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. 

Wednesday, February 5, 2020

Feeling United's Paine: United Couldn't Compete with Alaska's Service

The tale of commercial air service in Paine Field is about as old as time. Since the late-2000s, various airlines have expressed interest in operating commercial service from the airfield. However, air service at the airport was always going to be a challenge. The airport lacked an existing public terminal and the local community was combative to the idea of commercial air service at Paine.

It wasn't until Propeller Airports built a new terminal and a lawsuit or three resolved before airlines could announce their service. Once everything was in place, Alaska quickly announced service in May 2017, followed by United over the summer, and Southwest early winter 2018. Southwest would later bow out of the running. (Really boring, but informative read regarding the history)


With so many airlines trying to access to Paine, demand for the two gate facility quickly exceeded the planned capacity of 16 daily flights. By April 1, 2020, the terminal saw 24 daily departures on just two gates. Neither of the carriers really adjusted their schedule down on off-peak days. Offhand, I can't think of another airport in the US that is turning 12 flights per gate every day. 


With 12 flights per gate per day, the operation was tightly scheduled. This could lead one to believe that the airport would be operationally challenging. This really does not appear to be the case. Since the services started, airlines operated at the airport with roughly 88% on-time rate. But, just because the airport operated on time, does not necessarily mean the airlines could schedule to fit their commercial network, which we will get into here shortly. 



Alaska's commercial strategies at PAE seem to be pretty clear: operate in top Seattle originating markets within range of their respective regional fleets. Alaska with their 18 flights blanketed seven out of the ten originating markets. Most of these markets fit nicely into Alaska's growing California network. 


United's commercial strategy seemed to follow Alaska, just via their DEN and SFO hubs. With most of Seattle's originating traveling to California, Vegas, and Phoenix, you can see why United placed most of their capacity into SFO. In theory, if the flights were well-timed and connected to the SFO bank structure, we should expect to see robust connections to all of these top markets. But we didn't.


Each of the PAE-SFO markets only connected to 4-5 of the top Seattle originating markets. The PAE flights often arrived 30 minutes to an hour after their ideal connecting bank into SFO. At a normal airport, this is often easy to fix, just adjust the departure time. However, with PAE's 12 turns per gate, adjusting departure times was likely out of the question unless Alaska wanted to play nice. But with no upside for Alaska, why would they play nice? With no ability to adjust their schedule, United's SFO schedule stayed nearly identical since they launched service in late March 2019. 


The lack of quality itineraries over SFO can be seen in the passenger data. PAE saw sizable passenger demand in its top markets. These markets largely mirrored the Seattle originating passenger demand as well as where the airlines allocated capacity. However, since United did not have quality itineraries via SFO, especially to Southern California, United only saw single-digit PDEWs to these top destinations.


Let's not forget, United was also going head-to-head in San Francisco versus Alaska. Since United operated four daily flights vs Alaska's two daily flights it would be logical to assume United would carry twice as many passengers, however, this is not the case.

When we look at the SEA-SFO market, the market is evenly split between originating in SFO vs SEA. However, in the PAE-SFO market, the market skews towards PAE 60-40. This should not be unexpected since PAE is a new, mostly originating airport. This was ultimately a huge disadvantage for United. While the two carriers equally split the SFO originating market, Alaska nearly doubled the passenger demand on the PAE side of the market. 


With the local PAE-SFO market favoring Alaska and United's inability to build connections to top PAE markets, United's revenue performance on the route suffered significantly. My models show the route was roughly 60% below what United would expect on a similar staged market.


Now, I caution anyone from using the graph above in absolute terms. I debated for quite some time about even including the chart given how negative PAE-SFO was. It is important to remember this information comes from modeled data. Airlines do not publish their actual RASM production figures. However, we can see the direction and magnitude of United's performance in the market. It was negative. Really negative. This likely explains why United killed the route even before its first birthday. 

Astute readers will likely point out that DEN is also performing below system production. While this is true, the data available to us only includes the first six months of service. It is common for new routes to underproduce revenue during their first couple of years as a market matures. So while the market might appear to be a red flag, I say it is a wait and see. Why?

DEN does not have the disadvantages that we saw with SFO. Currently, Alaska is not flying to nor over DEN. Even if we see Alaska attempt to operate to or beyond DEN, their ability to put substantial pressure on United would be much more muted than SFO. This would not preclude Alaska from operating DEN as it is still a large originating market for the Seattle area.

So what will happen with the available gate time saved from United reduction? It is hard to say. The facility was built originally for 16 flights. I have to wonder if Propeller would like to dial capacity back for a bit, but they are an investment group and investment groups typically aim to maximize returns.

If Alaska were to pick up the gate times, it would be reasonable to see them in DEN as discussed above. It would be equally possible to see them add depth to existing markets or new service to a secondary Basin market.

I would doubt that Delta would be interested in operating three flights into the airport, especially if they are locked into United's old times. As these old times likely would not fit operationally or commercially into LAX or SLC. In the unlikely event Delta was to jump in, I would not be surprised to see them operate a non-hub such as Vegas really to just be a thorn in Alaska's side. 

There's also Allegiant if the costs are low enough. They had expressed interest in the past.

There's plenty of gamesmanship that could be played here. But ultimately, we will all just keep an eye on the schedules and see who, if anyone, takes the gate times in PAE.  

Delta's Push to Drop Small Cities