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Sunday, Sep 24, 2023

New Airline Taking Flight

A startup airline with an unknown name and old aircraft started flying exclusively out of the Hollywood Burbank Airport last April. It may have been the worst time to start an airline since it was the middle of the pandemic and passengers were scarce.
What’s more, it flew to such unusual destinations as Ogden, Utah; Fort Collins, Colorado, and Santa Rosa in Northern California.

But it did offer ultra low fares. And those oddball destinations? They are near larger cities.
As the pandemic lessened and passengers began to show up, the startup, named Avelo Airlines, added hubs in Las Vegas and New Haven, Connecticut. Earlier this month, the airline added Boise, Idaho and Spokane, Washington to its itinerary. It now has 12 destinations from Burbank – raising the question: will this startup take hold?
The Chief Executive, Andrew Levy, naturally is optimistic. He believes the Burbank airport is a good match for his business model.

“Burbank is really interesting because if you look at the demographics, there are more people who live closer to Burbank Airport than (Los Angeles International Airport) and they have a higher income level,” he told the Business Journal.
“L.A. knows Burbank but people in the other parts of the U.S. don’t as well, so that’s part of the challenge.”


Allegiant heritage

Avelo Airlines debuted last April but its roots go back to 1987 with the creation of Casino Express Airlines, an air carrier using Boeing 737-200 jetliners to fly to the Red Lion Hotel and Casino in Elko, Nevada.

As Casino Express Airlines expanded its service, the airline was rebranded Xtra Airways in 2005. In August 2018, Levy, a former chief financial officer and chief operating officer at Allegiant Air, acquired Xtra with an eye toward transforming it.

“I bought the company for one sole purpose: to use it as a platform to create a new low-cost airline,” Levy told the Business Journal. “It was historically a charter airline. When I bought it, it was stripped down to a skeleton.”

In February 2020, Levy created the new holding company for Xtra called Houston Air Holdings Inc. – named after the company’s Houston headquarters – which raised $125 million in private equity funding.

Just over a year later, the newly named Avelo Airlines began selling tickets for flights based at Hollywood Burbank Airport utilizing three single-class, 189-seat Boeing 737-800 planes.
“We wanted something different, easy to pronounce and it works in Spanish,” Levy said of the rebranding.

In November, the airline doubled its fleet to six planes with operations from Tweed New Haven Regional Airport in Connecticut. Destinations from Avelo’s East Coast hub include Nashville, Tennessee; Myrtle Beach, Charleston and Savannah, South Carolina; and multiple Florida desinations.

“They’re looking at what kind of demand is there from secondary cities to get to Los Angeles,” said Mike Boyd of the aviation consulting firm Boyd Group International. “It’s a good program because there could be a lot of traffic of people who would not travel except in the presence of a low fare.”
The company’s advantage is that no other airline originating from Burbank or from New Haven is serving some of these routes.

“They’re not really competing head to head with anyone,” Boyd said.
Boyd characterized the company as nimble, which is key to their success. For instance, the airline canceled its service to Grand Junction, Colorado, and cut out Monterey before Avelo even began service there.
Since its launch during the pandemic, Avelo has already experienced some industrywide challenges.

“It took some time to raise the capital and then of course the pandemic hit,” Levy said. “We hired people without even meeting them in person. That proved to be not that great of a challenge, but it was certainly different.”
Regulations posed a problem, but “the bigger challenge was related to demand,” Levy said. “The Covid risk has obviously affected a great deal of travel demand.”

Another challenge has been sorting out which routes are profitable or dispensible. Even before its first full year in operation, Levy has done some fine-tuning to Avelo’s itinerary.
“Grand Junction simply didn’t work,” Levy said. “We were dissatisfied with the financial results so we had to eliminate it last summer.”

For various reasons, Boseman, Montana didn’t work out eitther. Neither did Monterey in California and St. George and Provo in Utah.
“We eliminated all three of those without ever even flying to them,” Levy said.
“The thing that impresses of me about Andrew Levy is that if something doesn’t work, they drop it,”’ Boyd, the aviation consultant, said. “They’ve proven since they started that they’re very flexible.”

The recent rise in fuel prices is a concern at the moment but the company has yet to pass down those costs to the consumer.
“We’ll have to see how that plays,” Levy said. “It’s a little too early to see big changes.”
Levy said that Avelo is better equipped to confront such challenges than a major airline.
“Historically, low-cost carriers have handled this much better than larger, high-cost airlines,” he said.

Avelo’s website offers a round trip from Burbank to Santa Rosa for $78. Alaska Airlines’ cheapest flight for that trip on the same dates was listed at $193. Other airlines flying from Burbank but to San Francisco had much higher fares: $681 to $901.

The company’s fleet lends itself to economical flying.
“We have airplanes that are not brand new,” Levy said. “They’re not super expensive that it gets painful if you don’t fly them as often.”
Even with the higher fuel costs, Levy sees “an economy that is extremely strong and pent-up demand for people who feel safe to go out again and do things they haven’t been able to do for the past two years.”

The company’s next goal: two more airport bases by the end of the year and up to 17 planes flying by next year, up from the current six.
“The revenue trends have been really terrific,” Levy said. “(New Haven) has performed very well from day one.”

He believes that differentiating Avelo with its niche destinations will make his airline stand out in the long run.

“From a business philosophy standpoint, I thought what’s very important for any new airline is to do something different,” Levy said. “Just doing what others are doing but better, I didn’t feel that was the right type of investment. To do something unique and different, I felt that’s the right way to go.”

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