Wednesday, March 25, 2020

An Open Letter to Young Aviationists

Dear Young Aviationist,

If you are new or attempting to enter the aviation industry in the current environment, welcome to your first aviation crisis. It won't be your first and, if you've studied the past twenty years of aviation history, you know it won't be the last.

Nearly twelve years ago, a self-described hotshot pilot completed his pilot degree at Oklahoma State and was finishing his unpaid internship at Mesaba Airlines. He entered his pilot interview set to be the best pilot since Maverick jumped into an F-14. But he had as much crew resource management skills as Maverick himself and was rightfully rejected for a pilot slot. Of the five interns, two were selected for training. None made it to the first day of class.

That hotshot pilot that needed and received a humbling experience, that was me. The ink of my multiengine certificate had not even dried yet as the economy shifted, or more like exploded, around us. In 2008, the entire industry was in a rout.

I bring this up to all young aviationists, pilots, future airport managers, mechanics, or whatever you decided to be in the industry, your future is not set based on the events of today. You are not banned from ever entering the industry we all love. You are not the first, nor will you be the last to have their aviation career interrupted by uncontrollable economic shocks.

But while your career might be interrupted, sitting on your can at home accomplishes nothing. Since we all have much more time at home then any of us expected, learn a new skill. Learn to code. Study another branch of the industry.

But whatever you do, do not just sit at home waiting for the industry to be given to you. It won't be. When the industry returns, as it always does, you will need something to differentiate yourself as the applications once again flood our great industry.

Sincerely,


One data dork speaking from experience

Saturday, March 21, 2020

Upcoming Suspension of Weekly Posts

All,

When I started this blog back in October, I had one goal in mind: use my airline network planning experience to explain to industry employees, fans, and advocates why airlines were making changes to their networks. I often felt airline economics and associated network decisions were not well understood.

Over the past three weeks, the Coronavirus has continued to spread grounding entire airlines and economies. If you are reading this blog, the virus impact is likely personal for you. In a matter of weeks, airlines went from their golden years to requesting government bailouts. The velocity of the downturn has taken everyone by surprise.

As the airlines have moved from growth mode to survival mode, I have taken the time to self-reflect. Would I be able to continue to provide relevant content to everyone besides which airline appendage was severed in the latest schedules? Without being directly plugged into airlines' booking systems and their immediate performance data, the answer is clearly "no." The industry we knew in January is not the same industry we will know in April.

As such, I, unfortunately, will be suspending my weekly posts until the industry stabilizes or more public data becomes available. My posts will become ad-hoc as new performance data becomes available, and we can analyze the ongoing storm.

In the meantime, like many others in the industry, I will be taking the time to invest in myself. I am hoping to increase my skills by learning Python and maybe R to help improve my data dorky-ness. As investing in myself is the most significant hedge I provide in the event my current position becomes unstable as well.

This week, I will analyze what is left of the airlines as they have continued to cut to survive. After that, I will continue with a more ad-hoc approach to posts.

I want to thank everyone who has read, learned, and even challenge me as I wrote about airline networks.

If you would like to reach out, please do. I have a contact form that sends directly to my personal email. I try to respond to all emails as they come in.

Thank you all! I appreciate the support.

Levi Anstine

LinkedIn

Wednesday, March 18, 2020

Bracing on Capacity Cuts; Waiting on a Recovery

The last week has been absolute hell on the aviation industry. There's no sugar-coating it. In the United States, we have had our first (accelerated) airline failure with Trans States announcing they were accelerating their shutdown from the end-of-the-year to April 1st. This at a time when employees thought they had eight to nine months to find a new job. Now, as others have halted their hiring to defer costs, these crews have found themselves in a difficult position. (Note to pilots: ExpressJet has stated they are still hiring)

Nearly every major carrier in the United States has issued guidance to expect massive capacity reductions starting in April. If you follow me on Twitter, I have started turbine side chats as we get through this together. As capacity breaks, I try to provide a more immediate, high-level update there then provider deeper analysis here.

Monday night, I noted how both Frontier and Allegiant have not announced capacity cuts to date. While Frontier A is not required to disclose their plans as a private company, I do wonder given how Frontier operates its fleet and its commercial strategy to focus on mostly less-than-daily service really puts them in a bind.

Allegiant is also likely in a tight spot with their less-than-daily service as will, but operationally it would be easier for Allegiant to cut flights. But until they publish or flight the routes, I would not consider either of their schedules final. (This morning Allegiant issued new guidance)

What I will promise all my followers is as airlines begin to publish their reductions, we will take a look at what skeletons remain. My data provider (https://www.airlinedata.com/) updates schedules nightly. As airline schedules hit their system, I will have the latest the following morning. If you check my feeds in the morning, I will usually post high-level changes. By the evening or the following day, I will try to have a deeper analysis completed.

But while these capacity changes will negatively impact us all, a recovery will come. What and when it comes, we will all find out together and have the scars to show our grandchildren as well. But there are a few interesting opinions out there. Edward Shelswell-White had an interesting take on what we could see in terms of recovery. His thoughts? Given the physiological damage we all are about to go through, expect the recovery to begin in secondary markets, point-to-point networks, and with carriers such as JSX and Breeze (if they are operating by then).

While I debated for a while after reading this if this could be the case. When I examined the historical passenger trends, following 9/11 the traffic in the 50-100 largest O&D airports suffered less and grew faster than the 50 largest domestic airports until 2006.


When we take a look at nonstop passenger totals, we do see those flying nonstop dropped significantly following 9/11, however, this segment of passengers grew significantly from 2004 through 2006. Both of these data points could be used as support for the hypothesis that smaller cities may see growth with nonstop service.




Another supporting data point came from Jeff Sigmon with Intervistas. Jeff was able to pull together a graphic showing future GDS booking data by airport hub size. In his graphic, Jeff shows GDS large hub bookings are down nearly 20-25% across all future months. However, the medium and small hub airports see less of a drop off and quicker recovery in the fall.


When passengers and flights return, and they will return, it would be reasonable to expect small and medium-sized airports to see demand return much quicker than some of the larger airline hubs.

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Please continue to expect irregular posts going forward as schedules continue to change. I am planning on continuing a shorter, more frequent schedule as changes publish. Please follow my Twitter account more high-level discussion and quicker schedule updates.



Friday, March 13, 2020

Quick Personal Take: Capacity Reductions

On Friday, Delta upped its capacity reduction forecast from 15% to 40%. If you touch airlines at all, we have moved from concerned territory to outright (likely) fear. If Delta is cutting this much capacity, we have to assume others are considering the same. This evening when I have a chance, I'll post on Twitter how much of this reduction might be directly contributed to Asia and Europe prohibitions.

While I am still in the aerospace industry and very concerned about the viability of my job in today’s environment, I am sure most airline employees are rightfully scared.

When our industry leaders are comparing the demand to 9/11 and Delta report net negative bookings for the next four months, there are a lot of old and negative memories that are brought up. Please, if you are booking, canceling, or flying in the next few days, please be as respectful as possible. Many of these employees are worried if they can put food on the table next month. Someone screaming at them regarding policies they don't control isn't helpful.

If you are hiring, please consider prioritizing an airline employee. They are (rightfully) nervous and taking actions to protect their families.

While my family is not directly in the airline industry anymore, we are nervous like may others. My wife works in treasury for a major hotel chain, and I'm still in aerospace. Not the best combination in today’s environment.

The next few weeks will be challenging for the entire industry. I'll be reporting the reductions as factually, efficiently, and professionally as possible. If you are an airport heavily impacted, I will try to reach out ahead of time. I do not want you to find out about your reductions on a dorky blog if the airlines did not have time to call you.

As I've stated before, I am here for anyone needing assistance to understand their changes. At this time, I'm referring all requests to outside groups. However, given many groups are likely task saturated with capacity changes and reporting for their clients, we can discuss me running your analysis. I have a couple of approvals that will need to be put in place first; however, please know we will be working as quickly as possible. If you’re a consulting group overwhelmed and needing help, again, please reach out.

If you're an airline employee, please know you are not forgotten. To me, all of you are family. I've shot the breeze and debated with all of you regarding capacity cuts or decisions I've made. Just like your favorite uncle Eddie, some of you thought I was full of it but listened anyway.

If your a crew overnighting in OKC and would like to get drinks, let me know. I'm always happy to share my thoughts or listen to your concerns.

We will make through this together.

Wednesday, March 11, 2020

Schedule Reductions: Spirit's Day-of-Week Approach and RDU Reductions

Yesterday at the JP Morgan Industrials conference, airlines did not have a lot of great news. As we all know, booking rates continue to be extremely dry as the Coronavirus continues to spread across the United States. United was extremely blunt in their assessment. Booking and revenues are terrible. But the employees of United should be incredibly proud of their new CEO. Scott Kirby did not sugarcoat the situation, and they appear to have a plan (or plans) in place to keep the airline operating in the most economical condition. Other airlines have capacity reductions and soft booking trends, but no one was as blunt in their assessment as Scott Kirby. 

But United is not the target of today's post. Instead, Spirit, along with multiple other carriers, announced capacity reductions effective in April as well. Spirit announced they were decreasing their capacity by ~5% in April. While this was not unexpected, I did not expect their capacity would be loaded while they were discussing these reductions. Thankfully my provider loads schedules nightly, so we have a sneak peek at Spirit's schedule. 

Spirit has kept its reductions almost entirely isolated to the April travel window. These reductions can be summed up in a few parts: Day-of-week reductions to/from leisure destinations and larger Spirit cities as well as Raleigh-Durham deferrals and exits.



Spirit's day-of-week cuts were the most substantial reductions in their network. In Spirit's 3/7 published schedule, there was minimal variation in day-of-week flights for Spirit's operation. This trend currently continues in the published May schedule. However, based on the guidance other carriers are providing, I think it is safe to say we will likely see Spirit extend these Tuesday, Wednesday, and Saturday reductions. This approach at least keeps the network somewhat whole on other higher demanding days. 


The vast majority of the Tuesday and Wednesday reductions were associated with Fort Lauderdale, Orlando, and Las Vegas. None of these targets should be a huge surprise since they are more significant in Spirit operation. Also, given these are more leisure-focused cities, demand tends to be softer during the middle of the week


Finally, Spirit took their ax to their Raleigh-Durham operation. Towards the end of April, RDU was scheduled to increase to 7 daily departures. In the last schedule, the city will drop to as low as once a day service to New Orleans. There's a lot of moving parts to get Raleigh-Durham to where they are at:
  • Boston service is canceled effective 4/4 (re: American entrance)
  • Baltimore service will be suspended from 4/4 through 4/22
  • Fort Lauderdale and Orlando will be cut on Tuesdays and Wednesdays during the first half of April 
  • Chicago service scheduled to begin 4/22 will be deferred until 5/4
  • Detroit service scheduled to begin 4/22 will be deferred until 6/10
When Spirit only operates once daily service to New Orleans, it really feels out of place. During this period, Spirit drops all of their large focus/hub cities, but keeps New Orleans. This feels as if they had to keep something in RDU on these days or they have found a relative goldmine no one else is operating. I’m betting the former. The flight might have been just too difficult to remove from the schedule compared to FLL and MCO.

While all of these cuts are unfortunate, I think it is pretty clear cuts will be the new normal for the foreseeable future. I expect to see schedule reductions by JetBlue, Delta, and American to be filed over the next few days. As they come out, I will try to get a post out as soon as possible. 

As you will see at the end of all of these posts, please reach out if you need help. I am happy to refer you to a few great consulting groups. If you need data to run your analysis, please feel free to reach out to Airline Data, Inc. Their tool made it possible for me to capture Spirit's schedule load so early. 



For any referrals, I do not get any commissions. I just want you to have access to quality analysis and data as we all work through this together. While you will not stop capacity cuts from coming in this environment, do not lose your messaging to your board or your community if you wait until airport activity reports start coming in. 

Monday, March 9, 2020

United's April Cuts

At the Chamber of Commerce Aviation Summit, airline CEOs compared the demand environment to trends similar to those following 9/11. Airlines are now starting to react to the demand environment. As we discussed last week, airlines are trying everything they can to get bookings. Change and cancellation fees waivers continue to be spread for future travel periods. Heck, Alaska is even trying to bonus people into status runs with a 50% mileage bonus towards elite statusAlaska also announced an aggressive fare sale last week when other carriers were stating they could not even stimulate demand with fare cuts.

If you got a call from United late last week, you knew it was not going to be a fun conversation. You did not answer the call expecting a new route announcement or frequency increase, as many airports expect during these calls. In your mind, it was "how much capacity am I losing?"

On Wednesday, United announced they were decreasing April domestic capacity by 10% and international by 20% to offset demand reductions associated with the Coronavirus. Anecdotal data points throughout the industry show a massive drop off in bookings. Sabre reported a 15% drop in bookings in January and February. Remember, the booking trends accelerated recently, so this number is likely to understate the severity of recent trends. 

As we go through today's post, we will first discuss the reduction in terms of ASMs (available seat miles). ASMs is the capacity unit of measure that is communicated to Wall Street and drives a vast majority of airline's standard metrics. This was also the only way I could tie United's capacity guidance with what was filled. Later in the post, we will switch to trips and seats, which drives passenger demand much more than ASMs.

Over the weekend, United's April capacity reductions were loaded. In total, United's schedule currently shows the airline down 13% year-over-year in ASMs vs. 2019. This is significantly off their 2-3% ASM growth that we saw scheduled in winter, as well as what is currently filed over the summer. 

How substantial were these reductions, in terms of ASMs? Well, 1/3 of United's routes were decreased or exited. Additionally, United removed the equivalent of 92% of Spirit's or 138% of Frontier's April networks. Take your pick. Whatever measurement you use, this schedule change was massive.

 
These cuts were truly network-wide. The reductions hit each of United's hubs and fleet types. But that does not mean they were all hit equally. The middle of the country, which has fewer long haul international ASMs, saw a much more modest decrease in capacity compared to the coasts. 



As we might expect, two-thirds of United's ASM reductions came from the international side of the house. Much of the international cuts came from outright market exits. For the most part, the market exits were where we would expect them, heavily impacted areas in the world where the virus has hit hard; China and Italy. However, we also see Chicago to Zurich and Houston to Vancouver and Edmonton, Canada, also exited. ORD-ZRH and IAH-YVR appear to be temporary exits. However, IAH-YEG seems to be a permanent exit.



We also see another 48 international markets saw their capacity reduced as well. Again, long haul international frequency reductions drove the vast majority of these cuts. Most of these reductions targeted flight originating from the West Coast to Japan, South Korea, Singapore, and a slight reduction to Israel.  



With these reductions, widebody service took it on the chin, hence, why United is asking those pilots to take time off. In total, widebody capacity is scheduled to be down 13%, with the 777s taking the brunt of the impact. A month ago, United had nearly 130 average daily 777 expected departures in April. As of this weekend, the United is reducing the 777 to just under 100 daily departures (23% reduction). 

Long haul international is not the only international franchise that saw significant reductions. European service from both Dulles and Newark is scheduled to see capacity reduced. United had much more flexibility to reduce its European service. While FRA, GVA, and MXP saw frequency reductions, other European routes were cut by downgauging 777s and 787s to 767-400s or 767s to 757s. 


Turning towards the domestic front, United took multiple approaches to reduce domestic capacity. While the smallest amount of ASMs removed, United did exit eight planned markets in April. Most of these exits appear to be April seasonal exits; however, SFO-XNA, CAK-IAH, and JAN-ORD all seem to be permanent exits. 


Next, United cut 2 to 3 daily flights in long-haul, Florida, or higher-frequency markets. The only market here that sticks out like a sore thumb is PAE. PAE does not fit the mold here compared to the other higher frequency reductions. I've analyzed PAE in the past, and I am a little surprised why United kept the city at all. My only assumption is United's executives have decided on no city exits until they understand if the virus demand trough is temporary or a much longer recovery. 


With the remaining flight reductions, you have to get really into the weeds to understand why United cut them. First, United reduced its later-night arrivals. These flights typically were associated with end-of-day flights out of United's hubs into smaller spoke cities. This approach also drove a 17% reduction in the number of flights departing in the 6am hour. 



If you survived all other cuts, you there's still a pretty good chance you saw a downgauge in your aircraft. Of the markets which did not see a capacity reduction, 59 markets saw some level of gauge decrease. Gauge changes ranged wildly, from a couple of seat gauge adjustments across the entire month to FAT-ORD, which saw a gauge swap of a mainline narrowbody to an E-175. 

If you are traveling in April, I suspect you will have the highest quality United schedule in quite some time. They likely are operating with spares than they have had in quite some time. However, this does come with a cost. 


If these cuts impacted you,  you are not alone. This type of capacity reduction is unprecedented in the modern airline industry and it appears globally more carriers are reducing their capacity as well. Please remember this if you are working with any of the airline commercial groups. They are under intense pressure to right the ship in an environment they mostly do not control. If your crew member is a little on edge on your next flight, remember that many of them are worried about job security. 

I'd say hug an airline employee. But given many of us dorks are huge introverts, and we aren't even supposed to be shaking hands, just give them a gentle nod and a bottle of Purell--- if you can find one. 

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If you are an airport or visitors bureau and are in need of support, please reach out. I am happy to refer you to a few great consulting groups. If you need data to run your own analysis, please feel free to reach out to Airline Data, Inc. I do not get any commissions for any referrals. I just want you to have access to quality analysis and data as we all work through this together. 

Wednesday, March 4, 2020

Managing the Network During A Crisis

In the past, most of my posts have been data-heavy. However, today's will be a break from those posts. If you follow me on Twitter (@FlyDataGuy), you likely saw a long-winded tweet providing guidance for airport professionals. I thought it would be appropriate to follow that tweetstorm with my thoughts regarding the coronavirus and how airlines are likely planning their networks with any demand changes.

You all are likely well aware of airlines liberalizing their change and cancel fees while reducing capacity to Asia and Italy as the coronavirus continues to spread. Clearly, airlines are feeling a squeeze in demand as the public reacts to the virus's spread.

Today's post will focus on what I believe is going on behind the scenes and what is weighing on professionals within the commercial groups (network planning, revenue management, marketing, and finance) as well as some considerations these groups have for operational groups. I will reference some of the internal data they may be reviewing, however, since it is... um, internal, I do not have access to it.

I do want to be entirely clear here. While I continue to have connections with professionals across a variety of airlines, you will not find any inside information here. In the unlikely event someone would actually discuss their decisions making process with me (they can't re: NDAs), I feel these types of conversations are privileged and should not be discussed openly. They would, however, help impacted professionals understand the operating conditions and constraints in which the commercial groups would be making decisions. Let's also not forget, the virus is still located in isolated regions throughout the US (we believe). As more cases are suspected and confirmed, it is likely the impact on the aviation industry will continue to grow.

So, where are we at right now? To date, outside targeted Asian and Italy flight reductions, March through August flight reductions have largely focused on domestic travel due to MAX aircraft availability. In total, domestic trips are down 1,776 trips vs 140 trips when comparing schedules published in January compared to current published schedules. MAX reductions to date have removed nearly 10x as many flights as any virus related reduction.



However, it is clear the aviation industry is under intense distress. United seems to be the most vocal regarding the impact. To date, United has reduced capacity to Asia, suspended 2020 earning guidance, canceled investor day, delayed future pilot classes, asked widebody pilots to take a reduced pay vacation, and warned future capacity reductions may be necessary.

How significant are these close in capacity reductions? Huge. Why? Costs. By the time airlines' operate their flights, a vast majority of their costs are largely locked in. Outside, of fuel, incremental maintenance, and some airport costs, cutting flights a couple of days out does not save that much money.


This is why we are not seeing widespread domestic cancellations in March. While I am sure demand is off for the month, cutting these close in flights would make a bad situation worse. As long as flights are covering their fuel and other truly incremental expenses, it is best for the airline to operate the flight rather than canceling it. Costs do not take into consideration the potential nightmare it would be to redevelop flight crew pairings and aircraft routings with near term capacity cuts.

Airline costs are often not well understood. This is often true by commercial professionals as well as the general outside world. When it comes to costs, airlines are capital intensive organizations with largely few variable costs. On the day of departure, nearly roughly 70% of an airline's costs are already locked in. Take United's 2019 cost structure, only ~30% of United's costs could be shed if they were to cancel flights across the network. Even this 30% is misleading. At most major airports, airlines are on the hook for airport expenses depending on the airline/airport operating agreement.


This 30% estimate could also range wildly at the route level. Different fleets and mission profiles may have different cost structures. The point, however, is for airlines to cancel flights due to lack of demand, demand has to really dry up. This appears what happened to United in Asia. According to the Wall Street Journal, US-based ticket sales to Asia are off a little over 50% year-over-year around the middle of February.

With softening demand, airlines have hinted there could be capacity reductions on the horizon. The commercial teams are likely actively working on these a variety of capacity reduction solutions if demand continues to soften. We are likely in the heart of spring and summer booking season. If the softness continues, airlines can start reducing flight schedules in a much more ordered manner which would allow some deferring or eliminating of costs.

When working within a dynamic environment, who do I believe is at the wheel driving decisions? I suspect most airlines have an active war room with commercial executives, revenue management, finance, and network planning. Revenue management is likely informing executives of the current booking trends and projected health.

Revenue management will be analyzing negative booking impact based on expectations of their booking curves. Revenue management would be looking at both near term and further out booking curves to understand the impact the virus is having on their operation.



With this information, executives are likely determining a few courses of action. They are likely guiding revenue management (manages ticket prices) inventory and pricing strategies. Executives from there are likely using the provided information to guide network planning on a general theme of what to cut if they believe cuts are necessary. Network planning will be taking this direction to start reducing capacity in impacted markets.

If you are an airport, your traditional network planning capacity planners are not likely the individuals actually making the decisions on which flights to cut. They might be informed and be able to weigh in on some options, but they are not the decision-maker here. Each airline has a team within network planning which manages the fleeting of schedules, as well as near term schedules decisions. These are the unsung heroes of network planning. They make the schedule operational. They also are at the front line when stuff absolutely hits the fan as well.

These teams are likely working hand-in-hand with finance to determine estimated variable costs by flight as well as revenue management of projected final booked revenue. The network planning team would then start weeding through the schedule to see which of these projected cash negative flights could be removed while keeping the schedule operations.

So here's the million-dollar question, where do I expect flights to be reduced? As always, it depends. If we continue businesses implementing travel bans, I would expect carriers to begin reducing their business networks. This would include large Northeast cities (New York/Washington), Chicago, Bay Area, Dallas, Houston, etc.  But some of these reductions would be dependent upon suspension of slot usage requirements (which IATA is requesting). Airlines are willing to operate empty flights in the short term rather than lose their slots to constrained airports.

Next, if the virus continues to cause long term demand concerns, airlines could take two approaches. First, expect to see long haul flights that overfly hubs to be targeted for reductions. Second, watch for the number of banks within hubs to be reduced. Reducing the number of hub banks would reduce the number of itineraries within a carrier's own network which competes with itself. Finally, as some outlets have started to report, entire fleets that are approaching retirement may see their retirement dates accelerated. This would help reduce some costs associated with unproductive aircraft.

As airlines continue to respond to the virus situation, it is incredibly important for those within the industry, especially airports, to understand how airlines are being impacted so you can plan ahead or you can address concerns as they arise. If you have access to GDS/MIDT data (I do not), you are at least four to seven months ahead of others in understanding the financial impact.

If you are new to analyzing airline revenue or you report entirely on load factors and passengers, please have an air service consultant help you. Trust and respect are the foundation to air service development. Actually understanding what airlines are looking at can help you build relationships with the decision-makers and lead to better results. Solely reporting on load factors and top O&Ds to airlines will not help, especially in dynamic times.

If you need help, please reach out to me. I am happy to get you in contact with some of my preferred air service development groups that can help you understand your airport's current performance and analyze the traffic results when the newest traffic data is released. I do not receive a commission, nor work for any consulting group. I'm offering so that others do not make the same mistakes I made in the past.  



Wednesday, February 26, 2020

Decoding Breeze's 121 Application

This post will focus on my interpretation of Breeze Aviation Group's Part 121 application currently under the Department of Transportation review. It is essential to understand that, while my beliefs are research-based, there is enough gray area in Breeze's application that my analysis should not be taken as absolute fact. Further, even if my interpretation is 100% correct (it won't be), by the time the airline actually flies within the next year or so, the dynamic nature of the industry could materially change Breeze's tactical market decisions.

On February 10th, Breeze Aviation Group's Part 121 (air carrier) application was posted on regulations.gov. For those interested in reading route cases, applications, and generally dull documents, this is the site for you. However, while much of the Breeze's application was (extremely) dry, there were more than a few nuggets, which, for us aviation dorks, were quite interesting. Today's post will analyze those nuggets and provide my best guess at what Breeze's network may look like within the first few months of launch.

Let's first talk about Breeze's timeline. In the filing, Breeze makes it incredibly clear they are requesting an expedited application process.
"Breeze requests that this application be processed by the use of expedited non-hearing procedures. The use of expedited procedures will serve the public interest by facilitating the introduction of Breeze's innovative services as soon as possible" (pg 6)
The expedited request should not come as a surprise. I assume that any application would request something similar, but Breeze has assembled a highly experienced group of professionals (we will touch on this later). An expedited application request should not come as a surprise. In April, Breeze will start taking delivery of their sub-leased E195s (~2 per month) from Azul and by April 2021, their C Series aircraft will also begin to be delivered (1 per month). (page 122).  Once the aircraft start to be delivered, costs can escalate quickly.  As soon as aircraft expenses start being accrued, Breeze will see a 10% increase in total operating expenses (this excludes capital expenses associated with aircraft delivery and inductions).


So, if Breeze hopes to get off the ground quickly, when are they expecting to launch the airline? Based on their provided financial data (pages 131 & 143), I believe they are planning to get Part 121 approval around August 2020. From there, Breeze is expecting to use its aircraft to operate charter missions for 1-3 months before the scheduled service would begin. This could mean schedule service would start around November 2020.

While the timeline may seem aggressive, when JetBlue filed their formal application on April 30, 1999, it took just over four months for their application to be approved. The application is only part of the process. If you read Blue Streak, you are well aware there was a significant amount of background working ongoing before the application filing. Among many items, it appears JetBlue (New Air Corp) filed for JFK slots before submitting their Part 121 certificate.  


Turning towards the growth front, it appears Breeze's capacity deployment might be more modest than JetBlue's original launch. In trying to compare apples to apples, I took a look at JetBlue's system block hours from their initial start and compared it to Breeze's scheduled service launch. With this, we can see Breeze's growth is at least planned to be much more modest than JetBlue.


This might be a fallacy to compare the system block hours between the two, however. Breeze's application makes it clear they are looking to operate with low utilization values. In all the schedules provided by Breeze, the scheduled service utilization barely cracks seven hours. JetBlue, on the other hand, likely had a much higher utilization with their fleet. (Note: I do not have OTP data back that far to calculate utilization for JetBlue). 

But where exactly is Breeze likely to operate? There are a lot of hints in the application. However, it is important to remember, in the deregulated airline industry, once a carrier receives their certificate, there are not many limitations preventing the airline from picking up their operation and moving to the other side of the country. I say this as the next section is entirely my game theory of where I would fit the pieces of Breeze's application to fit their discussed strategies, maintenance, and schedules. Exactly how Breeze constructs their network may (will likely) be materially different. 

Here are the guardrails for Breeze's network:
  1. Mid-sized markets (pg 2)
  2. Underserved markets without nonstop service (pg 5)
  3. Line maintenance in ISP and/or other locations as the carrier grows (pg 6)
  4. The first four cities and three markets will be leisure north-south markets (pg 6)
  5. Cities will be attractive for secondary leisure markets or second homeowners (pg 6)
  6. The first aircraft will be E190s
There are two areas in the application we can focus our analysis on guessing Breeze's phase one service offering. First, Breeze offered their schedule with the cities covered. Each route has a provided block time associated with it (pg 134).


Next, we can turn toward their projected system-level metrics (pg 149). These projected statistics begin as soon as the carrier starts its charter services. So we have to skip to month four when we expect Breeze's scheduled service to begin. Based on this information, we would expect the average stage length to be 1,039 miles. 


For all of my analyses, I anchor ISP as at least one point on their network. Why? Well, here's what Breeze states in their application regarding maintenance: 
For FAA certification, Breeze will conduct line maintenance at its facility in Islip,  New York (“ISP”) and has contracted with Embraer in Nashville, Tennessee for heavy maintenance. As the route system grows, Breeze will use a mix of contract and in-house maintenance providers. At all times maintenance will be conducted in accordance with Breeze’s FAA-approved maintenance program.

Line maintenance is a defined term by the FAA. From one of the FAA's web-based training modules:  
Includes routine and non-routine maintenance, bench checks, calibration, and repairs accomplished in support of day-to-day aircraft operations.

In theory, a line maintenance station would likely be on the carrier's network to route aircraft through for routine maintenance. This, however, could be the fallacy in my analysis. Breeze does state they could use a mix on other providers, which could be in any of their cities. While unlikely, Breeze could plan to use their charter division to route aircraft to/from ISP for maintenance. 


Next, I focused first on block times. Block generally points to the route distance. Using the DOT on-time performance data, we can see how the E190s are currently being operated today. Typically, we see block times include 15 minutes for the aircraft to taxi out and 5 minutes to taxi in as part of their block times. 


Once we removed the assumed taxi out/in times, we can then plot the flight times vs other observed E190s flights. Note, these are directionally average, so east/west flying shows as their average. Using this data, we can estimate the route routes would be similar in stage length ranging from around 970 miles to 1,090 miles. 


There are then three different options you could see Breeze deploy in phase one. This is where the real game theory starts. As a planner, it is crucial to understand the company's strategy to make tactical decisions. Is the company looking to concentrate at one leisure destination, one origin market, or two markets in the north and two in the south? 

My initial impression on the application was ISP would be a focus city, but this was quickly proved wrong. A very reasonable service pattern can be developed matching the block times and the 1,039 mileage statistic. However, service from ISP to MCO, TPA, and MIA area all competitive markets out of ISP, which Breeze stated they would avoid. Further, none of Florida cities would likely be considered "secondary leisure destinations". 


Next, I examined the potential of Breeze turning all flights from a single Florida city to ISP and two other Northeast cities. In total, there were roughly 490,000 route pairings for three markets to/from any Florida airport with service to any Northeast market with service. We further isolated these pairing where ISP had to be a turn and the mileage had to equal 1,039 average stage length. There were still 55 possible route pairing. 

However, when I isolated to secondary, destination airports only, one interesting solution popped up; the potential of turning on Sarasota. In Breeze's application, they state they expect to continue to grow their service in non-competitive routes. Until recently, SRQ has not seen the growth other secondary Florida markets have. That is until Allegiant started operations in 2019. And it is important to remember, many of the senior leaders at Breeze are former Allegiant executives. 


The problem I have with this solution is State College (SCE) is not a medium-sized city that Breeze describes as their target. 

So I took a look at the phase two expansion schedule which, to me hinted at a two north/two south split. Why? In the narrative, Breeze states:
In early 2021, Breeze plans to introduce more service east of the Mississippi river with flights from existing destinations to points in the Southeast and mid-Atlantic region (pg 131).


During this time, Breeze's statistics pages show only two new destinations are planned to be added. Since the mid-Atlantic is not in the central timezone, it is safe to assume all these time zone crossings would tie to the new southeast city. 

If we assume the aircraft 1 & 2 are the original service, we can expect the new southeast city would connect to at least two, maybe three Florida markets since the application continues to reference secondary leisure markets. While I am not going to speculate on the southeast city, phase two caused me to recalculate my view on phase one. Why? Whatever the new southeast city is, it appears that they should expect roughly two flights a day and it is not likely a two hour block time could easily reach the northeast from a southeast city. 

So where should we go from here for additional guidance? For those paying attention this week, the Department of Transportation finally released the Small Community Air Service grants. While I often believe many of these applications are pipe dreams, one unawarded proposal caught my eye. New Haven, Connecticut submitted a proposal that specifically called out Breeze Aviation in their application which was sent back in July.




If we believe New Haven's application to be as serious as HVN attempts to demonstrate, phase one could be a little more clear, especially if we believe in a two-city north and two-city south set up. In their application it is clear to me they have had serious conversations with the carrier. 

An HVN-SRQ, ISP-SFB, and ISP-SRQ would meet all of the objectives set out in Breeze's application. The only thing that might not wholly reconcilable is HVN's assumption of A220 (C-Series) service versus Breeze's initial E190 fleet. 


Regardless of precisely what Breeze ends up flying, it is always exciting to see additional nonstop route offerings to cities that have been reduced to just hub service over the last couple of decades. 

Wednesday, February 19, 2020

No 2/18 Post

For those who showed up today expecting a new post, thanks, but there's no post today. I took an R&R week to take care of some family business and flip through Breeze's application. There are a lot of interesting tidbits which we will discuss next week! 


Wednesday, February 12, 2020

Oklahoma City: No Longer a Fly Over City

For those that know me professionally, I lived in Oklahoma City for nearly three years. In the first year and a half, I was commuting mostly daily between Dallas and Oklahoma City by air or by car. In April 2018, Southwest reduced DAL-OKC from 4x to 3x which, for a commuter, made daily commuting difficult. For the next six months, I drove weekly to Dallas in a crashpad. I would finally throw in the towel in September 2018. And yes, if you were wondering, it was my team that decided to reduce DAL-OKC (which I entirely supported).

This post, however, is not about me. Instead, I want everyone to understand why I am digging much deeper into Oklahoma City. One of my biggest pet peeves as a planner and a general aviation dork was airlines and planners focusing on what is currently sexy. Most of my followers may consider Oklahoma a flyover state. Cities such as OKC often do not get the headlines on national releases nor the attention they deserve, but it appears at least one airline is seeing growth opportunities in Oklahoma City.

For fourteen years (2004-2017), OKC seat capacity was mostly flat outside high blimps in 2008 and 2012. However, in 2018 and beyond, the city has returned to a positive seat growth rate, which we will discuss shortly. During the same time, however, scheduled commercial flights into and out of the airport were down 17.5% (-1.4% annual growth rate). Industry gauge growth trends largely offset the decline in flights out of the airport.



While the decline in capacity could be seen as alarming, OKC's flight decline can be explained by Delta's network realignments following their DFW and post-Northwest merger hub closures. In total, Delta reduced its footprint in the city from 24 daily departures in 2004 to 10 daily departures in 2017.


While seats and originating passenger growth largely remained stagnant, the Oklahoma City economy did not. Strength in the local Oklahoma City economy helped drive airline revenue originating from Oklahoma City on relatively flat capacity growth. This revenue growth came almost entirely from higher fares and excludes baggage fees or other ancillary product fees.



A city with a strong economy and growing revenue on flat passenger growth, to me, is indicative of an airport needing new service or fare stimulation. This may not always be the case at every airport; however, here in Oklahoma City, it appears to be at least one of the indirect drivers to recent capacity moves.

After years of stagnant seat growth at OKC, American began to increase their OKC footprint. American's average daily seats between 2017 and currently scheduled 2020 seats are forecasted to be up 41%.  During the same time, American started or has announced nonstop service to all of their previously unserved hub cities. For those counting, yes, I include JFK and LGA as part of a single metro even though the airports serve very different missions on the AA network.



American's impressive growth within the city started in early 2018. Phoenix and Philadelphia were added to the city within two months of each other, followed by new DCA six months later. Now in 2020, American has rounded out its hub service with new service to Miami and New York. It should not be lost that even with American's growth, total seats by all other carriers have primarily remained flat. This could means other carriers are not seeing negative pressures from the additions to warrant capacity reductions. 



With service to all nine of American's hub cities, Oklahoma City is now one of only nine American Airlines non-hub cities (4% of all cities) that has nonstop service to all hub cities. OKC is also batting far above its weight to get here. Of the eight other cities with full hub city coverage, the average American Airlines daily departure count is over twice as large as Oklahoma City. There are 30 other American cities with more daily departures than OKC who do not have full hub coverage.



While Oklahoma City should celebrate this accomplishment, I do not believe all is well on the home front. When I worked in the industry, I repeatedly preached for communities to use their service or lose it. To me, it feels like the Oklahoma City community better start using the Philadelphia service or they are going to lose it.

What do I mean? Well, let's first take a look at all of American's flown performance for the last year. Unit revenue and load factors on the PHL flight have been soft since its launch.



Soft load factors dragged on the OKC-PHL's revenue performance during the 2018-2019 winter quarters with load factors dropping as low as 50% during the first quarter of 2019. American has quickly reduced the route throughout 2019 and early 2020 to just a single daily frequency during the off-peak months. During the second and third quarter, the performance of the route, aided in part by capacity reduction, performed near system-level RASM target for the route. 

While published 2020 schedules show second and third quarter capacity returning to twice-daily service, given the historical revenue performance, I wonder if this will hold. After I developed the graph below, American reduced their May OKC-PHL route back to a once-daily flight pattern. 




To complicate matters, American's new LaGuardia service will put further pressure on Philadelphia’s performance. Philadelphia’s top flow markets include Boston and LaGuardia, and the new LGA service duplicates itinerary options.    

While most of Oklahoma City's love has come from American, there appears to be some experimentation by other carriers to non-traditional cities. After Southwest departed the DAL-OKC market in November 2019, they backfilled the reduction with increasing Houston, Phoenix, and new daily service to Nashville. (Note: These capacity discussions and decisions were had after I departed Southwest).

Frontier has also experimented within Oklahoma City. During late 2017 and 2018, the carrier launched Orlando, San Diego, and San Antonio. Today, only Frontier's Denver and Orlando service remain, however, the experiment did point to potentially untapped demand in the San Diego market. When Frontier entered the OKC-SAN market with 3-4 times weekly service, they were able to stimulate the market to nearly 160 PDEWs. Interestingly, OKC-SAN was also part of the failed ExpressJet experiment. ExpressJet operated 1-2x daily service during almost the entirety of their experiment.


Other carriers such as Alaska and United also have increased their investment in the city. At the end of last year, Alaska up-gauged its E175 service to A320 service (doubling seats in the market). United is also investing additional capacity in the market with flight increases to Dulles and Denver. This is on top of United's Chicago product enhancements with the CRJ-550 over the CRJ/ERJ flights.

It is great to see Oklahoma City getting the attention it deserves. We are clearly batting above our size with American's hub service. But it is clear. Some risks have to be addressed if we hope to keep the impressive product offering in place. We need to support all of our carriers, whenever possible, to make sure the service that we have at our airport stays and grows with our city.

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Thank you all for swinging by the blog. There will not be a post on 2/19 (unless an airline does something interesting). The following week, I am planning a deep dive into Breeze's DOT application. 

An Open Letter to Young Aviationists