“It’s a time of opportunity,” said Peter Morris, chief economist at Ascend, the consultancy arm of Cirium. “You can get a deal like you never would have in 2019. The window of opportunity is probably not open more than a couple of years.”
Morris pointed to JetBlue Airways Corp., co-founded by Neeleman, which went public less than a year after the Sept. 11, 2001, terrorist attacks. Spirit’s initial public sale was in 2011, a year stung by higher fuel prices and slow economic growth. In Europe, discounters Ryanair Holdings Plc and EasyJet Plc rapidly expanded in the early 2000s while larger rivals like British Airways were cutting spending after the war in Iraq and the outbreak of SARS discouraged travel.
Leisure carriers eschew direct competition with the behemoths wherever possible. They focus on smaller, secondary cities, avoid time-consuming stops at hub airports and fly less than daily to many destinations. Often known as ultra low-cost carriers, or ULCCs, many couple deeply discounted fares with fees for anything extra.
“That’s what the ULCCs and investors are banking on—that spurred by these low fares and new, underserved routes you’ll see passenger growth at a multiple greater than GDP growth,” said Joe Mohan, an aviation consultant in Westlake, Texas, and former CEO of Grupo Viva, the parent of several Latin American discount airlines.
Frontier’s Biffle also cites three rounds of government stimulus checks over the past 13 months, which helped boost the U.S. savings rate by $1.5 trillion, as a catalyst to spur a travel boom. Spending on durable goods soared in 2020 as Americans fixed up their homes, bought a car or replaced appliances, all while not traveling, United Airlines Chief Executive Officer Scott Kirby noted at a March 15 JPMorgan Chase & Co. investor conference. That leaves wanderlust next on many Americans’ wish list.
“I think all that durable expense that would have been happening in 2022, 2023, 2024, you’ve already bought a new washing machine, you don’t have to buy another one,” Kirby said. “That money that got spent was pulled forward” and will prompt consumers to take more leisure trips over the next three years, he said.
Investor funds aren’t flowing to airlines only in the U.S. In Europe, a startup called Norse Atlantic Airways is keen to reprise the trans-Atlantic Boeing 787 flying of the defunct Norwegian Air International. Another Norwegian domestic carrier, Flyr AS, raised 600 million kroner ($70.7 million) and plans to begin flying this summer. In the U.K., a budget startup named flypop plans to serve the South Asian diaspora by flying Airbus A330s from London to India, starting with Amritsar and Ahmedabad.
Globally, ultra low-cost carriers command roughly 30% of total seats in mature aviation markets but only around 5% in the U.S., Mohan said. “ULCCs will capture their natural share, and whether that’s 30% or not it’s a lot closer to 30% than it is to 5%,” he said.
Domestic leisure travel also holds the appeal of durability, said Lukas Johnson, Breeze’s chief commercial officer, offering a common travel scenario as an example: “I got a kid and my parent wants to see the kid and that demand does not go away.”
This article was provided by Bloomberg News.