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. 

2 comments:

  1. Phew, they sure don't make it easy do they? Since all of the block times to these central time zone cities are at least 1:40, it does seem safe to assume this mystery airport is at least as far west as Mississippi, if all the other assumptions are correct. Would seem to point to SHV, MEM, JAN(?) as some starter ideas.

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    1. Any of those could work as well. I'd also toss in Nashville. Whatever the city is, it needs to be large enough to support at least two, maybe three routes. Nashville is not under-served. Between Allegiant’s growth and Southwest product offering, I don't see a lot of gaps.

      The airline is planning heavy maintenance in Nashville so it could fit, but not required. American use to have a major maintenance base at Alliance (Fort Worth, TX) which did not have scheduled service.

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