Airline startups Avelo and Breeze are poised for a profitable year

In the nearly four years since the Covid-19 pandemic upended air travel, America's largest airlines have returned to profitability. The CEOs of two airline startups launched in the middle of the pandemic say they're about to get on board.

Avello and Breeze, two low-cost carriers that debuted in 2021 when U.S. air travel demand was 30% below pre-pandemic levels, have rapidly grown their operations.

They have launched dozens of new routes across the country, and their founders say their strategy of connecting cities with less competition from major airlines is starting to pay 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 Avello Airlines.

delta, American, united And Southwest Together, the two companies control about three-quarters of the US market, according to Cirium data.

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

However, Avello reported its first profitable quarter in the last three months of 2023, and a company spokesperson said the airline will likely achieve annual profits in 2024. It had revenue of $265 million for all of 2023, up 74% from the previous year. .

Levy said he had expected the airline to become profitable sooner, but rising fuel costs during a period of broad inflation and the Russian invasion of Ukraine two years ago pushed back the timeline.

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

Airlines typically take two to four years from launch to turn a profit, said Henry Harteveldt, president of Atmosphere Research Group, a travel industry consulting firm. Both Avello and Breeze faced additional challenges that affected the entire industry, including a significant jump in oil prices, supply chain disruptions, and a shortage of pilots and air traffic controllers.

“The fact that both airlines are still operating is a credit to this [Levy’s and Neeleman’s] “Their vision and leadership, but also the dedication of their employees,” Harteveldt said.

Both companies have staked a claim in the low-cost transportation sector, which also includes… border And sincerewhich offers basic fares, add-ons and secondary airport flights.

Avello flies to about 50 destinations and operates out of six bases including Tweed-New Haven Airport in Connecticut and Wilmington Airport in Delaware. Many of its destinations are from the Northeast to the popular vacation destinations of Florida and South Carolina, but it also serves destinations in California and other western states in the United States.

The carrier moved beyond the continental United States 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 he also started JetBlue Airlines And the Brazilian carrier Azulmostly avoiding major hubs and flying 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 including Las Vegas and Los Angeles. It hopes to launch international service by 2025.

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

Breeze and Avelo sell base fares — some as low as double digits — and charge fees for checked baggage and advanced seat assignments, additional fees that have become common not only among budget airlines, but also among most major carriers.

The cheaper Breeze option allows travelers to bring only personal items, but the airline also sells first-class seating and extra legroom options with more amenities. Neither airline's basic fare includes hand luggage.

Offering lower airfares has made industry-wide cost increases more difficult for Avelo and Breeze. For example, a nationwide pilot shortage in the wake of the pandemic and rising labor costs has been a challenge.

Major airlines, which can offer big salaries to pilots, have hired pilots from smaller airlines in recent years for post-pandemic hiring.

“What you really want to see with the Airmen is attrition. We had a higher attrition rate than we wanted, and now we're getting there,” Neeleman said.

He added that the carrier has several first officers preparing for promotion to the rank of captain, which will help alleviate the shortage.

Airlines also suffered from delayed aircraft deliveries and difficulties in obtaining thousands of spare parts.

CEO Avello Levy said the company has faced delays in deliveries of its used Boeing 737 aircraft that it leases. The company currently has 16 aircraft in its fleet and has five aircraft on order.

“The entire aviation supply chain system has been disrupted since Covid. It has not yet recovered,” Levy said.

Breeze said last month that it would exercise options on 10 more Airbus A220 aircraft. The company will fly the A220 exclusively for its 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 be profitable before deciding whether to file for an IPO or another option. Avello also hopes to achieve sustainable levels of profitability before the IPO.

Levy said Avello's focus is “getting to the point where the company is ready to go public,” and that he has no interest in selling the company.

Some airlines, especially low-cost carriers, have in recent years sought mergers to break away from the dominance of the Big Four. JetBlue and Spirit announced their plans to merge in July 2022 in a deal that would have created the fifth-largest airline in the United States, although a federal judge blocked that merger in January. The airlines have appealed this ruling.

Hawaiian Airlines And Alaska Airlines They plan to merge, though they will continue to operate the brands as premium carriers.

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

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

— CNBC's Leslie Josephs contributed to this report.

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