No time to cool your jets: the risk takers who see the aviation crisis as just a blip

Crisis? What crisis? The aviation industry has been devastated by the pandemic, but for some brave entrepreneurs, it has created the perfect opportunity to start an airline.

Despite savage cuts in staff, routes and aircraft by established carriers in an attempt to survive border closures and a collapse in passengers, several new airlines are now springing up.

Their aim is to take advantage of the disruption that has driven down costs and opened up opportunities as they bet the crisis is just a blip, checking the growth of the longer-term success story of global aviation that has rapidly expanded over the past 30 years.

New groups include Oslo-based Norse Atlantic Airways, a resuscitated version of bankrupted Norwegian Air Shuttle, one of the biggest casualties of the pandemic. It will even use some of Norwegian’s former planes, with a new lick of paint.

The carrier intends to take on British Airways and Virgin Atlantic as a low-cost rival in the lucrative long-haul transatlantic market. In short-haul, start-ups in Europe have popped up in Italy and Iceland.

In the US, new entrants Breeze Airways and Avelo Airlines plan to connect smaller cities, while South Africa’s Lift has already begun flying.

“We think it is a good time because the world has been closed, but the underlying demand for travel is huge,” Norwegian businessman Bjorn Tore Larsen, founder and largest shareholder of Norse, told the Financial Times.

Norse will begin flying between major cities in Europe and the US later this year after raising about $150m from a private placement on the Oslo Stock Exchange, where it began trading this week.

Norse Atlantic’s second and third-biggest investors were both involved in Norwegian, which collapsed after aggressive expansion and problems with its Boeing Dreamliner aircraft. They know more than most about the dangers of starting a new carrier.

“Our ambition is to fill the gap left behind by our predecessor,” Tore Larsen said.

While Norwegian was still going through bankruptcy proceedings in a Dublin court last month, 800 miles away in Oslo he signed a deal to lease nine Dreamliners from Irish company AerCap.

“We know Norwegian had a huge market position and had great success in filling their aircraft when they flew across the Atlantic, and we will focus on exactly that . . . we have no debt, we will walk before we can run, we can phase this in gradually.”

But, whatever the logic behind the plans, aviation is a difficult market to break into with high costs and low margins.

“With a single long-haul aircraft, you might ideally want it to be generating somewhere towards $100m in revenue per year, so you don’t have to be very far wrong for your loses to be in the millions of dollars,” said Edmond Rose, an aviation consultant, who used to run slot allocation at the UK’s airports.

Even before the crisis, a small group of only 30 airlines were responsible for most of the industry’s profitability, according to the International Air Transport Association, Iata, the global aviation group.

The last wave of major entrants into the market were the Gulf airlines including Etihad and Emirates, who were able to call on near limitless state resources to fund their growth.

However dramatically lower costs have raised hopes that now is the once-in-a-lifetime moment to launch an airline.

With thousands of pilots and cabin crew laid off and competing for new jobs, entrepreneurs hope to keep a lid on wages, while costs to lease planes have fallen by about 30 per cent because of an oversupply of aircraft parked up on tarmac across the world, according to Helene Spro, a director at credit rating agency Scope Ratings.

Jonathan Ayache, a former Uber executive and now chief executive of Lift in South Africa, said costs have been “at an all-time low”. Unlike many of the post-pandemic start-ups, Lift is already flying between Cape Town and Johannesburg.

“These things happen and go in cycles, the last one was probably the financial crisis, but there are these points in the aviation life cycle when you can get in at the right time,” he said.

The start-up airlines are also banking on the pandemic heralding a shift in flight routes, with many established carriers struggling and questions over the old hub and spoke model, where smaller airports channel passengers to the big international hubs, such as London’s Heathrow, for their long-haul businesses.

Several of the new carriers are instead focused on direct point to point flying, where they hope to take advantage of the thousands of routes left vacant as incumbents have retreated.

Before the crisis, there were almost 30,000 unique international routes between airports, but now there are about 12,000, according to Iata.

One entrepreneur hoping to benefit from this shake-out is Nino Singh Judge, the former motor racing executive and chief executive of embryonic airline Flypop. It plans to connect the south Asian diaspora in the UK to friends and relatives in India on routes that are not currently flown by other carriers, eliminating the need for a stopover.

Judge said the disruption from the pandemic had allowed him to sign a deal to lease four Airbus A330-300s from Avolon, a leading Irish leasing company, with the first plane to be delivered in September.

“They wouldn’t even look at us pre-Covid,” he said, adding that his leasing costs will be 50 per cent lower than he had budgeted for.

Flypop has raised £7m in funding from private investors and benefited from £5m in a UK government convertible loan. It has applied to the UK Civil Aviation Authority for an operating licence, and is in discussions with airports ahead of a planned launch this autumn.

“It is very good rates on everything . . . to lock those in at the bottom of the market is the nirvana for aviation start-ups. I couldn’t have dreamt at a better time to start,” Judge said. 

However, there are dangers for the challengers as few airlines have disappeared, despite the unprecedented year of disruption, helped by receptive capital markets and state support.

This means well-funded established groups can return to old routes once passenger demand comes back, said Rose.

“I don’t think the competition has gone away. Although the big legacy carriers in some cases have had to shrink, they can grow again,” he said.

Critically, even in aviation’s boom times, no carrier has made a success of the low-fare model, advocated by Tore Larsen and Judge, on long-haul routes, although both men argue an extremely disciplined and cautious approach means this time could be different.

Their biggest test is also yet to come as they will need to spend on staff, aircraft maintenance and marketing for ticket sales ahead of flight launches, which could burn through cash and jeopardise their businesses before the first plane has taken off.

“Once you start pressing the button for marketing and fuel and you don’t fill that plane up, you are going to drown . . . it will be the biggest decision to make in my life,” Judge said.