The entrepreneurs launching airlines in a pandemic

Sir Adam Thomson, the late founder of British Caledonian Airways, liked to tell a joke about the industry he disrupted from the 1960s through to the 1980s. “When there’s a recession, you tighten your belt,” he said. “When there’s a depression, you have no belt to tighten. When you lose your trousers, you’re in the airline business.”

His old gag has remained obstinately true in an industry with high costs, ever-shifting market conditions and thin margins. And that was before Covid restrictions, which saw airlines lose $118.5bn in 2020, the worst year in the history of aviation. So why are more than a handful of entrepreneurs betting their trousers on launching new airlines in 2021?

They include Nino Singh Judge, a former motorsport entrepreneur who styles himself as the “Sikh Michael O’Leary”. He is launching flypop to tap into the south Asian “VFR” (visiting friends and relatives) market, with low-cost flights from Stansted to Amritsar in Punjab and Ahmedabad in Gujarat, due to start later this year. In Norway, aviation veteran Erik Braathen is building a new low-cost airline, Flyr, with plans to start flying six domestic routes in June.

Operating costs are the lowest they’ve been in a generation

In the US, two new carriers are attempting to build businesses around secondary American airports and cities that have been underserved by the “big three” of American Airlines, United and Delta. Utah-based Breeze Airways, which bills itself as “the world’s nicest airline”, has been set up by JetBlue founder David Neeleman, while Houston-based Avelo Airlines was founded by former United Airlines chief financial officer Andrew Levy. Other new operators include Iceland’s Play, which is hoping to fill the European and American routes gap left by the defunct Wow Air, and Milan-based EGO Airways, due to launch this summer with 11 Italian destinations.

Why now? According to Brede Huser, the CFO of Flyr, the costs of leasing aircraft are at least half what they were pre-Covid, and there’s an oversupply of well-trained pilots and crew. Flypop chief executive Judge says “operating costs are the lowest they’ve been in a generation, with 6,000 aircraft parked up doing nothing around the world”.

The new airlines are also betting they can react faster to post-Covid market conditions than existing carriers, which are having to adapt fleets, staffing, aircraft layouts and back-office systems designed for very different times. Flyr, for example, is predicting a post-Covid boom in domestic travel in Norway, a nation of frequent flyers because of the geography of its long coastline.

Part of Flyr’s sales pitch is “fewer, smarter flights”. Huser argues that an AI-driven system to track optimal flight times will help Flyr keep costs lower than more globally focused rivals, such as Norwegian Air Shuttle and SAS. The plan is to operate just two daytime flights per day on any route, meaning using only one set of crew. Paying high Norwegian wages at Flyr’s Oslo base will be offset by having a leaner team, with fewer than 45 staff currently on the payroll (Norwegian Air Shuttle had more than 10,000 employees in 2018). 

While many of the new players are starting with domestic markets, flypop is taking on a notoriously tricky low-cost, long-haul model. Both Norwegian and AirAsia X cancelled all long-haul flights last year, but were struggling to make profits on longer journeys even before Covid. Judge says flypop will succeed because of its clear focus on the south Asian diaspora, who will be able to fly home directly rather than having to fly via New Delhi or Mumbai on flagship carriers, often before taking long car journeys.

He believes that the roughly 700,000 Punjabis and 600,000 Gujaratis in the UK will keep his first two planes at least 70 per cent full throughout the year, with higher load factors during peak seasons and in the initial period following the lifting of travel restrictions. The plan is for the airline’s wide-bodied Airbus A330s to also carry “belly cargo” — Judge says he already has contracts to transport perishables such as fruit and flowers from India to the UK.

“If you look at Wizz Air, Ryanair and even easyJet, they all started with the VFR market, which is going to be strong after Covid, with family members gagging to fly home,” says Judge, who has raised about £7m of funding from private Punjabi and Gujarati investors, plus £5m from the UK Treasury’s Future Fund. He would like to expand the model to Pakistan, Bangladesh, Sri Lanka and Nepal, with links to New York, Toronto and Vancouver. “Eventually, I’d like to link Africa, too, which is still badly served but full of trading opportunities, especially as Britain looks to the Commonwealth after Brexit.”

With 418 economy seats, and the cost of the flight not including baggage or biriyanis, flypop’s “pop-osition” (the branding is playschool-cheery) is no-frills, which fits a broader industry trend towards lower-cost seats, with higher-paying business passengers expected to lag well behind VFR and leisure travellers post-Covid. More planes are likely to feel like “a bus with wings”, as Ryanair’s O’Leary once described them.

As to whether this is the best of times or the worst of times to join a famously tricky industry, only time will tell. But, as ever, the risk of losing one’s trousers appears high.

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