Southwest Faces Hiring Crunch as Flights Ramp Up

Edward Russell

July 26th, 2021

Southwest Airlines has the planes and the map to meet the rapid return of travelers and then some as the coronavirus pandemic wanes in the U.S. It has ordered hundreds of additional Boeing 737 Max jets, added 18 new destinations that are meeting or exceeding expectations, and expanded its reach to popular sun spots like Hawaii that has forced some competitors to retreat.

But all those opportunities are overshadow a stark reality faced by the Dallas-based carrier: a tough hiring environment for entry-level staff nationally. Southwest has as many as eight large cities where it faces challenges hiring ground staff, even after raising its starting wage to $15 an hour, said Chief Operating Officer Mike Van de Ven during its third quarter earnings call last week. Those cities include Denver where the airline is growing rapidly and has plans to expand its presence with 16 new gates next year.

“If it’s not the number one focus, it is 1A, which is getting our hiring in place and our staffing in place,” Southwest’s Executive Vice President and incoming CEO Robert Jordan said. The airline is getting fewer applications per job than it did before the crisis while the cost to hire a new employee has at least doubled, he added.

The hiring issues, which are mostly limited to ground staff and do not include pilots or flight attendants, were exacerbated when computer issues disrupted operations in June. Southwest was forced to cancel hundreds of flights due to the technology issues, which executives attributed to human error. But the lack of staff in some big cities made the situation on the ground worse.

The hiring challenges are part of a broader trend across the U.S. Alaska Airlines has reported trouble attracting entry-level staff at its Seattle base and, in May, the Transportation Security Administration warned travelers of long waits when it fell short of its hiring targets for the summer. Even the lodging industry has scrambled to find workers to meet summer demand with some hotels going as far as to limit capacity due to staffing shortages.

“People, resources — that, I think, will be our constraint,” Southwest CEO Gary Kelly said when asked about the effect on the airline’s planned growth.

Growing in the recovery is the good news at Southwest. The airline plans to recover to 2019 capacity levels in the third quarter after capacity was down 16.4 percent in the prior quarter. And, by 2022, it plans to grow beyond 2019 with the delivery of 70 new 737-7s, a number that includes three aircraft options exercised earlier in July plus 34 firmed in June.

Deliveries next year could rise to as many as 114 aircraft if Southwest exercises its 44 outstanding 737 Max options, something chief financial officer Tammy Romo told analysts on Thursday was very likely. Some of the 2022 deliveries will replace older 737-700s that are slated for retirement.

However, in a potential hitch in Southwest’s recovery plans, Van de Ven said the airline also faces challenges hiring flight instructors needed to train pilots. The airline has roughly 500 cockpit crewmembers still out on voluntary leaves that need to be re-trained before they can fly again. In addition, it plans to hire new crews ahead of the Summer 2022 peak.

Alaska, American AirlinesDelta Air Lines and United Airlines have also signaled that they too plan to grow at accelerated rates above 2019 levels next year.

Those growth plans are dependent on the return of travelers. But that is not something Southwest executives expressed much concern for. The carrier generated positive cash flow and a profit in June, while lucrative business travel sales recovered to roughly 31 percent of 2019 levels the same month. Executives expect business travel to hit the 50 percent of two-years-ago mark by September.

In terms of the rapid spreading Covid-19 Delta variant, Kelly said Southwest has yet to see any bookings impact but added that the airline was “very ready to manage and muddle through” if there was a slowdown.

Southwest posted a net profit of $348 million including the benefit of $724 million in federal payroll relief in the second quarter. Without the added benefit, the airline lost $206 million. Revenues decreased 32 percent to $4 billion and expenses 31 percent to $3.4 billion compared to 2019. PRASM was down nearly 19 percent to 12.9 cents while CASM excluding fuel and special items decreased nearly 17 percent to 7.56 cents.

Looking ahead, the carrier forecasts July revenues down 10-15 percent year-over-two-years and August revenues down 12-17 percent. Southwest did not provide revenue guidance for the full third quarter.

Edward Russell

Profits Elusive for American Amid Fast Recovery

American epitomizes the U.S. travel recovery. The airline has come back faster than anyone expected a year ago carrying more passengers and generating more revenue than any other in the second quarter, and it is on track to do so again in the months ahead.

Nearly 85 percent of the seats on American’s more than 426,000 domestic flights were filled in the June quarter — better than at both Delta and United. That’s a lot of full flights to places like Fort Myers with its sunny beaches and Missoula with its mountain vistas. Travelers took advantage of the carrier’s robust schedules and travel options for their — mostly — leisure trips.

But despite its lead, the largest U.S. carrier has an Achilles heel: costs. American has more debt to service and generally higher unit costs, including labor agreements, than its main competitors, Delta and United. At the same, its rapid operational recovery, while generating additional revenue, has also put upward pressure on costs.

This adversely affects its profitability, both before the crisis and today. This structural difference — and one the airline is actively working to close — is a leading reason why analysts believe American did not join Delta and United in forecasting profits excluding the benefits of federal aid in the September quarter.

“We expect our losses too narrow even more in the third quarter as we march back to sustained profitability,” American CEO Doug Parker said during the airline’s second quarter earnings call last week. Executives would not go so far as to promise revenues that exceed 2019 levels, let alone profitability, in 2022 when asked by analysts.

Despite lagging on profitability, the overall the picture is good. Net bookings, once an indicator of the precipitous drop off in air travel, are back to 2019 levels with managers in Fort Worth, Texas, focused on raising fares rather than simply filling seats. Staffing issues that forced American to prune 1 percent of its July schedule have been resolved in time for the final burst in summer leisure travel in August. And business travelers are coming back with revenues down roughly 55 percent in June compared to to two years ago.

In addition, American sees “encouraging” results from its new partnerships with Alaska and JetBlue Airways despite only launching them earlier this year, said Chief Revenue Officer Vasu Raja. The carrier plans to continue deepening the relationships, which American hopes to “shore up” its network along the West Coast and in the Northeast just in time for the return of the lucrative business travel segment. However, executives noted that the federal antitrust officials continue to watch its JetBlue pact for its affect on consumers.

“We are encouraged with what we are seeing with American,” MKM Partners Analyst Conor Cunningham said of American’s outlook. Asked about profitability, he said the trend is good overall with the timeline being “pulled forward” by the recovery and a recognition at the airline that it needs to boost incremental revenues and reduce expenses.

American’s plan to accelerate deleveraging its debt-soaked balance sheet is one area of excitement for Cunningham. The carrier aims to repay roughly $15 billion by 2025, up from a previous target of repaying $8-10 billion. This will both reduce overall expenses as well as improve its credit metrics. American had $37.2 billion in outstanding long-term debt, excluding current maturities, at the end of June.

“We now expect a full business travel recovery in 2022,” said American President Robert Isom. While he later clarified that he was referring to just domestic business travel, the full return of this lucrative segment is a big news for the travel industry.

Airlines rely on corporate road warriors, who often buy more expensive tickets, for an outsize portion of their revenues. And many in the hospitality industry, from hotels to convention centers and other related sectors, need these travelers as part of their own recoveries.

International business travel — really international travel in general — is forecast to return at a slower pace than domestic. This is largely due to significant disparities in vaccination rates and campaigns around the world that, when added to the myriad of border restrictions, has created a complicated checkerboard of travel rules. In addition, the U.S. maintains its restrictions on many arriving foreigners, further slowing the segment’s recovery.

But a domestic-first business recovery — as with leisure travel — is nothing to laugh at. American plans to resume more of its business-focused schedules in Chicago, New York and Washington, D.C., this fall, said Raja. That means fewer flights to pandemic vacation hotspots like Jackson Hole and the return of, for example, the hourly New York-Washington shuttle. In addition, it allows American to more fully take advantage of its expanded schedules in Boston and New York with JetBlue, as well as the new concourse at Washington’s Reagan National Airport that opened in April.

American and its competitors differ on one key point. The airline expects business travelers to “materially” return in the October timeframe, or around four weeks after most schools reopen and people return to offices. Delta and United both anticipate an inflection after Labor Day in September.

Another point missing from American’s outlook was the possible impact of the rapidly spreading Covid-19 Delta variant. Also last week, United CEO Scott Kirby said he did not expect it to slow the recovery but noted that the carrier does not anticipate a linear return to pre-crisis flying.

Network remains American’s big selling point in the recovery. While its larger schedule and multiple hubs is beneficial to many travelers, especially those in small- and mid-sized cities where the carrier dominates, it is a different track than either Delta or United.

Delta has long been considered the premier carrier in the U.S., for example offering personal inflight entertainment screens — even investing in developing said screens — aboard most of its aircraft and an otherwise more elevated passenger experience. United has lagged Delta but, with its massive 270-aircraft order in June, outlined plans to catch up with its peer by installing in-seat screens on domestic aircraft and making other improvements.

“We feel really good about where we’re at,” said Isom in response to product questions. “I like what our product does for customers [and] I like what it means from a sustainability perspective … It’s lighter. It’s more efficient. And ultimately, it can keep up to speed with what customers want.”

In addition, he touted new gates in Charlotte and Dallas-Fort Worth that will allow it to add even more flights at its two busiest — and prior to the pandemic most profitable — hubs. This should further improve travel options for U.S. flyers.

What Isom and other executives did not address is general traveler dislike of some of American’s recent aircraft cabin changes, particularly the addition of seats to its Airbus A321 and Boeing 737 jets. Nor did he comment on what could become a competitive disadvantage vis-a-vis Delta and United as the latter adds screens to its domestic fleet.

American eked out a net profit of $19 million including $1.3 billion in federal payroll support in the second quarter. Without that aid, the carrier lost $1.1 billion. Revenues decreased 37 percent to $7.5 billion and expenses 35 percent to $7 billion compared to 2019. Total unit revenues, a measure of how much an airline makes per passenger mile flown, was down 17 percent to 13.7 cents with executives adding that they will no longer cite crisis metrics like cash burn amid the continuing recovery.

Looking ahead, American anticipates revenues down roughly 20 percent compared to 2019 in the third quarter. Capacity is forecast down 15-20 percent versus two years ago.

And in 2022, while not guaranteeing a profit, the airline expects unit costs to be below and capacity to be at or above 2019 levels, said Isom.

“The recovery is happening,” he added.

Edward Russell

United Bullish on 2022 Growth and Profits Despite Variant Fears

United may do what few thought was possible just a year-and-a-half ago as the coronavirus pandemic brought global air travel to a near standstill. Barring an unforeseen reversal of the recovery — like maybe the rapidly spreading Delta variant — the Chicago-based carrier is gearing up to fly more next year than it did in 2019 in what is a significant vote of confidence in the travel recovery.

“We expect 2022 capacity to be higher than in 2019,” United Chief Financial Officer Gerry Laderman said during the airline’s second quarter earnings call last week. That outlook is possible based on a number of factors, including United’s decision to retire few aircraft during the crisis that is allowing it to recover faster than many of its competitors and what it sees as a coming inflection point in the business travel recovery this fall.

And that’s not to say the United of 2022 will look like the United of 2019; there will likely be more domestic, European and Latin American flying and less across the Pacific than before. Executives named Florida as one market where it plans to retain some of its pandemic growth to capture more of the seemingly insatiable leisure demand to the state. But when it comes to broad recovery measures, it does not matter where the airline flies — only whether it flies more or less than it did two years ago.

United joins Delta in seeing a potential full recovery in 2022. The Atlanta-based carrier could fly 7 percent more passenger capacity next year if demand permits, executives said earlier in July. That is possible with its acquisition of 36 used Airbus and Boeing jets that, along with new deliveries, cancel out the roughly 100 planes it retired in 2020. Executives at both carriers forecast a years-long recovery from the pandemic in the early months of the crisis.

The outlook did not come without skepticism. Concerns about the rapid spread of the Delta variant — no relation to the airline — around the world sent airline stocks tumbling earlier this week. And, as the industry learned early on in the pandemic, steady improvements in bookings can end as suddenly as Covid-19 infections spike — something that is occurring among unvaccinated populations.

Commenting on the variant, United CEO Scott Kirby said the carrier has seen no “impact on bookings” but added that “there will be ups and downs, and we’re prepared to deal with whatever those are.”

Early in the pandemic, United led the industry in pulling back schedules as demand tanked. Management likes to cite this fact as an example of the carrier’s nimbleness in the face of uncertainty. And Laderman told analysts that even deliveries of the carrier’s massive 270 aircraft order can be adjusted based on changes in demand.

United’s outlook for the rest of the year and 2022 are about as rosy as can be expected from an airline that has weathered the last year-and-a-half. The airline continues to see steady week-over-week improvements in bookings, including a better than forecast recovery in both business and international travel since April. This has the carrier forecasting a pre-tax profit in the second half of 2021 not including the benefit of federal relief.

The return of corporate road warriors has buoyed United’s outlook. Business travel was down 60 percent in the second quarter compared to two years ago, and is forecast to be down just 40-45 percent in the third quarter, said commercial chief Andrew Nocella. United saw an inflection in the return of these lucrative flyers in June and expects another one after Labor Day when many companies have indicated they will return to the office and send more people out on the road. A further recovery inflection is expected when the new budget year begins for many companies in early 2022.

As for international travel, executives reiterated the well-worn line that every time a market reopens, bookings jump as travelers fulfill the forecasts of so-called “pent-up demand.” For United, this mostly means Europe where one-by-one country’s have reopened to vaccinated travelers and, in some cases, those with a negative Covid-19 test.

“We think the summer of 2022 across the Atlantic has the potential to be our best season ever with pent-up demand,” said Nocella.

One reason for this optimism is the aforementioned fleet choices United made early on in the pandemic. The airline kept all of its widebody jets, including for example its smaller but older Boeing 767-300ERs, while competitors American retired all of its 767s and Delta 17 of its fleet of the jets. As United management sees it, these planes now give it a “structural” advantage over its competitors to serve more leisure-oriented markets in Europe — like Croatia — profitably. United estimated that it will have 30 incremental wide-body jets to fly to Europe or elsewhere next summer compared to 2019.

This European ramp is already on display in schedules. While United was the third largest U.S. carrier by capacity to Europe in all of 2019, it is on track to be the largest in the third quarter, according to Cirium schedules.

Costs are a growing concern for those both inside and outside the airline industry. These come as the last tranche of the U.S. government’s $79 billion in airline Covid-19 relief expires on September 30 while many other costs, including fuel, are on the rise.

United executives are unconcerned about the expiration of the last tranche of federal payroll support, which has covered the majority of its labor expenses since the CARES Act first passed in March 2020. The airline’s profit outlook for the second half of 2021 does not include these funds, which buoyed its second quarter results by nearly $1.1 billion.

The airline forecasts an eye-popping 17 percent jump in CASM excluding fuel and other items in the third quarter compared to 2019. Asked about this, Laderman attributed it primarily to the grounding of 52 Pratt & Whitney-powered Boeing 777s and an abundance of shorter flights versus than two years ago due to the emphasis on domestic flying. However, he is confident that given United’s planned growth and the expected return of the 777s, CASM-ex will drop compared to 2019 in 2022.

Another longer-term concern is massive capital investment United made with its blockbuster aircraft order in June. Over just the next two-and-a-half years, the airline has $17.2 billion in forecast commitments of which almost all of that is for new planes. For comparison, Delta’s total aircraft commitments — not just the next two years — stand at just $15.2 billion. Laderman said that these can be metered out if need be based on demand, though he and other executives stood by their expectation that the added revenue opportunities and savings from the new planes would outweigh the costs.

United anticipates taking nearly 200 new aircraft by the end of 2023. These include 21 Boeing 737-8s and 787-10s through the end of this year; 40 737-8s and -9s in 2022; and 138 aircraft, including its first 16 A321neos plus 122 737 Maxes, in 2023.

In the second quarter, United reported a $434 million net loss including the benefit from federal relief. Without that aid, the airline’s loss would have reached $1.3 billion. Revenues were down 52 percent compared to 2019 to $5.6 billion and expenses were down 36 percent to $5.7 billion. Passenger traffic was down 55 percent on a 46 percent drop in capacity.

Looking forward, the airline expects TRASM to turn positive for the first time since the crisis began in the third quarter. Capacity is forecast to down roughly 26 percent compared to 2019. And, as noted, United expects a pre-tax profit excluding the benefit of federal aid.

Edward Russell

Air Canada Sees ‘Green Shoots’ as Domestic, U.S. Travel Returns

Air Canada has begun the long slog to recovery as its namesake country slowly begins unwinding travel restrictions that have hobbled its airlines for more than a year.

The Montreal-based carrier is seeing “steady increases” in bookings for domestic, U.S., sun destinations and to Europe, said Air Canada CEO Michael Rousseau on the airline’s second quarter earnings call on Friday. The first two categories — domestic and U.S. — are recovering faster with restrictions easing into August, while demand for sun destinations is ratcheting up for winter, and Europe looks very promising for 2022.

The return of Canadian flyers is following what is now a path well worn by other countries as they have reopened. Domestic and near-international leisure and visiting friends and relatives, or VFR, travelers are coming back first; followed by business travelers that Air Canada expects to begin returning later this fall; and, finally, long-haul international — particularly across the Pacific — that is likely a 2022 or later story.

“Based on what we are seeing in other markets that are further along in reopening in Canada, we anticipate travel will resume at a quickening pace,” said Rousseau. “[But] already, we are seeing green shoots of recovery.”

All of this is good news for Air Canada that, along with its competitors Porter Airlines, Transat and WestJet, was hit hard by the Covid-19 crisis and Canada’s subsequent travel restrictions. Porter and Transat suspended all flights for a period, while WestJet flew a greatly reduced schedule. In the second quarter, Air Canada operated just 14 percent of its 2019 capacity with passenger traffic down an eye popping 93 percent.

With the reopenings, Air Canada will pick up the pace adding back flights during the September quarter. The carrier plans to fly roughly 45 percent of 2019 capacity, including two-thirds of its domestic capacity, during the period, said commercial chief Lucie Guillemette. That number could ratchet up if demand warrants as the airline has both the planes — and pilots — to add flights if it needs. However, that flexibility also goes the other way with schedule cuts possible if the outlook changes.

Resuming U.S. routes is “key” to the airline’s recovery, said Guillemette. Air Canada has long used the market to feed its long-haul flights over Montreal, Toronto and Vancouver, a strategy that it will resume as more international markets open. Since the announcement easing border restrictions, the carrier has seen strong demand for flights to California, Florida, Hawaii, New York City and its partner United Airlines’ hubs. Air Canada will serve 34 of its 57 transborder destinations by September and plans to return to all of its pre-pandemic U.S. destinations by next year.

Asked by analysts about its ability to add flights after retiring 79 aircraft last year, Rousseau said Air Canada has enough new Airbus A220 and Boeing 737 Max deliveries lined up to return to 2019 flying levels. And, if needed, it could “go hunt planes,” he added.

He was similarly nonchalant attitude towards new competition from Porter. The Toronto-based carrier has ordered new Embraer jets with plans to debut them on longer routes from Halifax, Montreal, Ottawa and Toronto Pearson — all Air Canada strongholds.

“We certainly welcome healthy competition,” said Rousseau. “Suffice it to say, we will be ready to deal with that situation.”

All of of the optimistic commentary is not to say Air Canada is out of the woods. While Raymond James Analyst Savanthi Syth described in a report Friday that the airline’s outlook reflected a “new sense of optimism,” she added that there is rightly a sense of caution given the lack of a broad reopening plan from Canada’s federal government.

In addition, Air Canada executives did not comment on the Covid-19 Delta variant that is spreading rapidly around the world. An outbreak in Australia has prompted an eight-week suspension of its travel bubble with New Zealand. Air New Zealand has cancelled many of its flights between the countries for the duration.

In the second quarter, Air Canada posted a C$1.17 billion ($928 million) net loss. Revenues decreased 82 percent to C$837 million compared to 2019. And in a key signal that the crisis is not over for the airline, it reported average cash burn of C$8 million a day during the three-month period. Carriers in the U.S. have resumed their focus on non-crisis metrics, like unit revenues and margin, as their concerns over the pandemic have eased.

Air Canada flew 168 aircraft, including five A220-300s that arrived in the second quarter, at the end of June. It anticipates three more A220, as well as three 737-8s, deliveries in the second half of 2021.

Edward Russell

Alaska Reactivates A320s to Keep Up With Recovery

Alaska has a good problem: travelers are returning so fast that it needs more planes. Luckily, it happens to have a bunch of Airbus A320s in storage from its pandemic wind down last year. The Seattle-based carrier will temporarily reactivate 10 of those jets to fly this fall and winter until some of the 63 Boeing 737 Max 9s it has on order arrive — 31 are due in 2022 and it will have 65 by end-2023. Alaska still plans to retire its last A320s — not A321neos — in two years.

The airline plans to recover 2019 capacity sooner than its previous Summer 2022 target, and could actually grow by as much as 8 percent year-over-three-years by then, Alaska commercial chief Andrew Harrison during the airline’s second quarter earnings call last week. That includes recovering its California operation, which took a greater hit from Covid-19 shutdowns than the rest of its system, in the first half of next year. In the meantime, Alaska has beefed up other parts of its network, particularly to and from the Pacific Northwest including recent additions to Boise where it expects demographic shifts to drive new demand.

Bookings have recovered to roughly 85 percent and business demand to half of 2019 levels, Harrison said. The return of corporate travelers has occurred faster than Alaska forecast in April, giving it optimism that more of these lucrative flyers will be back by year-end.

But Alaska is not overly eager to resume its 2019 schedule too soon. The carrier is focused on maintaining load factors to the mid-80 percent range and raising yields before it recovers its full pre-pandemic capacity.

In the second quarter, Alaska posted a $397 million net profit including a $503 million benefit from the federal payroll support program. The airline lost $38 million without the relief. Revenues decreased 33 percent to $1.5 billion and expenses 23 percent to $1.5 billion excluding PSP funds compared to 2019. RASM was down nearly 16 percent to 11.38 cents while CASM excluding fuel and special items increase more than 10 percent to 9.2 cents.

The airline expects both revenues and capacity to be down 17-20 percent in the third quarter compared to 2019, but with a pre-tax margin of 12-13 percent — “handily trouncing” any other U.S. carrier as J.P. Morgan Analyst Jamie Baker put it. RASM is forecast as flat.

Edward Russell

Italy’s New Airline Ready to Take Off Into a Changed Market

Italy’s new national carrier Italia Trasporto Aereo (ITA) is set to take flight into a changed European marketplace this October under a new plan recently approved by European officials.

ITA will launch with the best — read most profitable — assets of failed state-owned carrier Alitalia, including airport slots, aircraft and routes, on October 15. The new carrier will operate from a hub at Rome’s Fiumicino airport, as well as a secondary base at Milan’s Linate airport, and serve key destinations in Europe as well as around the world pending the easing of Covid-19 travel restrictions. Alitalia is expected to cease operations the day before flights begin.

The launch is the culmination of the second largest airline restructuring in Europe during the coronavirus pandemic. The largest was Norwegian Air, which shed lost of its European flights and all of its long-haul service to emerge as a primarily local budget carrier in its namesake country earlier this year. However, while Alitalia was about half the size of Norwegian in terms of passenger traffic, it made up for that in historic cache having flown Italy’s flag carrier since 1947. That history was also checkered by years of state aid and meddling that had made it one of Europe’s least competitive carriers.

When ITA takes off it hopes to do so without much of the bloat that hobbled Alitalia. It will have just 2,750 to 2,950 staff compared with the more than 11,500 at its predecessor prior to the crisis. And ITA will not include Alitalia’s former ground handling or maintenance businesses though it can bid on either or both through planned auctions.

These overhead cuts, as well as changes to its fleet and route network, gives ITA the optimism to forecast breakeven finances by the third quarter of 2023 and a €209 million ($247 million) profit before interest and taxes by 2025. For comparison, Alitalia has not turned a profit since 1998.

But ITA takes off into a changed Italian market. While some competition has disappeared, for example Norwegian’s retrenchment and the shut down of Qatar Airways-owned Air Italy in February 2020, other competitors have used the crisis to expand in Italy. Europe’s largest carrier Ryanair has doubled down on its Italian operation and added new bases in Turin and Venice Treviso. And budget juggernaut Wizz Air cancelled a planned expansion in Norway in order to expand in Italy, which its CEO József Váradi has called an “investible market.” Wizz has unveiled or opened new bases in Naples, Palermo and Rome Fiumicino since the pandemic began.

And the new Italian carrier will principally compete with these budget carriers. More than 80 percent, or 45 aircraft, of ITA’s planned startup fleet of 52 planes will be narrowbodies flying primarily European routes. This pits it directly against budget carriers as well as Europe’s larger legacy airlines — like Air France, British Airways and Lufthansa — that kept flying throughout the crisis.

“A largely short haul Alitalia going up against Ryanair in the leisure market and other network carriers to business centers may struggle,” wrote Bernstein Analyst Daniel Roeska in March. And that was before half of Ryanair and Wizz’s expansion plans were announced, including the latter’s base at ITA’s hub Rome Fiumicino.

One big question is who will be ITA’s new strategic partner. The business plan outlined a “beauty contest” to select a new partner airline, the outcome of which could also determine its future alliance membership. Partnership talks are underway with both Delta and Lufthansa, according to Italian newspaper Corriere Della Sera. Alitalia was a long-standing partner of Delta and a member of the SkyTeam Alliance, while Lufthansa is a founding member of Star Alliance.

Italy was the EU’s fourth largest air transport market in 2019, according to Eurostat data. This size is one reason why ITA, despite Alitalia’s fraught history, is a desirable partner for global carriers, and Italy is such a sought after market for expanding budget airlines. Only Spain, Germany and France had larger air transport markets in the bloc.

Another question is the fate of the Alitalia brand. The name will be auctioned following the launch of ITA. The new airline can bid but so can competitors, including both Ryanair or Wizz, opening the door to a resurrected Alitalia with all the benefits of name recognition but none of the legacy problems.

Long-haul flying was one area that was widely acknowledged as profitable for Alitalia prior to the crisis. ITA plans to slowly rebuild this network with initial flights to Boston, New York, Tokyo and Miami this winter pending a further easing of Covid-19 travel restrictions. Buenos Aires, Los Angeles, São Paulo and Washington, D.C., could join its map by next summer.

By 2025, ITA aims to fly 105 aircraft — double its startup fleet — to 74 destinations worldwide.

Edward Russell

In Other News

  • Canada will reopen its border to fully vaccinated U.S. citizens and permanent residents on August 9, and other nationalities from September 7 if “domestic epidemiologic situation remains favorable.” Air Canada, the largest transborder carrier, subsequently confirmed plans to eventually resume service to all 57 of its pre-pandemic U.S. destinations, including: Las Vegas, Nashville and Pittsburgh in August; and Austin, Charlotte and Washington National in September.
  • Speaking of the U.S.-Canadian border, Delta and WestJet‘s transborder joint venture is back on with the latter’s CEO Ed Sims telling Aviation Week that the airlines will soon reapply for immunity with regulators. A WestJet spokesperson added that they are “committed” to the partnership, and both carriers are “working together to decide our next steps.” Delta and WestJet pulled their application in November, calling the U.S. Department of Transportations’ conditions — including the divestiture of eight slot pairs at New York LaGuardia — “arbitrary and capricious.” It is unclear how President Biden’s DOT will view the transborder tie up compared to that of the more laissez faire Trump administration.
  • Aeromexico posted a Mexican peso 2.8 billion ($139 million) net loss in the second quarter, an improvement over its Mexican peso 4.2 billion loss the quarter before. It reported an operating loss of Mexican peso 1.2 billion on a 40.5 percent decrease in revenues to Mexican peso 10 billion in the quarter compared to 2019. Passenger traffic was down 46.6 percent year-over-two-years on a 39.2 percent reduction in capacity. Aeromexico received a 75-day extension to the exclusive period to file a reorganization plan in its U.S. Chapter 11 bankruptcy, as well as a renewed financial commitment from partner Delta to its emergence in June.
  • In another sign of recovery confidence, American plans to hire more pilots through next year. The carrier will hire 350 new cockpit crews this year and another 1,000 in 2022, or 450 more pilots than previously planned, American Vice President of Flight Operations Captain Chip Long told staff in a memo last week. The news comes as the airline continues to work through its training backlog that forced it to cancel roughly 1 percent of its schedule through the end of July.

Edward Russell

Edward Russell

July 26th, 2021