Andrew Levy sure sounds undaunted about the prospect of launching an airline in the teeth of the worst crisis for the industry in its century-long history. Is the former Allegiant and United executive crazy, or will time show the brilliance of his bold move?
Levy’s latest project, Avelo Airlines, will launch its first flights on April 28 from Southern California’s Burbank Hollywood International Airport. operating short-haul, leisure-focused routes to 11 cities west of the Rocky Mountains. The airline has raised $125 million in private-equity funding. Levy, who is the airline’s chief executive, did not disclose the investors.
“In the past, what you’ve seen is that times of crisis are the best times to start great businesses,” he said. “The timing for us was absolutely perfect.”
The pandemic presented unique opportunities for a startup airline, Levy said. Aircraft are available for millions of dollars less than they would have been before the pandemic. Fuel is relatively inexpensive. The pool of available talent has grown as airlines have shed both management and front-line employees through buyouts and voluntary separation packages. Companies that provide the backend systems that make an airline work, like information technology, have the capacity and are offering discounts. And slots at congested airports have become available, as the industry retrenches to meet current demand.
This last point is why Avelo chose Burbank for its first base, said Levy, a former Allegiant president and United chief financial officer who earned a reputation over the years for financial acumen and mastery of airline operations. The airport had spare capacity as the airlines that serve it scaled back their flights. “Our decision to fly from Burbank was driven by the pandemic,” Levy said, referring to the newly available slots and gate space at the airport. “It would have been extremely difficult to do so a year ago.”
Furthermore, Burbank is right in the sweet spot of the niche Levy hopes Avelo will fill. In the Los Angeles basin, Burbank is in the second-largest catchment area in the U.S. but doesn’t have the cut-throat competition that Los Angeles International has. And Burbank has a sizeable and desirable catchment area of its own, and a population Levy believes will welcome not having to drive to LAX.
But even more central to Avelo’s business model is Bubank’s position as a secondary airport in a major metropolitan market. Even with the pandemic, the major airports — think New York’s John F. Kennedy International and LaGuardia, Chicago O’Hare, or San Francisco International — remain congested and competitive. During Levy’s tenure, Allegiant wrote the playbook on operating to secondary airports. Levy hopes to replicate it with Avelo with a twist.
While Allegiant focused on connecting leisure travelers in smaller towns to vacation destinations, like Las Vegas, Avelo will fly from secondary airports in large metropolitan areas to underserved markets a short hop away. “Allegiant was much more tailored and went purely after leisure travelers,” Levy said.
“We are targeting a wider customer segment,” he said, adding, “We are not just going after the budget customers — Spirit, Frontier, and Sun Country do that really well. We are interested in building out connections that don’t exist by using convenient secondary airports.” The airline’s focus will include not just leisure travelers but self-booking business travelers in the communities it serves.
The initial batch of routes will fly to destinations that can easily be reached from Southern California and a primarily outdoor-leisure focused. These include Santa Rosa, Redding, and Eureka, Calif.; Medford, Bend, and Eugene, Ore.; Bozeman, Mont.; Mesa, Ariz.; Grand Junction, Colo.; Pasco, Wash.; and Ogden, Utah. The first flight will be to Santa Rosa on April 28, with the rest to follow through May 20.
But Levy is quick to point out that Avelo didn’t set out to capitalize on the trend toward travel to outdoor leisure destinations; that was just a happy byproduct of the cities the company targeted from Burbank. “These are underserved cities that historically have been viable,” he said. “These markets are ones that have worked well but will work even better due to the pandemic.”
Burbank may be the first base, but Avelo is aiming to establish similar bases around the country by the time it gets going. In other words, the airline doesn’t plan to focus only on the Western half of the country. The company chose Houston as its headquarters for its geographically central location. Levy predicts the airline could have an East Coast presence by the end of this year. At launch, Avelo is expected to have 200-250 employees, most based in Burbank.
The second major factor in Avelo’s founding was the last decade’s wave of airline mergers, which winnowed the industry down to four major players. Delta Air Lines, American Airlines, United Airlines, and Southwest Airlines control 80 percent of the U.S. market, with Alaska Airlines (itself the product of consolidation after it acquired Virgin America) and JetBlue comprising roughly another 10 percent, with the balance operated by niche airlines like Allegiant, Sun Country, Frontier, and Spirit.
Consolidation led to the three network carriers — Delta, United, and American — to focus on their hubs, while Southwest, which changed its focus from secondary airports to major metropolitan destinations, began acting more like a hub carrier by connecting passengers over its focus cities. This resulted in smaller cities losing air service and presented Avelo with an opportunity, Levy said. “The effects of consolidation and the results of it are hard to overstate,” he said. “It was a massive change.”
“Hub markets that are successful are ones in large metro areas, and geography plays a role,” Levy said. “Big cities can support these operations, but that creates an opportunity for us to create something different: People don’t want to drive from Bend, Ore., to Portland for a flight.”
Avelo is not alone in sensing an opportunity. JetBlue and Azul founder David Neeleman is gearing up his startup, Breeze Airways, with a fleet of Embraer E190s. And across the Atlantic, Norse Atlantic Airways saw a vacuum when Norwegian abandoned long-haul flights to launch its own low-cost, long-haul business with nine Boeing 787s.
The major carriers are not likely to take the new competition lying down — eventually. Although now they are focused on survival and chasing whatever traffic they can find, that will change, Levy admits. “When our competitors are doing well, they will care more about new entrants,” he said. “But now is a wonderful time to get started.”
Avelo will start operations on April 28 with three Boeing 737-800s, one it owns and two leased from GECAS. The airline expects to have six aircraft by the third quarter and could have as many as 12-18 737-800s by 2022 if the company performs as expected, Levy said. The aircraft will be configured with 189 seats, and 60 of those seats will be longer-pitch and sold at a premium.
Fares will be unbundled, Levy said. The airline will charge for carry-on and checked bags as well as seat selection. Avelo will focus on out-and-back flights, avoiding the costs and complexities of connecting traffic and making network planning simpler, Levy said. Tickets will not be sold through GDS systems.
“What the future looks like is anyone’s guess,” Levy said, noting that the pandemic itself has not run its course yet. “But the opportunity was there, and what we’re doing resonates now, especially when people can’t wait to get out and move around.”