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Start-up carriers hunt opportunities from COVID-19 crisis

There has been an avalanche of airlines starting up across the globe in the last two years, including several in the Asia-Pacific. The question is: how many of the region’s new carriers, born of the pandemic, will survive in the post-COVID world? Associate editor and chief correspondent, Tom Ballantyne, reports.

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April 1st 2022

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When the COVID-19 pandemic turned serious for the world’s airlines in March 2020, it did not take long for a number of investors to see opportunity in the midst of crisis. Read More » According to the databases of consultancy CAPA, 42 airlines launched operations from January 2020 to June 2021. At least another 36 were actively planning to begin flying in the next 12 to 24 months, it forecast. Eight of the new carriers are or will be based in the Asia-Pacific, 13 in Europe, eight in Latin America, four in Africa and three in North America. But that is only the start.

In a recent report documenting new airlines, the IBA analytics team crunched the stats and declared more than 130 start-up airlines planned to be operating worldwide by year-end.

In the Asia-Pacific, one hopeful is Greater Bay Airlines (GBA). The Hong Kong-based regional carrier planned to launch services in late 2021, but the extremely constrained pandemic restrictions imposed on Hong Kong put paid to that. It has had to postpone its scheduled first flights to later this year.

Thai Summer Airways, headquartered in Bangkok, has its Air Operator Certificate, but has not specified a launch date. SKS Airways is a proposed Malaysian charter airline based at Senai International Airport in Johor Bahru, operating turboprops. It has a Conditional Air Services License (ASL), but its launch has been postponed several times.

In South Korea, Air Premia intends to operate wide-body aircraft on medium and long-haul services to North America, Europe and the Asia-Pacific. Founded by former Jeju Air president, Kim Jong Chul, it took delivery of its first 787-9 from Air Lease Corporation (ALC) in March 2021. It is planning to fly ten 787-9s within five years with the fleet fitted with an economy and a premium economy cabin configuration.

Canh Dieu Airlines (Kite Air) is a proposed Vietnamese carrier based at Chu Lai International Airport. Its scheduled turboprop and narrow-body aircraft fleet is targeted to reach 30 airplanes by 2024. Toki Air is a Japanese LCC jointly established in 2020 by Niigata Chamber of Commerce and Niigata Association of Corporate Executives. It expects to operate ATR turboprops from Niigata on routes including Sado, Sendai and Sapporo Okadama. Pasifika Air is a proposed start-up airline in Christchurch in New Zealand whose model is to be price competitive, but not low-cost. Initially, it will offer flights from Wellington and Christchurch to Rarotonga in the Cook Islands and then expand to other Pacific island nations. Yuva JetLines Airways is based at Ranchi Birsa Munda Airport in the east India state of Jharkhand. It markets itself as a premium LCC operating from tier 2 and tier 3 cities to metropolitan centres, flying with Embraer ERJ 145s.

New entrants are not the only carriers setting up airlines. In Japan, All Nippon Airways is launching an airline brand as part of a major restructuring of its business model in response to the pandemic. AirJapan will be positioned between premium full-service carrier, All Nippon Airways, and its LCC Peach on the service/price matrix. It will focus on “medium-distance” international routes in “Asian growth markets” with destinations in Southeast Asia, Australia and New Zealand, flying B787s.

In Australia, LCC Bonza (local slang for first rate or fantastic) has announced it will start flying later this year with an initial network of 25 routes to 16 domestic destinations operated by five 737 MAX 8s.

While not based in the Asia-Pacific, another newcomer entering the region’s markets is Northern Pacific Airways, operating out of Anchorage in Alaska. Also launching later this year, its goal is to capture traffic from destinations in North Asia such as Japan and Korea to Mainland U.S. via Alaska, initially with veteran B767s.

How many of these new airlines will actually take off? How many will survive against incumbent carriers?

Speaking at CAPA Live last year, industry veteran and ALC executive chairman, Steven Udvar–Házy, identified the raw ingredients necessary for a new airline as “cheap money, capital, cheap aircraft and pilots”. “There is venture money available. There is good young used aircraft at reasonable prices. There are plenty of pilots and flight attendants looking for work. That is a temptation to start an airline,” he said. However, the “the jury is still out” on whether all these start-ups will succeed, he said.

IBA chief revenue officer, Stuart Hatcher, is in general agreement with Udvar-Hazy. “This modest boom in start-ups largely has been driven by cheap aircraft and empty routes. IBA anticipates the favorable environment for start-ups to continue in 2022, but if global utilization continues to pick up following the easing of border restrictions and quarantine, availability of cheap aircraft may change prospects for some business models,” he said.

In Australia, where Bonza will be taking on entrenched Qantas Airways, a re-energized Virgin Australia (VA) following a restructuring and fast expanding REX, it will certainly be a competitive challenge for any newcomer to succeed in the Australian domestic market.

VA CEO, Jayne Hrdlicka, has voiced doubts about Bonza’s business strategy, arguing the low-cost, low-frequency leisure travel model that functions overseas may not translate to Australia. “If you’re connecting two cities that have never seen a connection, if you are flying it twice a week, it’s very hard to build an underlying presence in that market. The way that’s done in Europe and the U.S. and Canada is because they are huge markets with millions and millions of people. You can approach that with group tours and things like that which do not really exist in the same way in Australia,” she said. Hrdlicka called Bonza’s strategy an “interesting idea” and said “we’ll just see how it plays out”.

Elsewhere, airline executives appear comfortable with new competition. AirAsia Aviation Ltd CEO, Bo Lingam, wishes all new entrants good luck. “Hopefully, they have a very sound business plan. We wish them the best because there is always a market for everyone,” he said.

At the CAPA Live event, Udvar–Házy did question how many new airlines will remain in business. He recalled the U.S. aviation deregulation in 1978 that led to 120 start-up airlines. Perhaps two or three are left, he said.

“Now, maybe it won’t be that bad, but there is a great temptation to start a new airline with a young workforce that’s not unionized, at a much lower labour cost, and relatively young used aircraft like A320s, 737-800s and in some cases Embraers or A220s,” he said.

ALC considers several factors before supporting a start-up with leased aircraft, he said. They include the competitive landscape and if competitors can simply allocate a certain percentage of their seat capacity to match fares and other perks, such as frequent flyer miles. ALC also looks at the new airline’s management team, the economics of the route structure, suitability of aircraft types, growth potential and capital structure.

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