Transavia Results Shows Leisure Strength

Edward Russell
November 1st, 2021 at 12:01 AM EDT

Transavia was far and away the leader at Air France-KLM in the third quarter. The discount subsidiary produced margins near 2019 levels and is set to grow beyond its pre-crisis scope next year as the group looks to a continued recovery.

Transavia in the Netherlands and Transavia France together reported an operating profit of €105 million ($122 million) in the third quarter, and a 20 percent margin that was “approaching” levels last seen two years ago, as Air France-KLM CEO Ben Smith put it during the group’s third-quarter earnings call. That result exceeded every other business segment in the group — including cargo that has been a bright spot through the crisis — by double digits. Though, despite its outperformance, Transavia makes up just a small fraction of the group: 11 percent of total revenues in the September quarter.

The performance of Air France-KLM’s budget arm exemplifies the strength of leisure travel in the recovery. Both of Transavia’s operations pivoted to flying more leisure-oriented routes, particularly to Greece, Portugal, and Spain, as intra-European travel reopened to those with their Covid-19 jabs in the third quarter. That shift produced a “great result,” said Group Chief Financial Officer Steven Zaat, and contributed to the 2019-level financials on just 85 percent of the capacity.

“This to me is proof that the vaccinated travel policy of the EU is working and boost[s] our demand,” Zaat said of Transavia’s third-quarter performance.

Other European discounters have made similar moves. Eurowings, EasyJet, Ryanair and Wizz Air all boosted flights to leisure destinations in Greece, Portugal, and Spain by, for the most part, double digits in August compared to the month before, according to Cirium schedules. While they still flew less capacity to these countries compared with 2019 — Wizz Air was the lone exception — it was down far less than their systemwide reductions.

Air France-KLM will continue to grow Transavia France in 2022. The airline will become its dominant operator in the domestic French market and particularly at Paris Orly where it is replacing Hop, which has been integrated into Air France. Transavia France will add 13 Boeing 737s to the 48 it flew at the end of September for 61 by Summer 2022. Prior to the crisis, the discounter operated 40 737s.

Current plans call for Transavia to recover to 2019 capacity levels next year, and Transavia France to grow along with its fleet expansion.

Outside of Europe, Air France-KLM saw an “incredible” increase in transatlantic demand following the announcement that the U.S. reopen to vaccinated travelers, said Smith. The change will occur on November 8 and is widely expected to be a boon to year-end holiday bookings as Europeans travelers take long-delayed trips. However, Smith cautioned that it is too early to say whether the demand that is comparable to 2019 levels will be sustained into 2022 after the holidays pass.

The network carriers also benefit from the uptick in premium leisure travel — or holidaygoers who fly in the first, business, or premium economy cabins — that several airlines have reported. Prior to the crisis, half of premium flyers on Air France and KLM were already traveling for leisure, and the group expects this percentage to increase in the recovery, Smith said. Air France also benefits from its Paris base being one the largest leisure destinations in Europe. However, to adjust for potential fluctuations in premium demand, Air France is adding “quick change” cabin capabilities to all of its widebody aircraft in order to quickly adjust premium seat layouts.

Executives said little about the business travel recovery, a segment that Air France-KLM and many of its legacy competitors rely on for their financial future. Smith only said that leisure travelers continue to return at a faster pace than their corporate counterparts.

In terms of its balance sheet, Air France-KLM has reached terms with its lenders to repay the €4 billion in state aid it received from the French government. Instead of a bullet maturity in 2023, the group will repay €500 million in the “coming weeks,” another €800 million in May 2023, and a further €1.3 billion in both May 2024 and 2025, said Zaat.

The group had €10.4 billion in cash or available borrowing capacity at the end of September. This is ample liquidity to get the carrier through the recovery and repair its balance sheet, said Zaat.

Air France-KLM posted a €192 million net loss in the third quarter. Earnings before interest, taxes, depreciation and amortization (EBITDA) at €796 million was positive for the first time since the crisis began, though it was half of what it was in 2019. Revenues decreased 40 percent to €4.6 billion year-over-two-years. Air France-KLM’s operating margin was 2.9 percent, and the group flew 66 percent of 2019 capacity.

“We will be EBITDA positive for the full year,” Zaat said, forecasting a positive number in the fourth quarter. The group plans to fly 70-75 percent of the capacity it flew two years ago during the period.

In 2022, capacity at KLM could recover to 2019 levels and Air France to 90 percent of three years ago by the middle of the year based on current plans, Smith said. Both forecasts are dependent on demand and the reopening of more Asian countries that have lagged behind Europe and North America.

Edward Russell

JetBlue: Northeast Alliance Brings Needed Competition to New York

JetBlue Airways came out swinging in defense of its Northeast alliance with American Airlines, which the U.S. Justice Department has sued to stop. The New York-based carrier says, contrary to Justice’s complaint, that the alliance only enhances competition and breaks up what is essentially a Delta Air Lines and United Airlines duopoly in the New York metropolitan region.

“New York has historically been dominated by two carriers,” Robin Hayes, JetBlue’s chief executive, told analysts during the company’s third-quarter earnings call. “Our commitment to competition and low fares is steadfast, and we are fully committed to this alliance.”

JetBlue’s Northeast Alliance with American allows the two airlines to sell tickets on each other’s flights, reciprocate loyalty program benefits, and coordinate schedules, among other benefits. JetBlue noted that since it entered the alliance, the airline has added 58 new routes to its schedules from New York and Boston, and it plans to add up to 18 international destinations next year. For better connections on American’s network, JetBlue also plans to expand at New York LaGuardia and is adding routes to New Orleans, Nashville, and Portland, Maine, next year.

Crucially, the alliance gives JetBlue, which has focused on leisure travelers for most of its 20-year history, access to American’s rich vein of high-value corporate customers. Before the pandemic, business travel accounted for about 20 percent of JetBlue’s revenues, compared with the industry average of 30 percent. The carrier believes the alliance will boost that percentage in line with its peers in the industry.

Moreover, JetBlue’s network is primarily domestic, and its international routes — with the exception of recently added and hard-fought routes to London — centers on leisure destinations in Latin America and the Caribbean. With the alliance, JetBlue can connect onto American’s much larger and global international network, positioning JetBlue better to attract corporate accounts.

But the Justice Department has other ideas. In a September suit in federal court, the agency alleged the alliance was tantamount to a merger and would significantly harm competition, particularly in the New York region. “The United States and plaintiff states bring this action to prevent the hundreds of millions of dollars in harm to consumers that will occur if these two rivals are permitted to maintain this modern-day version of a nineteenth century business trust,” Justice said in its complaint. Both American and JetBlue fought back, with American CEO Doug Parker saying of Justice, “They are wrong.” Hayes at the time stressed that the two airlines would not coordinate on pricing.

In fact, Hayes on Tuesday said the alliance allows both carriers to operate up to 500 daily flights next month, with 300 of those flown by JetBlue. The pact will result in $800 million in annual consumer benefits, he said. JetBlue plans to maintain its low-fares and leisure focus, but will gain from American’s more business-focused network. “The Northeast Alliance brings a viable third competitor to the [New York] region,” added JetBlue President Joanna Geraghty. “It allows JetBlue to compete in a way it never could.”

JetBlue got a lot of attention over the last two years with its plans to enter the crowded transatlantic market. The flights launched over the summer, and Hayes said he is pleased with their progress and anticipates bookings to spike after the U.S. lifts its restrictions on inbound passengers from the UK next month. The carrier is seeing interest from the UK rise, despite not having done much marketing of the flights in that country. Hayes admitted that press reports have fueled much of the interest and brand awareness in the UK. The carrier plans to expand its transatlantic offerings, although executives declined to elaborate where it might next fly. Access to London Heathrow is strictly limited by the airport’s capacity, and landing slots there are highly coveted.

But although the London flights got a lot of media attention — arguably more than the Northeast Alliance or the federal lawsuit — transatlantic flights comprise less than half a percent of JetBlue’s flights, Geraghty said.

Like its peers, JetBlue saw demand spike in July and August, with travel approaching 2019 levels. But, also like its peers, it saw demand fall off in September as the Delta variant of the coronavirus spread. But the airline has hopes for the holidays. Bookings for December travel are starting to pick up and are “about even” with where the airline was in October 2019, Geraghty said.

But one advantage JetBlue has over its competitors, the airline’s executives believe, is that its network always has been structured for leisure and visiting friends and relatives (VFR) traffic. While other, more business-travel focused airlines have had to pivot to capitalize on leisure and VFR demand, JetBlue already had the infrastructure in place. This leaves it in good stead to capture a healthy share of holiday traffic, particularly out of New York and Boston.

But in the near term, the outlook isn’t as rosy. In usual years, leisure and VFR traffic fall off in September as schools reopen and families return from their summer holidays. Business travel usually offsets that decline, and in normal year rises to 25 percent of JetBlue’s revenues. This year is different, as companies delay recalling employees to their offices and business cancel planned trips to meetings and conferences. Corporate travel now accounts for only 5-10 percent of JetBlue’s revenues this fall, Geraghty said. This uncertainty led to JetBlue forecasting that its revenues will be down between 8-13 percent compared with 2019.

But the carrier is hopeful that next year will mark when the recovery begins in earnest. JetBlue is hoping to realize more benefits from the Northeast Alliance. By the second half of next year, it expects fuel prices to stabilize and to reap the benefits of its new hires, after they complete the training process. JetBlue will enjoy a “juniority” benefit, with many of its new hires entering the company at a lower wage than the employees who left the company during the pandemic. So far, the carrier has not reported the same difficulties in hiring as many of its competitors.

JetBlue reported a $130 million net income for the third quarter, up from a $393 million loss last year. Revenues quadrupled to $1.9 billion, compared with $492 million in 2020. During the quarter, JetBlue carried 9 million passengers, or 322 percent more than it did in 2020.

JetBlue forecasts that it will break even in the fourth quarter, as higher fuel prices and lower business demand take their toll. The carrier expects to fly between 4-7 percent less capacity than it did in 2019.

Madhu Unnikrishnan

Hawaiian Sees ‘Pieces Falling Into Place’ For Recovery

Hawaiian Airlines’ long-idled international network is taking its first steps to restarting, with the planned resumption of Sydney flights toward the end of the year. But the big prize Hawaiian is waiting to claim is Japan, far and away the carrier’s most lucrative international market.

When those flights will resume remain an open question, but CEO Peter Ingram is encouraged by the vaccination rates in Japan and moves the government is making to reopen the country. Vaccination rates in both Japan and South Korea — another key international market — have outstripped the U.S. mainland, and although Ingram did not speculate on when restrictions in those countries may ease, the carrier is preparing for a resumption early next year. “The pieces are falling into place,” he said during the company’s third-quarter earnings call.

Hawaiian expects demand to be robust when it returns. The carrier delayed the delivery of its 10 Boeing 787s on order to next year, with the presumption being that the airline still would be scaling back. “As we saw recovery, we decided we did not want to shrink in 2022,” Ingram said. Instead, Hawaiian will use the first of those aircraft for growth and has extended the leases on two of its Airbus A330s. It may extend leases on more A330s, given the favorable lease rates for the type now, if demand warrants, giving it more flexibility in adding or reducing capacity.

But that is next year and the present isn’t as rosy. Like the rest of the U.S. industry, Hawaiian had a busy July and August, but by the latter part of August and into September, bookings fell off as the Delta variant began to spread. Hawaii’s governor reimposed restrictions and publicly asked tourists not to come to the islands. “The Delta variant has dampened our near-term performance,” Ingram said. “The Delta variant interlude will be remembered as a short term setback on the road to fulsome recovery.”

July demand actually topped pre-pandemic demand, but began to drop through the middle of September. Fourth-quarter bookings are softer than the carrier anticipated, and as a result, Hawaiian plans to fly between 18-21 percent less capacity in December than it did in 2019. Still, Ingram noted the trajectory of the pandemic is in the right direction. “Just a year ago, it was impossible to travel to Hawaii without a 14-day quarantine,” he said. “The base case expectation is for a full recovery to 2019 levels in the back half of 2022.”

The carrier will be overstaffed for its December capacity. It has no plan to pare staff or delay incoming flight attendant and pilot classes, because it expects international and domestic demand to rebound quickly in the new year. “People want to travel, especially for leisure,” Ingram said.

And more of these people want to travel in the front of the aircraft, a trend that many airlines, including Delta and United, have observed. Premium-cabin unit revenues were stronger in the third quarter than in 2019, by double digits, although Hawaiian did not specify just how strong the growth was.

The interisland network is roughly 72 percent the size it was before the pandemic due to ongoing travel restrictions as the Delta variant surged. But Hawaii’s population is 71 percent fully vaccinated, which gives the carrier hope that the interisland network will recover quickly. Booking trends for interisland travel are strengthening, executives said.

Hawaiian expects fourth-quarter revenues to be down 32-37 percent from 2019. But the carrier plans to restore its full 2019 capacity by the middle of next year.

And when it does, Hawaiian expects the state travel infrastructure to be ready. During the summer, when the pandemic had begun to recede but before the Delta variant started to spread, rental cars and hotel rooms were scarce in Hawaii, with stories of tourists renting moving vans getting national attention. Ingram said the pause in demand during the latest surge gave hoteliers, short-term rental hosts, and rental car companies time to regroup and prepare for tourists’ return.

Hawaiian reported a third-quarter adjusted loss of $49 million. Revenues were $509 million, up 570 percent from last year, but down 33 percent from 2019. Traffic in the quarter was up 1,600 percent from last year, when quarantines were in force.

Madhu Unnikrishnan

Allegiant Reports Profit, Vows to Fix Operational Problems

Allegiant Air pulled off a rare pandemic-era feat: It is among the only U.S. airlines to report more revenue compared with the third quarter of 2019, and it turned a profit. But it wasn’t all clear skies for the leisure-focused airline. Allegiant discovered the hard way that restoring flights after the cuts of 2020 is easier said than done.

“This industry ran like a Swiss watch in 2019,” CEO Maurice Gallagher told analysts during Allegiant’s third-quarter earnings call. “But it’s almost like we’ve forgotten how to handle disruptions.” During the summer peak in demand, Allegiant, like Delta, Southwest Airlines, and American, cancelled hundreds of flights and left passengers stranded all over the country.

The main issue was labor. Many of the airports Allegiant flies to are in smaller metropolitan areas. Airports weren’t staffed up top handle 2019-levels of traffic, and nor was Allegiant. Pilots and crews often were in the wrong city or bumped up against their federal duty-time limits, with no reserve crews to relieve them. Smaller crew bases couldn’t keep up with demand. As much as 30 percent of the carrier’s staff took Covid-related or other leaves of absence when the Delta variant began to surge. “We thought it would be like turning on a switch,” Gallagher said. “We need to make sure we don’t over schedule the airline,” he added.

The snafus cost Allegiant a pretty penny. Disruptions cost Allegiant $28 million to put right, for ferry flights to put crews back in the right positions and other expenses, including $15 million in refunds to customers whose flights were cancelled. Because of this, Allegiant’s costs excluding fuel were higher than expected. “We’re learning as we go,” Gallagher said.

Allegiant is not immune to the labor shortage plaguing the country. The company is paying signing bonuses — a rarity for front-line airline employees — to attract talent. By the end of the summer, it had enough staff on hand to handle demand. In addition, Allegiant has pushed up the start dates for 300 pilots, flight attendants, and maintenance technicians to get ahead of anticipated holiday and 2022 demand.

The carrier and the International Brotherhood of Teamsters ratified the mechanics’ first collective bargaining agreement on Wednesday, bringing to a close almost more than two years of negotiations for a contract. The mechanics chose representation by the Teamsters in 2018.

These issues are not isolated to the Las Vegas-based airline. Supply-chain disruptions and labor shortages are on the level “none of us have ever seen before,” Gallagher said. “The irony is that everyone in this business is hiring, but we’re not back up to full capacity.”

Compounding Allegiant’s problems is the fact that there has been something of a land grab for leisure travelers. Airlines, like United Airlines and Delta that before the pandemic focused on business travelers are now rushing to fill their planes with vacationers. Almost half of Southwest’s flights now touch Florida every day. This is a remarkable change to Gallagher, who has led Allegiant since 2003. “We are seeing a substantial shift in the way airlines operate,” he said.

“All airlines wanted to plant the flag for leisure travelers,” Gallagher said. Leisure-focused airports, particularly in Florida, were busier than they could handle. Meanwhile, airports in major business centers saw a fraction of their 2019 passenger volume. “I like to call it ‘leisure destination overload,'” he said. TSA staffing at smaller facilities remains a concern, calling into question whether these facilities can handle anticipated demand. But Allegiant is focused on getting its operations back on track. “We’re back, and we’re getting a handle on it,” Gallagher said. “We know that we can show up every day and fly the airplanes with the people who’ll get the job done.”

Allegiant has long been known for its nimbleness in reacting to demand, quickly adding or reducing flights depending on how the market is behaving. And this summer was no different. July and the first half of August were busy, with demand in some cases exceeding the summer of 2019, as people took long-delayed vacations. And the airline reacted accordingly, with mixed results. As the Delta variant began to spread in August, Allegiant was fast in pulling down its schedule. Demand has begun to return, and advance bookings for holiday-season travel are on pace with historical norms.

The airline plans to fly 12-16 percent more scheduled capacity in the fourth quarter, compared with 2019. Part of that is because it’s a larger airline: Allegiant will end the year with eight more aircraft than it did in January, and larger, 186-seat aircraft will comprise a bigger part of its fleet. The carrier expects to grow in the low double digits next year as it adds 19 more aircraft, for a total of 127 planes by end-2022. The main constraint will be rising fuel costs, which Gallagher said could put a “damper” on anticipated growth. Allegiant also is preparing for another surge in Covid, and is factoring that possibility into its fourth quarter and 2022 planning. “This climbout has not been a straight climb,” Gallagher noted.

Allegiant is pressing ahead with its Sunseeker resort in Florida. Construction halted in 2020 when the pandemic began but resumed in the second quarter. Allegiant has secured $350 million in financing for the project from Castelake. It will start taking reservations in the first quarter of next year, with the first phase of the project expected to open later in 2022. The golf course and second phase are expected to be completed in 2023. Allegiant anticipates the resort will cost $510 million, but expects the costs to rise by 10-15 percent, due to construction-labor shortages and the rising price of raw materials.

Allegiant reported a third-quarter profit of $66 million, a sharp improvement from a $33 million loss last year, but down from a $72 million profit in 2019. Revenues rose 126 percent from last year and 5.3 percent from 2019, making it one of the few airlines to both report a profit this year and larger revenues than 2019.

“We’ve run to the beat of our own drum,” Gallagher said. “We will lead this industry out of the abyss.”

Madhu Unnikrishnan

Spirit Faces Third-Quarter Setbacks

The recovery got the better of Spirit Airlines in the third quarter. The surge in Covid-19 cases and its own staffing-related operational issues in August dragged the discounter down and forced it to scale back its recovery plans, including reclassify 2022 as yet another “recovery” year.

“The direct and indirect impacts of the pandemic have lasted longer than anyone could have predicted,” said Ted Christie, CEO of the Miramar, Florida-based carrier, during a third-quarter earnings call. While every U.S. carrier felt the negative effects of the Delta variant, Spirit’s own staffing challenges and subsequent August meltdown when it cancelled more than 2,800 flights over 10 days cost it $50 million in revenue and forced it to completely reevaluate its recovery plan.

And that plan, prior to August, was rosy. The leisure-first recovery played to Spirit’s strengths as a holiday-destination oriented airline with more than half of its schedule touching Florida. The airline planned to grow capacity in the “mid-teens” compared to 2021 and return its fleet of Airbus jets to full utilization — or more than 12 hours a day per aircraft. And for investors, it targeted a return to its pre-crisis financial metrics that were long among the best in the industry.

Now, those plans are out the window. Spirit has pulled back on capacity growth with the fourth quarter now forecast to be up just 11 percent compared to 2019; an almost 12 point cut from previous guidance. Half of the capacity reductions will occur in Fort Lauderdale where staffing challenges are the worst. In addition, Spirit has delayed plans to return its fleet to full utilization by six months or more, or until late 2022 or early 2023, which cements 2022 as another recovery year for the airline.

Spirit is “taking our foot a little bit off the gas here so that we can … see the hiring come in,” said Christie. “Let’s build the base to get ready for the summer of next year.”

Incoming Southwest CEO Bob Jordan has also described 2022 as another “transition” year for the carrier following Southwest’s own operational and workforce challenges. American and Delta have also faced some staffing-related operational issues since the beginning of the year.

Even with Spirit’s foot off the metaphorical gas, the airline is still larger than it was two years ago. It has added eight new destinations to its map this year, including a large 30-route expansion into Miami in October, Cirium schedules show. However, Spirit has also dropped five cities, including Asheville, Niagara Falls, and Managua, Nicaragua.

Notably absent from Spirit’s comments was much color on travel demand. Commercial Chief Matt Klein described demand as “very strong” during the summer before the variant hit, and said that it generally “continues to improve.” With little corporate travel business, his comments reflect the leisure and visiting friends and relatives (VFR) market that other airlines have described as fully recovered from its pandemic trough.

The U.S. labor shortage, or perhaps more appropriately a shortage of workers willing to risk of Covid-19 exposure for a low-wage, entry-level job, has hit companies across the economy. Speaking at the Skift Global Forum in September, Jordan said the issue is so acute that, aside from Southwest’s own hiring challenges, he was given a job application with his food at the Texas burger chain Whataburger recently. And the situation is the same for hotels and other sectors on down to trucking companies.

Spirit faces its biggest challenges in Fort Lauderdale. The airport is the largest in its system and touches nearly a quarter of all of its flights on a daily basis, thus compounding any local issues across its network. Entry-level positions, particularly ground handlers and ones managed by third-party vendors, are the most challenging, said Spirit Chief Financial Officer Scot Haralson.

As a result of the meltdown in August, the airline is undertaking a top-to-bottom review of its operations to avoid similar disruptions in the future. The result of this could be “network design changes,” or changes to how aircraft and crews flow across Spirit’s map, including new crew bases across the U.S., said Christie.

Spirit has seven bases today: Atlantic City, Chicago O’Hare, Dallas-Fort Worth, Detroit, Fort Lauderdale, Las Vegas, and Orlando — the latter being its newest having opened in 2018. All but Atlantic City rank in its top 10 for departures in October, according to Cirium. The four cities in the top 10 without bases are Atlanta, Houston Intercontinental, Los Angeles, and Newark, with the latter two seeing the most growth compared to 2019.

The design of Southwest’s network, compounded by similar staffing issues, were cited in the carrier’s own meltdown earlier in October.

Spirit forecasts at least $300 million in additional labor expenses — a jump of more than a third compared to 2019 — to alleviate its staffing issues in 2022.

In the third quarter, Spirit reported a wider loss of $75 million loss, excluding the benefit of federal aid, compared to the three months before. Revenues decreased 7 percent to $907 million while expenses increased nearly 5 percent to $909 million versus to 2019. Passenger traffic decreased 5 percent on a 3.5 percent increase in capacity year-over-two-years.

The airline forecasts continued losses as well as rising expenses driven by labor and fuel in the fourth quarter. Spirit anticipates paying an average of $2.54 per gallon for fuel during the period, an at least 19 percent increase from the third quarter. Spirit is scheduled to take delivery of five Airbus A320neos through the end of December.

MKM Partners Analyst Conor Cunningham described Spirit’s outlook in a report as “less bad” than was expected, but even then it was still “nothing spectacular.”

Edward Russell

Australia’s Latest Startup: Bonza

Australian startup Bonza is taking a lot of bets. It bets that domestic capacity growth has been artificially capped by the two dominant airline groups — Qantas Group and Virgin Australia — over the past two decades leaving ample demand for market stimulation by a “independent” low-cost carrier. And it bets that the country’s population growth outside of its largest cities is underserved when it comes to nonstop flights to leisure-oriented destinations. Put together, the airline led by industry veteran Tim Jordan and backed by U.S. private equity firm 777 Partners has designs on becoming something of the Allegiant Air or Jet2 of Australia.

And those are big bets. Australia has long been a two-airline market: originally split between Ansett and Trans Australia Airlines (TAA), which was absorbed by Qantas in the 1990s, and more recently between Qantas and Virgin. Competition has come in the form of Jetstar, which is wholly-owned by the Qantas Group, and Tigerair, which Virgin acquired in 2013 and shut in 2020. That split has persisted despite population and traffic growth: the Australian population has grown by more than a third to 25.7 million today compared to 2000, while airline traffic has doubled to about 60 million passengers annually. But Jordan thinks there’s more demand for flights out there.

“The lid is being held on the market to a certain degree,” said Jordan referring the past 20 year period. This opportunity existed before the Covid-19 pandemic and has only grown during the crisis that saw Virgin retrench and Tigerair close. But that opportunity is not taking on Qantas and Virgin, and now Rex Airlines, on Australia’s busiest routes between Brisbane, Melbourne and Sydney. The opportunity is in low-frequency, point-to-point services connecting second-tier cities with beaches and other holiday-oriented destinations. Asked for examples of these destinations, Jordan cited the Gold Coast and Sunshine Coast in Queensland, as well as Tasmania’s mountains and outdoor attractions. Bonza estimates there are 45 airports it could serve with more than 30 already expressing interest, said Jordan.

The startup will operate a fleet of two or three new Boeing 737-8 jets, said Jordan. The aircraft will be leased from investor 777 Partners, which he said gives Bonza added flexibility to flex up or down its fleet as demand warrants. The private equity firm has outstanding orders for 30 737 Maxes, according to Boeing data. 777 Partners has delivered eight 737-8s to its other airline investment: Canadian startup Flair Airlines.

Bonza is in the process of securing an air operators certificate from Australian authorities and, if all goes according to plan, hopes to begin revenue flights in the second quarter of 2022.

Edward Russell

In Other News

  • The big three Chinese carriers racked up more losses on improving revenues in the third quarter. China Southern did the best overall during the period with a 1.4 billion yuan ($219 million) net loss on a 2 percent year-over-year increase in revenues to 26.9 billion yuan. Air China led on revenue growth with a 5.2 percent year-over-year increase to 19.8 billion yuan, though it posted the largest net loss of 3.5 billion yuan. And China Eastern sat in the middle with a net loss of almost 3 billion yuan on a 3.6 percent year-over-year increase in revenues to 17.8 billion yuan.
  • Finnair reported a €115 million ($133 million) net loss in the third quarter. The carrier cited Finland’s July reopening, which was later than many other European markets, for the weak period when revenues were down 77 percent year-over-two-years to €199 million. Finnair carried 87 percent less passenger traffic and flew 74 percent less capacity than it did during the September quarter in 2019. “We are still far from the pre-pandemic passenger numbers,” said CEO Topi Manner last week and adding that the airline maintains expectations of a full capacity recovery by 2023. The airline provided little fourth quarter guidance beyond expectations of positive cash flow citing limited visibility.

    Manner was also optimistic for the recovery, saying the November reopenings of both Thailand and the U.S. to vaccinated travelers as “de facto” resumption of Finnair’s long-haul business. The airline plans to resume flights to both countries this winter and to other key Asian markets, excluding China, in early 2022. As for Finnair’s expansion to Stockholm Arlanda, Manner said the initial launches — to Bangkok, Phuket and Miami with Los Angeles and New York starting before year-end — went well though the long-term future of the base will depend on profitability. The growth takes advantage of “changes in the competitive landscape” in Stockholm, including Norwegian Air‘s exit from long-haul flying and SAS‘s strategic shift focusing long-haul flying in Copenhagen.
  • It was another quarter of losses for Indigo, but the story started to improve by September when the Delta variant, which struck India hard and relentlessly, started to recede in the face of rising vaccination rates. During the quarter, the government imposed a cap 65 percent of 2019 capacity on the country’s carriers, which rose to 85 percent as the surge ended, and recently the government lifted the cap completely. The carrier reported a net loss of 14.4 billion rupees ($192 million), an improvement over its second-quarter net loss of 32 billion rupees, but up from a loss of 12 billion rupees last year. Revenues improve from the second quarter and last year to 58 billion rupees. The international network remains a challenge, and the carrier ended the quarter operating only about one-third of its pre-pandemic international flights. Indigo is in talks with the government to increase the number of international flights it can operate, CEO Ronojoy Dutta said. “It is now time for repair and healing,” he added.
  • A restructured Norwegian Air reported a Norwegian kroner 169 million ($20 million) net profit in the third quarter. But despite the profit and a 50 percent increase in revenues to Norwegian kroner 1.9 billion, CEO Geir Karlsen said last week that the airline still has a structural cost problem. Unit costs excluding fuel were Norwegian kroner 0.51 in the quarter, which is an 82 percent increase from 2019. Norwegian Air will grow into its cost structure with leases for an additional 13 Boeing 737s for its Summer 2022 schedule — for a total of 64 737s — and 70 aircraft by end-2022, said Karlsen. On a positive note, Norwegian Air’s yield was up 15 percent to Norwegian kroner 0.53 during the September quarter. The carrier plans to fly 50 of its 51 737s by the end of December, and forecasts operating 29 million available seat kilometers (ASKs) in 2022 — roughly 31 percent of what it operated in 2019.
  • The U.S. bankruptcy court judge is weighing Avianca‘s Chapter 11 restructuring plan after a confirmation hearing on October 26. Judge Martin Glenn is expected to sign off on the plan, which has the backing of 99 percent of creditors including United, sometime after final comments are submitted to the court on October 28. If approved, Avianca will pivot to a more leisure-oriented airline with denser aircraft and more point-to-point flying, but keeping a premium cabin, widebody jets and membership in the global Star Alliance. In addition, it aims to move forward with its proposed U.S.-Latin America joint venture with Copa Airlines and United.
  • And speaking of bankruptcy, a judge approved Latam Airlines Group‘s request to extend the exclusivity period for it to file a reorganization plan in its Chapter 11 case to November 26. The Chile-based group is the last of the three big Latin American airline bankruptcies to submit a plan with Avianca‘s pending approval and Aeromexico‘s submitted in September.

    In more good news for Latam, the Chilean antitrust court approved its planned joint venture with Delta last week. The immunized pact would cover flights between the U.S. and most of South America. Now, the airlines only need sign off from the U.S. Department of Transportation for the tie up to move forward.
  • The latest U.S. startup Aha! took to the skies on October 24 with flights between Reno and Pasco/Tri-Cities, Wash. The airline, which is the latest reincarnation of former United affiliate ExpressJet Airlines, plans to serve eight destinations from its Reno base by November 10. The carrier flies Embraer ERJ-145 regional jets.
  • U.S. regional SkyWest may take a $15-20 million hit this quarter after a malware attack in October. After containing the attack and moving its systems to a new server, that server failed, causing the cancellation of almost 2,000 flights. That is this quarter. The third quarter, on the other hand, was good; another period of profits for the regional. SkyWest reported a net income of $10 million, down from $34 million last year. Costs rose 82 percent over last year due to increased flying for its mainline partners. The regional benefited from $115 million in federal payroll support in the quarter. Revenues rose 63 percent year over year to $745 million.
  • UPS continues to benefit from the near-insatiable demand for cargo and e-commerce, but it’s not immune to the economy-wide labor shortage. The shipping behemoth reported the highest profits in its history in the nine months that ended on September 30, but its labor costs have risen sharply. UPS is turning to automation, to drive productivity and to replace some job functions. It still has to hire 100,000 seasonal workers for the peak holiday season. Shipping constraints are not an issue for the company. “If you can pull the containers off the ships, and then get them drop shipped to us, we’ve got the capacity to take on those containers,” CEO Carol Tome said. “So we’re here, ready and able to support anything that we can do to unlock some of that jam.” UPS reported revenues of $23 billion, up 9 percent from last year, and profits of $3 billion, generating an adjusted operating margin of 25 percent.

Edward Russell & Madhu Unnikrishnan

Edward Russell
November 1st, 2021 at 12:01 AM EDT

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