Veterans of NAI Fight Support New Bill Aimed at Norse Atlantic
A bipartisan group of U.S. lawmakers introduced a bill to bar what they call “flags of convenience” airlines from operating to the U.S. Introduced by Rep. Peter DeFazio (D-Ore.), who chairs the House Transportation and Infrastructure Committee, the “Fair and Open Skies Act” would prohibit the Transportation Department (DOT) from issuing foreign air carrier permits to airlines that in any way violate or seek to circumvent the labor provisions in the U.S.-EU open skies agreement. More broadly, the bill would require tougher scrutiny of labor practices of any airline seeking a U.S. foreign air carrier permit.
The bill does not call out Norse Atlantic Airways by name but, in a supporting document, the committee made clear what airline it had in its sights. “One newly formed European venture…has reportedly started structuring itself in a manner resembling NAI.” That latter airline, Norwegian Air International, is explicitly what the bill seeks to prevent.
DeFazio is a veteran of the bruising battle a few years ago to deny NAI’s foreign air carrier permit. Opponents, which in addition to DeFazio included unions and several airlines, then claimed NAI incorporated itself in Ireland to avoid Norway’s stricter labor laws. Although they were ultimately unsuccessful and NAI got its permit, the scars remain, even now months after Norwegian has pulled back from long-haul international. Earlier this year, DeFazio urged Transportation Secretary Pete Buttigieg to deny Norse Atlantic’s foreign air carrier permit. Introducing the new bill, DeFazio said, “In the past, we have seen foreign airlines set up under a flag of convenience business model to exploit weaker labor laws outside their home countries in order to save money, undercut competition, and skirt important labor standards to get a leg up.”
The bill’s passage by the House and Senate is anything but certain, but under the Biden administration, labor is again flexing its muscles, and Buttigieg is receptive to labor’s concerns. Both the Air Line Pilots Association and the Allied Pilots Association have thrown their weight toward the bill’s passage.
But Norse Atlantic also is eager not to repeat history. CEO Bjørn Tore Larsen took pains to stress that the airline is completely separate from Norwegian. And the company has begun a charm offensive in the U.S., scheduled to meet with the Association of Flight Attendants later this month. AFA President Sara Nelson has said she is encouraged by the carrier’s outreach.
Of course, all of this is moot until Norse Atlantic secures and air operators certificate. Only then can it apply for a foreign air carrier permit and an exemption to serve the U.S. Larsen said the process could begin soon, and he hopes the airline will be flying by the end of the year.
And on the Other Side of the Capitol…
And speaking of Congress, on the other side of the Capitol, two U.S. senators have taken up the cause of cash refunds for canceled travel. In letters to the heads of all the major U.S. carriers, Senators Edward Markey (D-Mass.) and Richard Blumenthal (D-Conn.) pressed the case to make permanent credits issued for travel cancelled during the pandemic.
Airlines often gave passengers travel credits instead of cash refunds for tickets canceled because of the pandemic. These credits could expire before passengers have the chance to use them or before they feel safe to travel, the senators say. “We fear that countless consumers will be unable to redeem their flight credits or will redeem them at a loss,” they said. It is “unconscionable” that the industry “sits on more than $10 billion in unused travel credits,” Blumenthal and Markey said.
The senators would prefer that airlines offer cash refunds. But if they did issue credits, the two lawmakers have a list of eight questions on expiration dates that they want answered before May 28.
Frontier Looks Beyond Losses to Leisure Travel Opportunities
Frontier Airlines, flush with cash from its recent stock market debut, is positioning itself to take advantage of what it calls a “surge” in leisure travel.
In fact, Frontier executives think the surge will last as long as 18 months, as people flock to the airways to take summer trips they put off last year and travel again for the year-end holidays. With a network primed for leisure flights and its focus on keeping costs low, Frontier thinks it’s uniquely positioned to reap the benefits as Americans head to the beach.
But it’s not just the beach; the nature of travel will have changed as well. Workplace flexibility could redound to Frontier’s benefit as “work from home” becomes “work from anywhere.” As long as companies don’t mandate workers to return to their offices, and as the fear of the pandemic recedes, more people will take to the airways to work from wherever they want, Frontier believes. This could shift more leisure travel — traditionally heavy during the weekends — to midweek. “This could last for years,” CEO Barry Biffle said during the company’s inaugural quarterly earnings call last week.
The surge could result in people not being able to go where they want, simply because there just aren’t enough flights. Biffle thinks people who wait too long to make their summer plans will be out of luck, and this problem will snowball as more people begin to travel. Thanksgiving and Christmas could see this problem become more acute. The booking curve will begin to lengthen out to pre-pandemic levels, and Biffle thinks by early next year, travelers will begin planning their summer vacations six months out, more in line with consumer behavior before the pandemic.
But, striking a note of realism, Biffle acknowledged the recovery is in its very early stages. “We’re between the second and third innings,” he said. The summer could be “inning seven, if demand outstrips supply.”
Frontier is luckier than carriers like Delta Air Lines, American Airlines, and United Airlines, which earned much of their revenue before the pandemic from international flights and business travel. The Denver-based ULCC is primarily a domestic U.S. airline, and what little business traffic it carries is from small- and medium-sized enterprises and not from managed travel. The airline thinks it has ample room to grow. ULCCs comprise about 10 percent of the U.S. market now, but in Europe are about half the market. As the nature of travel changes, Frontier believes its network and model will stand it in good stead to reap the benefits.
The major airlines’ basic economy is not much of a threat, Biffle said. Basic economy ticket prices have been rising as demand returns, making it less attractive to travelers who may want fewer restrictions than that fare class usually allows.
Frontier has been busy adding routes and has started service to five new domestic cities. The carrier has added dozens of new routes in the quarter, and started flying to three more near-international destinations: Nassau, the Bahamas; San Jose, Costa Rica; and St. Maarten.
It expects to be profitable in the second half of the year, after losing money in the first quarter. Daily cash burn turned into cash generation at the beginning of March, just when Frontier saw an uptick in demand for spring break and summer travel.
Frontier, unlike most U.S. carriers, leases all of its fleet, an arrangement that gives it more financial flexibility than owning aircraft, Chief Financial Officer Jimmy Dempsey said. In the quarter, Frontier took delivery of three Airbus A320 Neos and is returning its four remaining A319s. The carrier expects to take delivery of 10 more A320 Neos this year and will start adding A321 Neos to its fleet next year. By 2025-2026, the larger A321s will make up half of the carrier’s fleet.
Frontier benefited from $96 million in federal payroll support in the quarter and will take an additional $75 million from the most recent round of payroll support in the second quarter. Biffle doesn’t expect the government to provide a fourth round and said additional funding was unnecessary given the industry’s return to health. Frontier began hiring flight attendants and pilots during the quarter and will be fully staffed to operate its larger fleet as the aircraft arrive.
The carrier raised $271 million from its April 1 initial public offering. Frontier reported a $91 million first-quarter loss on revenues that were roughly half of the same period last year. Its operating margin in the quarter was -34 percent. The carrier expects its second-quarter operating margin to be between -10 and -15 percent. Management did not offer revenue guidance for the balance of the year.
Mesa Hopes to Exceed Pre-Pandemic Capacity by September
Mesa Air Group executives are almost ready to start popping the champagne. The summer is shaping up to be almost at pre-pandemic levels for the regional that operates flights for both American and United.
In fact, CEO Jonathan Ornstein said it will fly 100 percent of its pre-pandemic capacity for American by June. And, by September, the regional could fly more than its pre-pandemic capacity for the Fort Worth, Texas-based mainline carrier. Part of this is fueled by the addition of five Bombardier CRJ900s to the fleet Mesa operates for American.
The story is similar for United regional flights. Mesa expects to operate between 75-80 percent of its pre-pandemic capacity for United in June, rising to 85-90 percent by September. Between November of last year and this June, Mesa will add 18 Embraer E175s to its United operation. The regional also announced it is part of United’s Aviate pilot-pipeline program, with pilots trained at Mesa guaranteed a position in United’s mainline roster after completing the program.
Interest among aspiring pilots to fly for Mesa is strong, Ornstein said. The regional is hiring for all of its workgroups, and “the applicant pools are strong, and in the case of pilots, stronger than we have seen in recent history,” he said. One additional benefit of flying for Mesa, Ornstein said, is that it is the only regional to operate Boeing 737s, part of its freighter operation for DHL, giving pilots mainline flight experience.
Mesa had little to say about the DHL operation. Last year, Mesa said it could add as many as 10 737Fs for DHL within 18 months. Although executives were bullish on the operation, Mesa is not adding aircraft as fast as it predicted last year. It will take delivery of its third Boeing 737-400F in June.
Mesa is, however, bullish about its European operation. Concrete details were scant during Mesa’s quarterly earnings call on Monday, but the regional is moving ahead in getting a European air operators certificate and is working with Gramercy Associates on the project. European regional flying is undergoing a transformation in the wake of Covid, presenting Mesa with opportunities for growth, Ornstein said. Moreover, a European operation will allow Mesa to put some of its “surplus CRJ900s” to use, he said. Mesa did not define a timeline for when the operation may launch, however.
Mesa reported a fiscal second-quarter pre-tax net income of $7.6 million. As in recent quarters, federal stimulus funds fueled the regional’s profits. Mesa benefited from $48.7 million from the second round of payroll support in the quarter, and expects $7.3 million from that round in the third quarter. Mesa will get an additional $52.2 million from the third round of payroll support, passed by Congress in March, in the third quarter.
In Other News
- Colombia is the latest country to sign off on Delta and Latam Airlines proposed joint venture. The pact covering flights between the U.S. and South America has also been approved in Brazil and Uruguay. However, key approvals are still needed in Chile and the U.S.
- Turkey’s Pegasus is looking to the third quarter for more meaningful demand recover and expects to operate up to 85 percent of its 2019 capacity by then. In the first quarter, however, the carrier operated 59 percent its overall 2019 first-quarter capacity, but 75 percent of its first-quarter 2019 domestic capacity. Pegasus reported a first-quarter loss of €101 million ($122 million), driven in part by unfavorable foreign exchange rates. Revenues fell by 57 percent year-over-year. Pegasus will end the year with 95 aircraft and has 42 Airbus A320 Neos and 58 A321 Neos on order.
- Kuwait’s Jazeera reported first-quarter yields were up 105 percent, driven up by a severe restriction in capacity. The carrier expects this anomaly to straighten out by the fourth quarter, when it thinks the region’s air travel market will see “palpable recovery.” Jazeera’s operations have been hamstrung by Kuwait banning flights to 35 countries, including busy routes to India and Pakistan. During the quarter, the carrier launchd routes to Colombo, Sri Lanka and Addis Ababa, both of which are aimed at Kuwait’s large expat populations from those countries.
As air travel recovers, Jazeera plans to launch new routes to tourist destinations popular with Kuwaitis, like Tashkent, Uzbekistan, Sarajevo, Bosnia and Herzegovina, Yerevan, Armenia, Bishkek, Kyrgyzstan, as well as expat-focused routes to Kabul and Khartoum. The carrier ended the quarter with 14 aircraft, eight A320s and six A320 Neos. Aircraft utilization plunged to 3.3 hours from 13.8 hours last year. Jazeera reported a first-quarter loss of 5.2 million dinars ($17 million) on revenues that were 57 percent lower than last year.
- Spirit Airlines has reupped its complaint against the American–JetBlue alliance and added Alaska to the mix. In a filing with the Transportation Department (DOT) last week, it argued that American is using its separate strategic partnerships with Alaska and JetBlue to sell combined itineraries and thus further consolidate its dominant position in key U.S. markets, including Boston, New York and Washington, D.C. “The [Northeast Alliance], combined with the American-Alaska partnership, allows for this unabated consolidation of competition across several of the largest air travel markets in the United States,” said Spirit.
The Justice Department (DOJ) and attorneys general from several states are investigating the American-JetBlue pact that was approved in the waning days of the Trump administration. Competition is the focus of the investigations — and Spirit’s complaint — with the concern being the alliance gives American and JetBlue unfettered control in the northeast, where slot and gate constraints at airports limit new competition.