New airlines Avelo and Breeze set for profitable year

In the nearly four years since the Covid-19 pandemic disrupted air travel, America's largest airlines have returned to profitability. The CEOs of two new airlines that launched amid the pandemic say they are about to join them.

Avelo and Breeze Airways, two low-cost airlines that debuted in 2021 when U.S. air travel demand was more than 30% below pre-pandemic levels, have rapidly ramped up operations.

They have launched dozens of new routes across the country and their founders say their strategy of linking cities where there is less competition from big airlines is paying off. Think Hollywood Burbank Airport in Los Angeles, rather than Los Angeles International Airport or Islip, Long Island, above New York City.

“When you have Goliath and you're just David, it's really difficult,” said Andrew Levy, CEO of Avelo Airlines.

Delta, American, United and South west together they control about three-quarters of the US market, according to Cirium data.

Avelo says it carried 2.3 million customers in 2023 and its planes were more than 80% full on average. Breeze carried more than 2.8 million travelers last year and its flights were 77% full, according to the company. Carriers are still small. By comparison, Southwest Airlines, the largest domestic airline, carried more than 137 million passengers last year.

However, Avelo reported its first profitable quarter in the final three months of 2023, and a company spokesperson said the airline will likely turn an annual profit in 2024. It posted full-year 2023 revenue of $265 million, up 74%. more than the previous year.

Levy said he expected the airline to turn a profit sooner, but high fuel costs during a period of widespread inflation and the Russian invasion of Ukraine two years ago pushed back the schedule.

Breeze is also on track to achieve its first profitable year in 2024, CEO David Neeleman said.

It typically takes two to four years from launch for airlines to turn a profit, said Henry Harteveldt, president of Atmosphere Research Group, a travel industry consulting firm. Avelo and Breeze faced additional challenges that have weighed on the entire industry, including a rise in oil prices, supply chain issues and a shortage of pilots and air traffic controllers.

“The fact that both airlines continue to operate is a credit to [Levy’s and Neeleman’s] visions, their leadership, but also the dedication of their employees,” said Harteveldt.

Both airlines have a presence in the low-cost airline segment, which also includes Border and loyalthat offer base rates, add-ons and secondary flights to the airport.

Avelo flies to about 50 destinations and operates from six bases, including Tweed-New Haven Airport in Connecticut and Wilmington Airport in Delaware. Many of its destinations range from the Northeast to popular vacation destinations in Florida and South Carolina, but it also offers destinations in California and other western US states.

The airline moved beyond the continental U.S. in 2023 when it launched service to Puerto Rico and will likely expand to international destinations this year, Levy said.

Breeze, which Neeleman founded after also starting JetBlue Airways and Brazilian carrier BlueIt mostly avoids major hubs and flies from about 50 airports, such as Westchester County Airport in New York and Akron-Canton Airport in Ohio.

It flies to standard vacation destinations, but also offers cross-country flights from cities like Hartford, Connecticut, or Charleston, South Carolina, to destinations like Las Vegas and Los Angeles. It hopes to launch an international service by 2025.

Avelo and Breeze have continued to announce new routes and destinations this year. Avelo had 11 routes shortly after its launch in summer 2021 and now has about 75, while Breeze flew about 16 routes that summer and currently sells about 180.

Breeze and Avelo sell base fares (some as high as double digits) and charge fees for checked bags and advanced seating assignments, surcharges that have become common not only among low-cost airlines but also among larger airlines.

Breeze's lowest fare option allows travelers to bring just one personal item, but the airline also sells first-class seats and extra legroom options with more amenities. No airline's base fare includes carry-on baggage.

Offering low airfares has made industry-wide cost increases even more daunting for Avelo and Breeze. A nationwide pilot shortage following the pandemic and rising labor costs, for example, have posed a challenge.

Large airlines, which can offer pilots big salaries, have hired pilots from smaller airlines in recent years to supplement their staff after the pandemic.

“What we really want to look at with drivers is attrition…We had a attrition rate that was higher than we would have liked, and now it's where we want it,” Neeleman said.

The carrier has many first officers who are ready to be promoted to captain, which will help alleviate the shortage, he added.

Airlines have also had problems with late aircraft deliveries and difficulties in obtaining thousands of spare parts.

Avelo has faced delivery delays for its used Boeing 737 aircraft it leases, CEO Levy said. The company currently has 16 aircraft in its fleet and five on order.

“The entire aviation supply chain system has been ruined since Covid. And it's still not back to what it was,” Levy said.

Breeze said last month it will exercise options on 10 more Airbus A220 aircraft. The company will exclusively fly the A220 for commercial service by the end of 2024. It currently flies 22 A220s and will have 32 in operation by the end of 2024, according to Neeleman.

Neeleman said Breeze aims to become profitable before deciding whether to file for an initial public offering or another option. Avelo also expects to achieve sustained levels of profitability ahead of an IPO.

Levy said Avelo's goal is to “get to a point where the company is IPO ready” and that he has no interest in selling the company.

Some airlines, particularly low-cost airlines, have in recent years sought mergers to undermine the dominance of the big four. JetBlue and Spirit announced plans to merge in July 2022 in a deal that would have created the fifth-largest U.S. airline, although a federal judge blocked that merger in January. Those airlines have appealed that ruling.

Hawaiian Airlines and Alaska Airlines They plan to combine, although they will continue to operate the brands as different operators.

Both Levy and Neeleman said there is room for multiple players in the low-cost airline space.

“The more competition we have in the U.S. airline industry, the better it is for the traveling public,” said Harteveldt of Atmosphere Research Group.

— CNBC's Leslie Josephs contributed to this report.

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