BRIEFING n°12 : Starting a New Airline Post-COVID - Bold Moves or Strategic Opportunities?

Despite the ongoing struggles faced by many established airlines, the aviation industry continues to witness the emergence of new airline startups. What drives these ventures in an industry still recovering from the most significant disruption in its history? Let’s explore the factors that could justify such bold decisions and the dynamics shaping this evolving market.

A Surprising Context to Launch an Airline

"The aviation industry experienced in 65 days the destruction of 65 years of growth" stated the CEO of Lufthansa during the height of the COVID-19 crisis. This sobering remark underscores the unprecedented upheaval that has rattled the aviation sector.

Even before the pandemic, the airline industry was inherently risky, defined by high fixed costs, slim profit margins, and volatile market conditions. The arrival of COVID-19 only magnified these challenges. With the World Health Organization declaring a pandemic on March 11, 2020, governments worldwide imposed lockdowns, border closures, and travel restrictions, resulting in a 66% drop in global passenger numbers and a near 70% decline in passenger revenue per kilometer.

By 2024, while global air traffic has rebounded significantly, reaching near pre-pandemic levels, many airlines are still grappling with financial difficulties, grounded fleets, and mounting debts. Yet, in the midst of this turmoil, we are seeing the rise of new airline startups. What might appear to be a counterintuitive move highlights the resilience and adaptability of the aviation sector.

Entrepreneurs and investors see opportunities where others see obstacles. These opportunities are driven by innovations in technology, evolving consumer preferences, and shifts in market dynamics. This renewed activity signals cautious optimism for the future of aviation, especially as startups leverage the flexibility and fresh perspectives that legacy carriers may lack.

A Global Phenomenon Across All Regions

With the gradual recovery of air traffic post-pandemic, new airlines have emerged across the globe. These new entrants seek to capitalize on the vulnerabilities of legacy operators and tap into a growing demand for economical, flexible travel options. Let’s take a closer look at some of the key players across different regions.

Middle East and Africa

In the Middle East, Wizz Air Abu Dhabi, a subsidiary of the European low-cost carrier Wizz Air, began its operations in January 2021. Starting with flights between Abu Dhabi and Athens, it has since expanded to cities like Alexandria, Odessa, and Yerevan, as regional health restrictions eased.

In South Africa, LIFT Airlines launched in December 2020, founded by a former Uber executive and the creator of Kulula. Using Airbus A320s, LIFT operates domestic routes from Cape Town, targeting travelers with flexible ticket options and customer-friendly policies.

In Saudi Arabia, Flynas has expanded aggressively in the post-pandemic era. Originally launched in 2007, the airline is strengthening its low-cost long-haul capabilities and is tapping into the growing demand for tourism in Saudi Arabia as the kingdom seeks to diversify its economy.

Europe

In the UK, Flypop, a low-cost airline targeting the Indian diaspora, started operating in late 2021. The carrier offers flights from London Stansted to secondary cities in India, using a fleet of Airbus A330-300s to tap into underserved routes.

Icelandic airline Play, launched in 2021, serves major European cities like London, Berlin, and Barcelona with Airbus A321neos. It aims to fill the void left by the defunct Wow Air, and in 2024, Play announced plans to open new long-haul routes to North America, expanding its network across the Atlantic.

In Norway, Norse Atlantic ASA began its low-cost long-haul operations in December 2021, operating Boeing 787 Dreamliners. The airline hopes to succeed where Norwegian Long Haul failed, offering budget-friendly transatlantic flights between Europe and the U.S.

Latin America

In the Caribbean, Arajet, based in the Dominican Republic, started operations in 2022 with a fleet of Boeing 737 MAX. The airline focuses on connecting major cities in the Caribbean and Latin America, offering an affordable option for regional travelers.

North America

In the United States, two prominent low-cost carriers launched in 2021: Avelo Airlines and Breeze Airways. Avelo, using Boeing 737-800s, connects underserved cities from its hub in Hollywood Burbank Airport, California, to various domestic destinations.

Breeze Airways, founded by David Neeleman (also behind JetBlue and Azul), has grown rapidly, focusing on routes with little to no competition. Operating Embraer E190s, E195s, and more recently, Airbus A220s, Breeze now serves over 40 cities across the U.S., particularly targeting secondary airports and underserved markets.

Can These Startups Sustain Themselves?

The business models of these new entrants are gradually becoming clear. Most of them are low-cost carriers (LCCs) operating on short- and medium-haul routes, aiming to attract leisure travelers. Their strategy often revolves around offering competitive fares, facilitated by low leasing rates and efficient use of secondary airports.

However, relying on low costs alone isn’t sufficient for long-term sustainability. As one industry expert succinctly states: "The real success of the low-cost model isn’t just about buying planes at a discount; it’s about maximizing aircraft utilization and productivity."

These startups face the challenge of filling their planes while maintaining a sustainable average revenue per ticket. Looking at the U.S. market, for instance, how will new players like Breeze and Avelo carve out market share against established low-cost giants such as Allegiant, Spirit, Frontier, and Sun Country?

For now, these new entrants seem to focus on niche markets with little direct competition. As long as they avoid encroaching on the core routes of major players, large-scale competitive conflict is unlikely. However, if these startups begin to expand aggressively, the dynamics of competition could shift, potentially leading to a more hostile environment.

The airline industry is notoriously selective. Established players have the financial backing and operational know-how to retaliate if threatened. The ability of these new startups to adapt, innovate, and capture untapped market segments will be key to their long-term survival.

The emergence of these new airlines amid a recovering aviation market is a testament to the industry's resilience and capacity for innovation. However, the path to sustainability remains uncertain, and the competition fierce.

Can these startups succeed in reshaping the aviation landscape, or will they eventually fall prey to the same challenges that have troubled many before them?