Neeleman Breezes In

Jason Clampet

February 10th, 2020


  • A gentle Breeze? Or a powerful gust of wind? U.S. airlines will soon enough see the true competitive impact of a new airline created by David Neeleman, the man behind airlines like Morris Air, JetBlue, WestJet, and Azul. He’s also in the driver’s seat at TAP Air Portugal. And he briefly served as heir apparent to the legendary Herb Kelleher at Southwest.

    His latest creation: Breeze Airways (illustration from Breeze below), with its headquarters in Salt Lake City. A lot about Breeze’s business model remains undisclosed and perhaps not yet decided. It won’t say, for example, which routes it plans to fly.

    But Neeleman spoke with Skift last week, providing some disclosure about the carrier’s plans. For one, it will use the 30 used, 125-seat E195s it’s getting from Azul for connecting underserved markets involving smallish cities, not unlike Allegiant. One of Breeze’s top executives in fact, is a former Allegiant exec Lukas Johnson.

    What it will do with 60 A220s that start arriving next spring is less clear. They’ll have far superior operating economics but also far higher ownership costs. The idea of targeting underserved city pairs seems to be a central theme for Breeze, which notes how other U.S. airlines are upgauging to larger planes and seeing their costs increase.

    These two trends favor flying on thicker routes with more demand. Breeze hopes to launch by the end of this year.
  • Hong Kong’s Cathay Pacific was hopeful that a nightmare 2019 would give way to a healthier 2020. Instead, the coronavirus outbreak in mainland China is turning a bad situation into outright panic. The airline last week felt it necessary to suspend roughly 90% of its mainland flying, with other parts of its network subject to “significant reductions” for the next two months.

    Overall, this will result in a massive if temporary capacity cut of about 30%, or perhaps closer to 50% according to a study of the carrier’s schedules by the South China Morning Post.

    Cathay was quick to assure that it has enough cash to ride out the storm but needs to take some drastic measures until the virus is contained. It’s modifying inflight service on mainland flights, for example, temporarily stopping all duty-free sales and distribution of hot towels, pillows, blankets, and magazines. Even more dramatically, it’s asking all workers to take three weeks of unpaid leave. 
  • As bad as things are for Cathay, they’re worse for Hong Kong Airlines. Hanging by a thread even before the year started, it’s now cutting 400 jobs and suspending service to eight cities through the end of March. Only four of the eight are in mainland China, the others being Male and three cities in Japan (Okayama, Yonago, and Kagoshima). Other routes like Beijing, Tokyo, Seoul, Bangkok, and Bali will see reduced frequencies. 
  • AirAsia expressed deep concerns that an anticorruption allegation will adversely impact its “brand, reputation, and goodwill.” Malaysian investigators are pursuing aspects of a case against Airbus involving AirAsia, and whether its founders accepted illegal payments to a sports team they owned in exchange for agreeing to buy planes.

    Airbus itself admitted to illegally trying to influence plane buyers, for which it’s paying a $4b penalty. CEO Tony Fernandes, mastermind of the AirAsia empire, will step down from his duties temporarily. He also faces corruption charges in India. AirAsia said it “vigorously rejects and denies any and all allegations of wrongdoing.”
  • Qatar Airways is betting big on Rwanda, an ambitious country trying to position itself as the Singapore of Africa. The Gulf carrier is already involved financially in the construction of a new airport for Kigali. It now says it’s negotiating a 49% ownership stake in state-owned RwandAir. In its most optimistic visions, RwandAir will one day replicate the success of Ethiopian Airlines. Or better yet, Singapore Airlines. It has a long way to go though.  
  • Indigo, the investment firm specializing in ultra-low-cost airlines, is cashing in its winnings at Wizz Air. The Arizona-based company sold the majority of its 21% stake. According to Reuters, it sold at least in part to ensure Wizz complies with foreign ownership laws; Indigo now has just a 3% stake left. It remains a major shareholder in Frontier, Volaris, and JetSmart.◄

Full-Year 2019 Earnings Scoreboard: U.S. Airlines

Full-year Winners (All figures exclude special items)

  • Allegiant: 20%
  • Delta: 14%
  • Spirit: 14%

Full-year losers (All figures exclude special items)

  • American: 8%
  • JetBlue: 10%
  • United: 11%
RevenuesOp Profit (Excluding Special Items)Net ProfitNet Profit (Excluding Special Items)Op Margin (Excluding Special Items)Pretax MarginPretax Margin (Excluding special items)ASM/Ks
Alaska $8.781b$1.063b$769m$798m12.1%11.6%9.1%2%

Source: (Cirium)

Jason Clampet

February 10th, 2020