, a Germany-based seat map data vendor. That policy could keep domestic aviation flying for much longer.

Some analysts noted that legal contracts can make things complicated.

“For example, Amadeus hosts the Russian airline S7,” said Eric Leopold of the aviation consultancy ThreeDot. “Will Amadeus suspend their service, meaning that S7 cannot board their flights? These relations are based on contracts, which are difficult to suspend unless there are clear sanctions to apply.”

“We will not sign any new contracts in Russia and we continue to evaluate our existing portfolio of work in Russia in parallel,” an Amadeus spokesperson said.

“Our immediate focus remains the safety and wellbeing of our colleagues and their families in Ukraine,” the Amadeus spokesperson said. “In light of the attacks on Ukraine, we immediately stopped any new planned commercial projects in Russia. At the same time, we continue to assess and evaluate the potential impact of international sanctions imposed on Russia and any countermeasures by Russia.”

Sean O’Neill

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Weekly Skies

Russia’s invasion of Ukraine will not affect the Lufthansa Group‘s recovery plans, even if airspace closures require the company’s carriers to fly more circuitous routes to Asia. Lufthansa is predicting heavy summer leisure demand, particularly on European short- and medium-haul routes.

Before the invasion, Lufthansa operated only about 2 percent of its systemwide capacity to Russia and Ukraine, CEO Carsten Spohr told investors last week. “It was a small part of our business,” Spohr said. But Asia routes undoubtedly will be affected. Russia closed its airspace to European airlines earlier this week in response to Europe barring Russian airlines from operating in the bloc.

Spohr estimates the southern and western routes to Asia will take about two hours longer than they would have if they could overfly Siberia. But the additional fuel costs probably will be offset by not having to pay Russian overflight fees. Although Spohr declined to detail how much Lufthansa paid Russia in overflight fees, a EU study estimated that European carriers paid about €400 million ($443 million) to Russia in a typical year.

In addition, Lufthansa now is operating only about 20 percent of its pre-pandemic capacity to Asia, due to depressed demand and continuing Covid-related travel restrictions in the region, Spohr said. But Spohr differed from his peers at Air France-KLM and International Airlines Group, who even before the outbreak of war planned to shift aircraft from Asia routes to the transatlantic. The new, longer routes to Asia require more aircraft to operate, so Spohr said the carrier would not divert resources from its Asia network to satisfy increased transatlantic demand.

The war is causing oil prices to spike worldwide, and Lufthansa is expecting fuel costs to rise sharply this year. But the carrier has 74 percent of its first-quarter fuel costs hedged, and for the full year has hedged 63 percent of its fuel, Spohr said.

Analysts believe cargo flights could be most affected by the Russian airspace closure. Spohr dismissed those concerns and said Asia-bound cargo flights may only have to add a refueling stop to carry their maximum payloads. But he predicted maritime shipping will suffer even more setbacks. He cited anecdotal evidence that Russian and Ukrainian merchant sailors are abandoning their ships in harbors around Europe, further snarling maritime transport, which will redound to air cargo’s benefit.

Lufthansa weathered 2021 with a €1.8 billion loss, down sharply from the €5.2 billion it reported in 2020. The company focused on cutting costs. Since the start of the pandemic, Lufthansa has cut its workforce by 30,000 employees, including 10,000 in Germany alone last year.

But this raises a further complexity for Lufthansa. The company is applying for a new air operators certificate (AOC) in Germany to expand its CityLine regional operation. It needs a new AOC in order to absorb pilots who would have been downsized from the mainline, including MD-11 pilots now that the aircraft has been retired. The company needs the new AOC to comply with German labor law, Spohr said, but he anticipates union pushback.

The carrier forecasts strong transatlantic and short- and medium-haul European routes this summer. Lufthansa plans to operate 95 percent of its pre-pandemic capacity on those routes this summer. For the full year, Lufthansa plans to fly 70 percent of its pre-pandemic capacity systemwide, across all the group’s airlines. The booking curve is lengthening out now that the industry has settled from the turmoil the Omicron variant caused at the beginning of the year.

Much of this demand will be for premium leisure. Without divulging specifics, Spohr said premium economy is the most profitable of the carrier’s fare classes, beating even business class. Lufthansa plans to expand its premium economy cabins on its aircraft, and on Swiss and Eurowings aircraft that currently don’t offer the product. When demand returns, Spohr said Lufthansa’s aim is to provide a “premium service” as a differentiator. “We were not always able to deliver the level of service quality we wanted,” he said. “And despite the financial effects of the crisis, we are investing billions to significantly enhance our offers and products once again,” Spohr said.

“This includes a new state-of-the-art premium economy seats that will be introduced before the end of the first quarter, initially at Swiss and any investments in many other products and services on board and on the ground, catering, lounges, digital offerings,” Spohr added.

Lufthansa’s passenger airlines lost money last year, but its other businesses turned profits. Cargo reported a record-setting profit of €1.5 billion. Cargo profits may not be as high when the industry fully recovers, but Spohr believes it will not return to pre-pandemic levels, given the structural shift toward e-commerce and package delivery. Lufthansa’s catering arm turned in a €210 million profit, while Lufthansa Technik was €27 million in the black.

Passenger airlines did not fare as well. The network airlines reported a €3.5 billion loss, and Eurowings was €230 million in the red. Passenger traffic, however, was up systemwide by 29 percent year-over-year. For the full year, Lufthansa reported revenues of €16.8 billion, up 24 percent from 2020.

Madhu Unnikrishnan

AirBaltic Cuts Off Russia Following Invasion of Ukraine

From its base in Latvia on Europe’s doorstep to Russia, AirBaltic has taken quick action in response to the Russian invasion of Ukraine. Select flights were suspended, staff accounted for, and routes adjusted following the closure of Russian and Ukrainian airspace. But quick action does not make the situation any better.

“I think it’s the worst you can have as an airline when you have to deal with a war,” AirBaltic CEO Martin Gauss said last week. But “it doesn’t really matter what the airline thinks and does because it’s about the people,” he added.

AirBaltic has suspended Moscow and St. Petersburg flights indefinitely, and to Kyiv and Odessa until it is safe for the airline to return. Russia made up 2 percent of the airline’s planned capacity in February, and Ukraine nearly 5 percent, according to Cirium schedule data.

“As soon as Ukraine is a free country again, we will immediately re-enter and help to rebuild,” said Gauss. The airline had no staff on the ground when Russia invaded Ukraine on February 24 due to a precautionary decision to not park any aircraft on the ground overnight in the country in the weeks prior.

But Gauss was not as kind to Russia. “Being in a war in Europe, we cannot — and don’t think it’s right — to offer connectivity to Russia,” he said.

AirBaltic is rapidly adjusting to the crisis. It has already revised its 2022 budget for higher fuel prices; Brent crude closed at $118.11 per barrel on March 4, up 51 percent since the beginning of the year, per Bloomberg data. And flights that would typically fly over Russia, including between Riga and Dubai, have been rerouted — though none suspended — which adds cost.

Other European airlines face a heavier toll from the conflict. Finnair has warned that the closure of Russian airspace would have “significant financial impacts” on the carrier that, prior to the pandemic, flew over the country on nearly all of its flights to Asia, which represented roughly half of its system capacity in 2019. And Wizz Air said the closure of Moldovan, Russian, and Ukrainian airspace would affect 7 percent of its planned capacity in March.

Despite Gauss’ concern for the crisis and the people effected, his job remains managing AirBaltic. On that front, the airline continues to look towards its recovery from the Covid-19 crisis. Wweekly bookings were up 377 percent on February 28 compared to 2021, though they had dropped from up 500 percent year-over-year prior to the Russian invasion, he said. Bookings are down roughly 53 percent compared to 2019.

The airline’s other strategic initiatives continue to move forward as well. A planned public stock offering, or IPO, to repay the state aid that AirBaltic received during the crisis, as well as fund future expansion, remains on track for 2023 or 2024, said Gauss. This has been approved by shareholders as the preferred repayment method, and will happen regardless of the geopolitical situation.

In addition, AirBaltic continues to take delivery of new Airbus A220 jets with seven more due this year after the arrival of its 33rd aircraft in February. It has another 10 aircraft on firm order for delivery from 2023, plus options for 30 more. AirBaltic could exercise some of its options to coincide with its IPO, said Gauss.

And a new base in Tampere, Finland, will open as planned in May. AirBaltic will station one aircraft in Tampere and launch six new routes, including to Copenhagen, Frankfurt, and Malaga, at that time. Gauss is optimistic for the operation and listed off reasons for the base, including Tampere being the fastest growing Finnish city with a catchment area of 1 million people — Riga, for comparison, has a catchment of 750,000 people — and its status as a tech center. Top of the list was Finnair’s decision to exit Tampere and serve it with a connecting bus to the Helsinki airport, which Gauss said “brought it on a silver tablet” to AirBaltic.

But even as AirBaltic moves forward with its various strategic initiatives, Ukraine remains top of mind. One concern of Gauss’ is how western media has presented the Baltics as in or near a war zone — he emphasized that Latvia does not share a border with Ukraine — and that could pose challenges for the airline if travelers begin to avoid the region, especially this summer when most European airlines were betting on strong travel demand.

“We are a free country, undisrupted,” he said. “The media is making something out of the Baltics — beautiful nature, beautiful countries, for 30 years independent, having the Euro as a currency. It’s worth visiting.”

Edward Russell

Avelo Finance Chief Sees Opportunity in End of Federal Aid

Generous federal aid to U.S. airlines during the pandemic delayed and deferred the industry restructuring that had just started as the crisis began, startup Avelo Air‘s new chief financial officer says, arguing that as the industry restructures, even more opportunities for new entrants exist.

“I don’t want to use the word ‘disrupt,'” Hunter Keay, who took Avelo’s financial helm on February 23, said. “The [Payroll Support Program] deferred a lot of potential restructuring that we’ll see over the next few years; there will be a few pieces moved around the chessboard.”

Federal aid through 2020’s CARES Act and subsequent coronavirus aid packages required airlines that took the funds to pledge not to furlough or lay off employees, and to continue serving all of their pre-pandemic U.S. destinations except approved exemptions. In practice, most airlines offered voluntary buyouts and separation to employees, and several applied for temporary exemptions to drop service to cities already well connected by other airlines, or from nearby airports. When the aid expired on September 30 last year, airlines began to rationalize their networks, cutting flights to dozens of cities.

When Avelo launched last year, CEO and founder Andrew Levy said the changing industry landscape was the perfect opportunity to launch a new airline. Aircraft were available and cheap. The buyouts opened a large pool of airline talent. And slots at airports were easier to come by, he said. The end of federal air only will accelerate the industry’s transformation.

Keay agreed with this assessment and said the major airlines already are changing their networks. There are two reasons for this, he said. First, the pilot shortage is preventing regional carriers, on which major airlines rely for lift to smaller cities, from hiring enough staff to operate their planned schedules. Just this week, United Airlines said it would end 17 routes due to pilot shortage at its regional carriers. American Airlines and Delta Air Lines also have cut regional routes, although not as dramatically as United.

Second, major carriers have been buying larger aircraft — Airbus A320neos and A321s, and Boeing 737 Maxes — that can’t operate economically to smaller cities. “Airlines are far more likely to take delivery of current generation aircraft and flex retirements on smaller gauge aircraft,” Keay said. “They can’t serve secondary cities on an infrequent basis and be competitive with that.”

With the combination of larger aircraft at the major carriers and a pilot shortage at the regionals, airlines are finding they can’t “sustain service to smaller cities with a regional jet,” Keay said. And this is where Avelo has an opportunity.

Keay said the carrier so far has not had any difficulty hiring pilots. Part of that is its size. It currently operates a fleet of just six Boeing 737s, a split of -700s and -800s. It does not anticipate barriers to hiring even as it plans to expand its fleet to up at 15 aircraft by year’s end. “Our pay is just better,” Keay noted, adding that due to its small size, first officers can expect faster promotions to captain.

Avelo essentially operates two separate networks, one based in New Haven, Conn., and the other in Burbank, Calif., in the Los Angeles Basin. Flights from both airports focus on leisure destinations to smaller cities, like Santa Rosa Calif., and Medford and Bend, Ore., from Burbank, and Charleston, S.C. and Orlando from New Haven. “Leisure travel is just more durable,” Keay said. In addition, the carrier operates a few flights from Las Vegas, and it has some major metropolitan areas — like Denver and Salt Lake City — in its route mix. The airline has no interest to expand aggressively into major hub or slot-constrained airports, Keay said.

There are no plans in the near future to link these two networks. Instead Avelo is using the two separate operations as test cases to see where to expand. “It’s unique for an airline,” Keay acknowledged. “But we have the ability to evaluate these markets independently.” The New Haven operation is performing well, especially on sun routes, he said. The region’s wealthy catchment area helps, as does the airport’s proximity to commuter rail lines. The California operation has lagged, due in part to the state’s stricter Covid-19 restrictions. With many of those restrictions now easing, Keay believes the California network will catch up.

Keay had been airline industry analyst for Wall Street for almost two decades before joining Avelo. He noted he joined the “Great Resignation,” a pandemic-era trend of workers quitting their jobs or starting something new. “There are a lot of people leaving their jobs and there’s a desire for people to see what’s out there,” he said, noting this presents his new company with a chance to mop up more talent. “I was drawn to the idea of building something from the beginning.”

Madhu Unnikrishnan

In Other News

  • Turkish Airlines turned a profit of $225 million in the fourth quarter and $959 million in 2021 on the back of soaring cargo revenues, which were up 138 percent year-over-two-years to more than $4 billion last year. The carrier is in good company; Korean Air profited thanks to record cargo revenues while it was a saving grace — if not profit driver — for both Cathay Pacific and Singapore Airlines in 2021. Full-year revenues came in down 19 percent compared to 2019 at at $10.7 billion; cargo contributed nearly 38 percent of revenues, compared to just 13 percent two years earlier. Passenger unit revenues were down 15.9 percent year-over-two-years in 2021, while unit costs excluding fuel were up 11.5 percent. Turkish ended the year with 370 aircraft, including two Boeing 737 Maxes that arrived in the fourth quarter. The airline has an ambitious list of 16 destinations — including Abha, Saudi Arabia, Denver, La Coruna, Spain, and Sialkot, Pakistan — it plans to serve when “market conditions” allow.
  • Thai Airways generated a 55 billion Thai baht ($1.7 billion) net profit in 2021 on an 81.5 billion Thai baht one-time gain from its restructuring. Revenues came in at 21.7 billion Thai baht for the year, driven mostly by cargo. But the truth is the airline remains far from rehabilitated: It only resumed regular flights on October 31 after a 1.5-year plus suspension due to the Covid-19 pandemic. And, even with 61.8 billion Thai baht in debt restructuring savings during the year, Thai Airways faced a “capital deficiency” — where liabilities exceeded assets — of 71.3 billion Thai baht at the end of December. The carrier continues to focus on implementing its restructuring plan for 2022, which includes additional cost savings, operational efficiencies, and other improvements. However, Thai Airways did not provide a financial or capacity outlook for 2022.
  • With no revenues yet, long-haul, low-cost startup Norse Atlantic burned cash to the tune of a $7.8 million loss during the second half of 2021. The carrier had $134 million in cash and cash equivalents at the end of December. Norse had taken delivery of seven Boeing 787s by the end of 2021, and maintains plans to begin ticket sales in late March with a launch in the second quarter.
  • WestJet is acquiring Canadian airline and tour operator Sunwing, and will incorporate Sunwing’s tour business into a newly created entity, WestJet Vacations. The combination will allow Sunwings to operate year-round without having to bring in additional seasonal lift to operate to sun destinations. Terms of the deal were not disclosed, but WestJet expects it to close by the end of the year.
  • Air India needs a new CEO. Former Turkish Airlines Chairman Ilker Ayci has declined the job he was set to assume on April 1. The Tata Group, which now owns Air India, needed clearance from the government to hire Ayci, a foreign national. A powerful Home Ministry official reportedly objected to Ayci’s previous ties to Turkey’s President Recep Tayyip Erdogan. Ayci blamed India’s media for the controversy. The Tata Group has not named a replacement candidate.

Edward Russell & Madhu Unnikrishnan

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  • Alaska Airlines has added the 737-8 and -10 to its outstanding commitments for 131 737 Maxes. The carrier anticipates an eventual fleet of 15 -8s, 70 -9s, and 60 -10s, or 145 aircraft including the 14 737-9s it already operates. The adjustment will allow Alaska to optimize the size of aircraft it flies to any given market, while also continuing its long-standing upgauging strategy, said Senior Vice President of Fleet, Finance and Alliances Nat Pieper. The orderbook adjustment suggests that Alaska intends to firm its 52 Max options.
  • If it wasn’t evident that Norwegian Air was bullish on the recovery during its results in February, it is now. The airline signed a lease deal with AerCap for 18 Boeing 737s — eight -800s that will be in service by this summer, and 10 -8s for delivery in the first half of 2023 — that will see it operate 80 aircraft by summer 2023. That’s five more aircraft than outlined by CEO Geir Karlsen in mid-February. The restructured budget carrier anticipates reaching scale for its cost structure at 95-100 aircraft.
  • Canada’s Jetlines got its first aircraft, an Airbus A320 that landed in Kitchner/Waterloo. The carrier is awaiting regulatory clearance to begin operations. It expects to begin flying its first flights later this year.
  • Staying in Canada, Chorus Aviation plans to acquire Falko Regional Aircraft, creating a company with 353 regional aircraft in its portfolio. The deal is worth $855 million and is expected to close in the second quarter of this year. After the deal closes, Chorus expects to have 32 airline customers in 23 countries, the company said.
  • Ethiopian Airlines and Boeing signed an agreement for five 777-8 freighters, the African carrier’s first order from the U.S. airframer in years. Boeing launched the 777-8F, based on the 777X platform, earlier this year. The new aircraft will join Ethiopian’s cargo fleet of nine 777Fs and three 737-800Fs.
  • EU sanctions on Russia require most Western lessors to repossess aircraft from that country’s airlines by March 28. Lessors have said they will comply, but reports are emerging that Russia may mandate that airlines keep their aircraft. The government has ordered its airlines to halt international flights to avoid repossession. Returning aircraft to lessors in less than a month would be a logistical “nightmare,” Cowen analyst Helane Becker said.

Edward Russell & Madhu Unnikrishnan

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Routes and Networks

  • Tell us airlines are planning for a long, slow Asian recovery without telling us they are planning for a long, slow Asian recovery. United Airlines has challenged Delta Air Lines‘ request for for three weekly U.S.-South Africa frequencies with its own application for the rights. United, which was the largest U.S. airline to Asia prior to the pandemic, wants the frequencies to launch thrice-weekly service between Washington Dulles and Cape Town. The airline has added long-haul flights to Africa and other international destinations where demand is or has recovered, as Asia remains largely closed. Delta wants the frequencies for its own Atlanta-Cape Town service. U.S. officials only have four South Africa frequencies available to award.
  • Lille is the first of two new bases that Volotea plans in 2022. The Spanish discounter will open the new domicile on April 1, and plans to add five new routes from the city — including to Palma de Mallorca and Varna, Bulgaria — in May. Volotea will serve nine destinations nonstop from Lille in April, per Cirium schedules.

    Separately, Volotea will add twice daily flights between Paris Orly and Tarbes-Lourdes-Pyrénées in southern France from June 1. The route will be offered for four years under a contract from Pyrénia, a consortium made up of the Tarbes-Lourdes-Pyrénées airport and the adjacent industrial area. Volotea will compete with Air France on the route, according to Cirium.
  • Ryanair is well on its way to flying 15 percent more capacity this summer than in 2019 with 25 new routes, including 14 from London and 11 from Paris Beauvais. The discounter will connect London Gatwick, Luton, and Stansted to Burgas, Bulgaria; Catania, Naples, and Trapani, Italy; Helsinki and Tampere, Finland; Lublin, Poland; Maastricht, the Netherlands; Madeira, Portugal; Menorca, Spain; Orebro, Stockholm Arlanda, and Växjö, Sweden; and Tangier, Morocco. Ryanair did not indicate which London airport each route will operate from.

    And from Paris, Ryanair will add nonstops to Agadir, Morocco; Gdansk, Poland; Helsinki; Liverpool, UK; Madeira; Malaga, Santander, and Santiago, Spain; Riga, Latvia; Tallinn, Estonia; and Turin. The additions follow 18 from Cork, Edinburgh, and Leeds-Bradford that it unveiled in February.
  • Allegiant Air will add three more new routes in May, including its first-ever nonstop between Las Vegas and Orlando Sanford — its largest and third-largest bases in March, per Cirium. The discounter will connect Orange County and Idaho Falls from May 18, and Newark and Des Moines from May 20. Las Vegas-Orlando flights begin May 27.
  • Spirit Airlines will add Monterrey, Mexico, to its map this summer. The discounter will connect the Mexican city to Austin and Houston Bush Intercontinental daily from June 22. Monterrey joins Memphis, Rochester, N.Y., and Salt Lake City among new destinations for Spirit in 2022.
  • And while many are adding routes ahead of an expected surge in summer travel, United cut 17 regional routes, including exiting Alexandria, La., amid continuing pilot staffing challenges. Gone are nonstops between Chicago O’Hare and Bismarck, N.D., Charlottesville, Va., Jackson, Miss., Pasco, Wash., and Redmond-Bend, Ore.; Denver and Dayton; Houston Bush Intercontinental and Akron-Canton, Ohio, Alexandria, and Columbia, S.C.; Newark and Knoxville, Tenn., Oklahoma City, and Omaha; and Washington Dulles and Allentown, Pa., Lexington, Ky., Madison, Wis., Oklahoma City, and Pensacola, Fla., Cirium shows. These are in addition to the at least eight markets United exited in the fall, and 14 routes it cut at Dulles in December.

    American Airlines and Delta are not immune from pilot staffing issues. The former has pulled its nonstop between Dallas-Fort Worth and Long Beach — previously suspended until August — and the latter ended its service between Minneapolis-St. Paul and Dayton, per Cirium. The “staffing situation is a perfect storm,” said Regional Airlines Association (RAA) President Faye Malarkey Black on the latest route cancellations. She expects more service cuts this summer as the U.S. industry faces a roughly 5,000-person pilot shortfall in 2022.

Edward Russell

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State of the Unions

  • United Express carrier CommutAir and its pilots union ratified a new contract that provides 25 percent pay increases for captains, and 32 percent for first officers. The deal ends talks that started in 2019 but paused during the pandemic, resuming only last May. The new contract also provides commuter pay for pilots, 30 days of maternity leave, and 25 percent more pay over the four-year course of the deal. “After suspending and then restarting negotiations amidst the pandemic, CommutAir pilots now have a contract in which the pay rates and benefits reflect our contributions to this company,” said Earl Blowers, chairman of the CommutAir Air Line Pilots Association Master Executive Council.
  • Meanwhile, Piedmont Airlines, a regional that operates flights for American Airlines, ratified a new contract with its flight attendants. The new four-year agreement raises pay, maintains current healthcare benefits, and offers a signing bonus to new employees. Piedmont employs 300 flight attendants. The deal comes after Piedmont flight attendants voted to authorize a strike last year to break the impasse on negotiations.
  • Discounters and merger partners Frontier Airlines and Spirit Airlines plan three new crew bases as they continue to grow separately until they receive regulatory sign off for their proposed combo. Denver-based Frontier plans a new base in Phoenix where it will staff up to 180 pilots and 275 flight attendants by November. Frontier now flies 14 routes from the city. The Phoenix base will joinsFrontier’s others at: Atlanta, Denver, Las Vegas, Orlando, Miami, Tampa, and Trenton/Philadelphia.

    And Spirt plans new bases in Atlanta and Miami later this year. The airline plans to staff each base with more than 100 pilots and 200 flight attendants. The bases are Spirit’s eighth and ninth after: Atlantic City, N.J., Chicago O’Hare, Dallas-Fort Worth, Detroit, Fort Lauderdale, Las Vegas, and Orlando.

Madhu Unnikrishnan

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