Will airline start-ups take off in the wake of the pandemic?
The Covid-19 pandemic has grounded the aviation industry for months. But as vaccines roll out and our ability to tackle the virus grows, start-up airlines could be set to fill the gaps others have left behind. Andrew Tunniclife talks to start-up airlines about their hopes and the risks they face.
There is arguably no part of life that has not been affected by the events of the last year or so. With a speed vaguely reminiscent of that of a pop star on a whistle stop global tour, Covid-19 travelled around the world at pace after the first cases were confirmed in China.
By April 2020, governments around the world had instituted lockdowns and closed borders to international travel. It was the start of a turbulent period for the aviation industry, one that continues today.
But despite the gloom, there is some promise. Global aircraft leasing provider, Avolon, recently reported that “following the airline playbook of past downturns” there would be more start-up airlines in 2021 than the failures seen the previous year.
The company’s head of portfolio management, Jim Morrison, said: “Commercial aviation has demonstrated its resilience repeatedly. It has managed through wars, terrorism, pandemics, oil spikes and financial crises. Our fearless forecasts for 2021… are premised on this optimism but anchored by the realism that challenging months are ahead.”
Start-up airlines are facing down the challenges
However, start-up airlines are looking forward, not back, to an environment full of potential; but some warn there are significant risks too. “The pandemic has introduced a new level of uncertainty and we can't predict the future,” says Jonathan Ayache, co-founder of LIFT, South Africa’s latest airline.
“It is difficult to predict what might come in the next month. Demand for air travel has dropped dramatically in January, partly seasonal, but the second wave and increased lockdowns have also had a significant impact.”
Currently, LIFT operates one domestic route between Johannesburg and Cape Town, with ambitious plans to extend its network in coming months. “Many think it’s crazy to start an airline in these times, we think it’s the best time ever and are optimistic about South Africa and tourism,” adds Ayache.
However, his optimism isn’t necessarily shared by all. “Entering the market might be easier given aircraft and pilot availability,” says a Wizz Air spokesperson, “but staying an airline will be much harder. So, this will be a marginal phenomenon,” they warn. Despite this, the company recently began operations out of Abu Dhabi with Athens its first destination.
The situation in all markets is expected to remain very fluid during 2021.
“The situation in all markets is expected to remain very fluid during 2021, so setting up an airline under such unfavourable circumstances will be challenging,” they added. Despite the “unfavourable” climate, the ultra-low-cost carrier has since introduced a route from Abu Dhabi to the Greek port city of Thessaloniki, with plans to add Alexandria, Kutaisi, Larnaca, Odesa and Yerevan in the months ahead.
UK-based FlyPOP’s CEO Nino Judge Singh is hopeful for a big first year too. With plans to launch later in 2021, initially with routes between its London Stansted base and India, the low-cost long-haul carrier is well positioned to get off the ground having secured what it said was a “significant investment” from the UK Government’s Covid-19 Future Fund.
“With the visiting friends and relatives market widely regarded as the sector most likely to recover from the Covid-19 crisis first, our unique low-cost offering has a real opportunity to succeed,” says Singh.
“As long as we are careful regarding launch date timing, when demand is confirmed to fill our larger wide-body aircraft, this could turn out to be a uniquely advantageous time to enter the market as a start-up.”
Is a pandemic the best time to learn to fly?
Wizz Air itself isn’t a start-up, having first taken flight in 2004 with a route between Katowice, Poland to London Luton, UK. The Abu Dhabi launch is just the latest in a growing list of ventures the airline has embarked off. It is a long way off – more than 15 years – where the likes of FlyPOP of LIFT are today.
Because of its history, Wizz Air has been able to weather the pandemic, says its spokesperson: “We expect 2021 to be a year of transition and also a year of new market opportunities. The crisis has hit Wizz Air in 2020, yet our in financial position throughout has remained strong, with liquidity above €1.5bn.”
However, FlyPOP and LIFT are hopeful, even confident, of their own success, arguing that there has possibly never been a better time to break into their respective markets. Ayache says agility is key: “We have had an excellent start, carrying 30,000 passengers in our first month and currently running 99% on time… It's been a tough time in the country and across the world and we all need a little relief. The service industry is just the place to start.”
He says current cost structures are about 40% lower than what it would have cost to start an airline pre-Covid-19, driven primarily by the significantly lower and more flexible aircraft input costs. “The opportunity is here now to go into the consumer airline space,” he suggests.
Start-ups will not be at the mercy of larger incumbents.
Singh has a similar view: “One major factor is that start-ups will not be at the mercy of larger incumbents, as we usually would be, due to the weakened condition of these established players. Also, all the existing airlines have shrunk, merged or even closed, leaving market openings.”
He believes start-ups have the benefit of choosing the size, network and fleet they start with. “They also do not have the headaches of having dozens of aircraft sitting on the ground as their rivals do, nor huge amounts of debt,” he adds.
Ayache believes there are other potential benefits to starting up now too. He says that while established airlines are grappling with the economic challenges, regulatory restrictions and the perception of the health risk in travelling with an airline, the key advantage of starting an airline today is that there are skills and talent available.
“The reality is that there is a large oversupply in the market right now and while we have seen all the domestic airlines cut their schedules, this balance between supply and demand is going to be key to all of our success in the next 12 months,” he adds.
Airlines prepare for a pandemic bounce back
Whether it’s a start-up airline or an established one, optimism is growing around the world. Wizz Air says that with vaccinations and other local and international measures aimed at containing the spread of the virus, it expects governments will gradually ease restrictions and thus reach higher capacity utilisation during the summer of this year.
“Wizz Air is ready. We have the financial means, the crews and the aircraft ready to fly 80% of its full capacity within a few weeks, while 100% can be reached within 8 weeks,” its spokesperson says.
LIFT also sees a bright future ahead while FlyPOP looks towards later in the year with enthusiasm. “We saw there was a gap for a small, nimble carrier that would adapt to the fluid situation the world now finds itself in. The opportunity is here now to go into the consumer airline space – especially given the current environment,” Ayache concludes.