Executives from two new airlines, Connect Airlines and Breeze Airways, shared their strategies at the Skift Aviation Forum in Dallas for starting up and pushing forward.
The executives included John Thomas, CEO of Connect Airlines, and Lukas Johnson, chief commercial officer for Breeze Airways.
Owned by Massachusetts-based Waltzing Matilda Aviation, Connect Airlines plans to start service early next year with flights between Toronto to Chicago and Philadelphia.
Breeze began operations in May 2021, founded by David Neeleman, who started JetBlue and Azul Airlines. The Utah-based airline now offers more than 100 routes.
Topics covered included pilot and airplane shortages, route development, sustainability, airplane design for luxury travelers, and succeeding in a tough economic environment.
Watch their full on-stage interview with Airline Weekly editor Edward Russell, or read the transcript below.
Edward Russell: I went to hand it over to each of these gentlemen to talk about their airlines. Lukas, why don’t you go ahead?
Lukas Johnson of Breeze Airways: My name is Lukas Johnson. I’m the chief commercial officer for Breeze Airways. I met David [Neeleman] four and a half years ago. David has started not one, two, three, four … I think this is his fifth, now. Anybody that’s met David knows the passion of his entrepreneurial spirit. We both had a shared vision about where we saw the industry going in North America, as he was returning up from Brazil.
Russell: For anyone who’s interested, I would suggest the “How I Built This” with Guy Raz episode with David Neeleman. He will run you through his entire history of every airline he’s started. It’s quite a ride. Anyway, John, tell us a little about Connect.
John Thomas of Connect Airlines: We hope to start revenue services, subject to regulatory approval, in January. Our focus is really how to lead the global airline industry into sustainability. We launched with Q400s. People say you counter what everyone else is doing. Everyone else is retiring Q400s; we’re actually taking Q400s on. The plan is to launch with Q400s in our target market, 40 percent less [carbon dioxide] emissions out of the gate, and in 2025/2026 will be the first zero-emission airline in the world with the universal hydrogen conversion to ATR 72s.
Russell: That’s really exciting. We’ll get to more on the sustainability in a minute, but I want to ask each of these guys a little bit about their airlines. Lukas, I’m going to go back to you. Breeze started with much fanfare, what, a year and a half ago?
Johnson: Yep, in May of last year.
Russell: Yeah, May of last year. Now, you’ve expanded with E190s, A220s, you’re flying all over the country. But I have heard of some operational hiccups and stuff. Can you tell us, how are things going and how are you managing that?
Johnson: Yeah, things have been going great. Putting three fleet types on in 12 months is a challenge. David doesn’t see obstacles; he just goes through them and brings the rest of us with him. It’s interesting. The airline’s up. We’re ramping well. This quarter we’re going to be growing over 50 percent in quarter-over-quarter [available seat miles]. The ramp is real. Next year, we’re going to multiply in size. It’s going really well. Guest satisfaction is incredibly high. Our guest [net promoter score] is way above where we thought it would be. We want to deliver an amazing product and brand as we’re building it from scratch. It’s what our focus is. It’s really rewarding to see the feedback from the guests about all that. As you see, we just announced our 100th route two weeks ago, and another announcement this week. It’ll keep going as we keep ramping into next year and into the fleet book.
Russell: Absolutely. It’s fascinating how you’re doing it instead of the traditional — We all think of JetBlue as the New York airline. David Neeleman came in, started it, found a niche at JFK, built a hub there. But Breeze is this point-to-point airline. You’ve got bases everywhere, going all over the country. What was behind that and how’s that going?
Johnson: I think as a startup airline … The industry has changed a lot over the 20 years. When David started JetBlue, you had a very protected, controlled airport situation, which lends itself to difference. I think you can look at the strengths and weaknesses of each of the airlines that have survived over the last couple of decades, and seen why they choose the networks they did. But I think both the newer startups intentionally are looking at places that won’t be as concentrated, just due to it’s a different industry now and you’ve got very strong competitors.
Russell: You’re right, it’s a different industry. We’ve all seen Allegiant Air, where you used to work, Lukas, make a huge step, a huge success flying point-to-point routes. John, Connect, like you said, launching shortly. I think you told me January pending regulatory approval. But you guys are going with a very different model. You’ve got essentially a hub, or a base at Toronto’s Billy Bishop Airport which, to any of you listening, you have to fly into Billy Bishop. Fantastic views of downtown Toronto and everything. It’s a great airport. But you’re going to be flying to cities on the East Coast and the Midwest with Dash 8s. Why that strategy? Why did you select that for Connect?
Thomas: It was actually made for us because the only airliner certified for Billy Bishop is actually the Q400. Obviously, you’ve got Porter Airlines who have operated very successfully in there for, I think 10 years or so. To a certain extent, in terms of where we were going to launch Connect, it was about where are the most lucrative routes? The most lucrative routes, from a yield perspective, is obviously transporter. Transporter have always been very high yields. So, number one was the yields. Number two was lower competition because you just had an incumbent, being Porter. And number three was, as we all know in this industry, it’s all about, to Lukas’s point, about protected assets. What a lot of people don’t realize is that Billy Bishop is a slot-constrained airport. When we started off, a lot of people said, “Look, you’ll never get the slots into Billy Bishop.” There’s 224 daily slots, and we’re pleased to say that for the Northern winter, we are actually allocated 42 daily slots. So 42 out of a total of 224 for a startup in a slot controlled airport, we think is pretty good.
Russell: Now you’ve named your first few destinations: Philadelphia, Chicago O’Hare, and there’s also going to be a partnership with American, so you’ll have some feed. Is the idea to build out that partnership with American to more points or are you going to start going to your own markets?
Thomas: I think our strategy is much more around, obviously, look for routes where there’s strong point-to-point, but also try and tap into connecting markets. There’s something like 264 people a day that connect over Chicago to go to the Toronto area. Our view is, yes, it’s a very strong point-to-point market, Chicago to Toronto, but operating into a very strong hub like O’Hare, we should pick up a lot of connecting traffic as well. Our strategy, also as an airline, is we’re a branded airline. We don’t believe in the [capacity purchase agreement] model. We think the [capacity purchase agreement] model is in its sunset days. So, a branded airline but in partnership with major carriers. Our strategy over the next year or so is to go out and build partnerships with major airlines to basically compliment what they’re doing in the marketplace.
Russell: That’s sort of the Switzerland model that Alaska had for a long time.
We have a poll here and I want to pull this up. It looks like maybe only if the business model is “overwhelmingly attractive” would they start a new airline. So let’s talk about that. You both are involved in starting a new airline, though I should note Waltzing Matilda has been around for 14 years as a charter airline but not as a scheduled carrier. What do you think about this result?
Johnson: I’m surprised we had 5 percent. It takes an internal optimist, I think, to start airlines up in the industry, and you’re always going to have cyclical strength and weaknesses. And when you think it’s really strong, it may not be the right time actually to start because you kind of missed the cycle. And if you looked at most of the growth in at least in the North American space or the U.S. space over the last couple decades, almost all of that growth has come post large macro exogenous effects. If you looked at post dot-com or post-9/11, the entirety of the U.S. [available seat mile] growth was JetBlue for a six-year period. If you looked at 2008 after the recession, the entirety of the [available seat mile] growth … actually shrunk from that five-year period. All of it was on the [ultra-low cost carrier] space. So again, we went through another large exogenous effect, and most of the growth is going to be coming through on newer carriers.
Thomas: I’m actually very encouraged by that because, to Lukas’s point, as a lot of financial investors say when they look at the industry, they say now is actually the perfect time to start an airline because it’s very similar to when JetBlue started off. But secondly, for us in particular, as I said, everyone bizarrely is retiring their Q400s. So the market is a wash of Q400s at the moment. And as everyone knows in the industry, the one thing that drives the economics of this industry is making sure that you have your — It’s capital intensive, so you’ve got to get the right level of capital in there. And that’s even more important in the regional space where obviously you have lower daily utilization, so your cost of the capital equipment is even more compelling. What I can tell you is the lease rates that we are getting on the Q400s are at historic lows. In fact, as someone reminded me a few weeks ago, the lease rates we’re paying on our Q400s are one-third of what we would have been paying three years ago. So in an industry that’s always grappling with, “You don’t want to overcapitalize in terms of the equipment you have,” we think we’ve hit the sweet spot in terms of getting that capital mix right.
Russell: Lukas, you did a bit of the same with the E190, correct? [inaudible]
Johnson: Yep, it’s the same exact philosophy. It’s really about zigging when everybody else is zagging. And for us, we thought it was much better to be the only airline of a single gauge type or a specific gauge type for the next decade, versus somebody else that’s going to be the fifth or the sixth airline of exactly the same model and gauge. There’s just less differentiation. We thought there was a larger space for the business model.
Russell: Both of your airlines are, like you said, zigging when everyone else is zagging because you look at the typical [ultra-low cost carrier] model and that’s buy either A320, A321s or 737s and fly them 10, 15 hours a day as much as you can. So the idea that — not that you’re not doing high utilization — but you’re picking E190s and A220s, Dash 8s, planes that are not typically thought of for startups. We talked about this a little earlier with Robert Isom [of American Airlines]: There’s constraints in the market, there’s a pilot shortage in the U.S., there are aircraft delivery delays, which I’m sure is impacting the A220. How is that impacting your airlines? John, tell me a little bit about how you’re starting up when everyone’s talking about a pilot shortage.
Thomas: Well, as I said on the aircraft side, we’re fine. We’ve got a flood of aircraft, so we’re actually in the opposite from pretty much everyone else in the industry. On the pilot side, yeah, the pilot issue is a real issue. But we went out pretty aggressively about three months ago and launched a program called the Smart Start Captain Program, and people thought we were crazy, absolutely crazy. Here’s a regional carrier that are paying direct entry captains $250,000 a year. And guess what? As I said before, our lease rates are really, really low, so in effect what we are doing is, some of the savings we’re getting on the leasing rates, were actually paying to the crew. But I’ve got to tell you, the quality of the captains that we’re getting at $250,000 a year — it’s exactly what you say: You get what you pay for. We have this phenomenal group of captains who have joined us. I look at the quality of our captains, the experience of our captains — and we’re not a startup; we’re a legacy carrier if you look at the quality of our captains. And interestingly enough, we’ve hit this sweet spot. It’s basically captains in 45 to 55 years of age. For some reason, they missed the legacies.
Our classic is we have a 55-year-old who was a [first officer] with one of the majors, and he’d been flying around the world with Middle Eastern carriers and finally came back to the states. Because of the seniority list got put down to the bottom with one of the legacies. He was told at 55, he said, “Look, you will not get to the left-hand seed for at least eight years. You may have two years as captain, and guess what? You probably will be flying right seat with a 30-year-old captain.” And so we have a totally different situation where we have these 50-year-old captains who have got 30 years of experience. When we go out recruiting [first officers] — and we have a pipeline of about 80 [first officers] — we say, “You’re just starting your career in the industry.” And I always believe this industry is very much master-apprentice. There’s no better way to start as a [first officer] than have a 50-year-old captain with 30 years experience sitting in left seat, because boy, you are going to learn more than any [simulator] session, or whatever, by doing it. We think we’ve actually set ourselves up for very long-term success by making, effectively, an investment in the pilots.
Russell: So you would say that Connect has enough pilots to meet your start?
Russell: Lukas, what about Breeze? How are pilots? What about aircraft?
Johnson: Yeah, on the aircraft side that you mentioned, at least on the 220 side because it’s coming from assembly, we’ve had the same issues that a lot of the other carriers have had. It’s still coming. We’re still going to triple in size next year, so it’s all relative. Growth is tripling versus quadrupling, it’s fine on that side. So I would say we’ve adjusted to the plan. We’re also bringing on a lot more aircraft than I think most startups would be at this time. On the pilot side, we’ve done the same thing with direct entry. We’ve got multiple different pipelines to go through there. Really for this year, it’s really been about training resources with the government is something that you can’t always control. In terms of the pilot total supply, we’ve got plenty of pilots into next year that we’ve already hired, so it’s just about getting them through the schoolhouse and actually flying.
Russell: That’s good. So, Breeze has enough pilots?
Johnson: We have a lot of pilots.
Russell: Mr. Steven Udvar-Házy [of Air Lease Corporation] said this morning that every Airbus and Boeing plane was five to seven months late at least. Would you agree with that?
Johnson: Yeah, we’ve adjusted most of our 2023 fleet plan in the three-to-six month range for most of the planes coming out.
Russell: Yeah, it’s definitely an issue. Now, considering these constraints, pilots, aircraft, do you think that the window for new startup airlines is closing from this crisis? And thank you for the overview of how crises is a great opportunity, but do you think the window is closing now?
Johnson: I think there was the moment in time. You can see from that the capital markets are not very good right now. It’s shifted a lot. It’s been very dynamic the last couple years, but looking at this and looking at high fuel, it’d be hard to really get somebody to commit right now. And that’s the key for ourselves … that when your capital came in was very important. And so that was very well-timed. And you could also be the flip side, it could be coming in at a very inopportune time. So I think if you’re an investor, you’re looking at it, you may be on the sidelines right now. There’s a lot of uncertainty in the macro environment.
Russell: Right. You agree with that, John?
Thomas: Yeah, and I think there’s a whole raft of reasons why that I think that it’s moved on, but one of them is, again, you just can’t get the equipment nowadays.
Russell: Again, Mr. Házy said this morning that 94 percent of their aircraft are being extended. Now, I know it’s not necessarily Dash 8s and E190s, but when 60 percent is the norm and 94 percent are being extended leases, it makes it much, much tougher to get aircraft, for sure.
Johnson: And lately, if you’re putting in a new order, for most aircraft types it’s very far into the future. It’s been very tight, and I think if you’re a startup trying to acquire that, it’s a hard road or hard sell for people.
Russell: Now, shifting gears a little bit, let’s talk a bit about premium leisure travel. That’s a growing segment. It was a Skift Megatrend for 2022, and we’ve just continued to see the strength. Lukas — Breeze, you have some pretty large premium cabins on your A220s. Talk a little about what’s the idea behind that and are you filling those?
Johnson: Yeah, and I would say we launched the brand based on premium leisure, so everybody’s been following along on that side. We felt really strongly five years ago, four years ago, about the segmentation wasn’t really good in the space. You had business carriers and you had ULCCs and you had a little bit of hybrid, but even a Southwest doesn’t have a very differentiated product. So going out with the right segmentation, we thought there was a big opportunity. And so now the guest response has been really, really strong. People love the different optionality they have. You’ve got the right mix of going in and people have been, on the non-ticket side or on the bundle upgrade side, it’s been incredible response for the premium side. People were willing to pay for that better experience, absolutely.
Russell: And the A220s have, what, 36 of these?
Johnson: The first seven we took had 36, and then the plane eight, which we’ve already got into service, we’re selling a different configuration, which is going to be 12 business class seats, 45 with extra leg room, and then 80 on standard leg room.
Russell: Now, will that 12 configuration be the standard one now or are you going to mix it up?
Johnson: Yeah, it’ll be more standardized to that, and I think there’s definitely markets that you could have a much higher premium end side, but given where we’re headed in getting to standardization is important. I think the plan from putting in the order five years ago is a little bit different, and I think that’s probably the right mix given where we’re headed with the network.
Russell: Now John, on a Turboprop you’re going to be putting a premium cabin, which is unique. Are you similarly thinking premium leisure? Are you thinking business travelers? What’s the idea behind that?
Thomas: Given our focus is Toronto City, Toronto City Airport is very convenient for business travelers, and again, business travelers do want extra leg room. So we did the radical step of taking row seven out of the Q400s, which gives us 26 seats at the 35 inches, and the balance of the aircraft, the 48 seats at the 30 inches. And 35 inches on a Q400 is really, really comfortable. So it’s not just the seat, it’s obviously the other soft benefits that you get. We’re actually going to have a meal service; a meal service on a 90-minute flight is pretty unique. I think we are the first operator of a Turboprop in the world to actually have a premium cabin, economy-plus cabin.
Russell: Well, at least since United parked their Q400s five, seven years ago now, that’s true. Now, when you say meal service, that’s just going to be for the premium passengers or is it for the whole?
Thomas: Well, given my legacy in ancillary revenue in the industry, Ned, you’d know I’d never let anything go by.
Russell: Of course not.
Thomas: It will be packaged in the front cabin, and it’ll be food for sale down the back.
Russell: I want to come around to something that you mentioned earlier on, John, which was sustainability. Connect has a deal with Universal Hydrogen, which is a fascinating company. They’re developing hydrogen fuel cells that can power electric engines, electric powertrains in aircraft. You are going to be introducing those, you said ’25, ’26. Tell us a little bit about the idea behind that. Why the drive to have hydrogen powered Turboprops?
Thomas: Unfortunately as an industry, we’ve set these very tall goals by 2050, and we’ve got to start somewhere. I think what a lot of people realize is that it’s in the regional space. That’s where the technology today can actually be adapted to have zero emissions. And people say, “Well, the regional space is pretty small, it doesn’t really matter.” But again, our numbers say that in 2019, the U.S. domestic market was 926 million employments of people flying less than 400 nautical miles. We use that because the time differential between a regional jet and turboprop is de minimus at 400 nautical miles. There’s 210 million of those 926 million flying those short sectors, which is about 24 percent of the market. In 2019, moving those 210 million passengers around emitted 17 billion pounds of CO2 emissions. Just by converting all of those onto Q400s, you’d save 6 billion pounds of emission.
If you go to zero emissions, which we’re planning on the Universal Hydrogen conversion on the ATR 72, that actually eliminates, obviously, the whole 17 billion. And that’s 17 billion in context of the entire U.S. airline industry’s carbon footprint is nearly 10 percent. So, by actually focusing on the regional space, where as I say, the technology is there — it obviously needs to be certified, hence the 2025, 2026 timeframe — that we could actually make a real dent into the carbon footprint, certainly of the U.S. airline industry.
Russell: It’s fantastic to hear, and Universal Hydrogen is actually going to be flying their first test aircraft by the end of the year, is the plan. That’ll be fantastic when we see it. But it’s funny, as you’ve touched on the topic that Mr. Házy spoke to earlier, is that developing these technologies comes on these small planes, eVTOLs, Turboprops, and then they can scale up. Now, Lukas, you guys are flying the A220, which is one of the newest aircraft in the market, very fuel efficient. That choice seems very well fit for the time.
Johnson: Yeah, I would say for us, for most of the traditional technology, it’d be on the fly efficient aircraft and flying more nonstop guests versus going out of the way and connecting, and that’s going to be the path for a lot of the way to get to sustainable. I would say on the 2050 side, it’s easy to put out goals. I’ll be hanging on by a thread, maybe, at 2050. I don’t know how some of the other people are going to be that are making some of these decisions. I would say there’s a little bit of ease on making some lofty goals that you’ll never have to face.
Russell: Fair enough. Any sustainable aviation fuel agreements for Breeze anytime soon?
Johnson: Nothing that we’re announcing now.
Russell: International — of course, John, you would be flying from Canada to the U.S. right away. But Lukas, Breeze is currently a domestic airline. Are you guys looking at Canada, Mexico, international flights?
Johnson: Yep, we’re in the process right now. The first year was getting the three fleet types on. Now we’re in the process with the FAA of getting flag and international ops set up. So not announced this week or next week, but in the near future I would say we’ll be making some announcements.
Russell: And John, as you guys are expanding, you’ve already talked about looking at connecting points and other points. Is it going to stay Toronto, or are you looking at maybe other gateways, Ottawa, Montreal, to the U.S.?
Thomas: Our model is set up perfectly to Toronto into the U.S. And obviously, we are a U.S. carrier, so we’re a bit sensitive about people saying our base is Toronto. No, our maintenance base is actually Philadelphia. So no, we think there’s a lot of growth potential at Billy Bishop. One of constraints of Billy Bishop at the moment is that they don’t have pre-clearance, but pre-clearance should come in the next couple of years and once that happens, potentially flights into LaGuardia, into DCA. But no, we think that there is a lot of opportunities of just basically within that 400 nautical mile radius around Toronto building up routes.
But again, one of the things that makes us unique as a startup is that we actually went for three types of operations, where we’ll be certified for domestic schedule, for supplemental, and flag, obviously the flag for Toronto. But no, we have plans for domestic U.S. services, and we think there’s a great opportunity. There is something like about 800 regional jets out there that are 20-plus years old that should be retired, and being able to replace those aircraft with an aircraft that has a 40 percent lower CO2 emissions, we think is probably in the near term. So no, we plan to build up our domestic operations as well.
Russell: I have to ask, though, Americans are notoriously fickle about flying on turboprops, preferring jets; we hear it again and again. Is that a concern for you?
Thomas: Well, I think just if you look across the board of U.S. carriers, I think let’s just say that the CO2 or the ESG message is going to become stronger and stronger. And as I say, it’s a fairly easy solution to switch regional jets for Turboprops. But we’re not naive about the fact that there is this perception that Americans don’t like flying on Turboprops. So number one, the Q400 is called the Q400 because it is a lot quieter than the predecessor, Dash 8s. And number two, one of the things that the industry has done a disservice is the fact that most Turboprops, when you board them now, you actually walk out onto the ramp and your nose is rubbed into the face that you’re getting on a turboprop. All of our services will be through jet bridge. My view is that most people coming down a jet bridge don’t even know what type of aircraft they’re getting on.
But the other thing too, is that we are going to have a much better proposition, as I say, with the premium cabin of 35 inches versus a 50 seat ERJ145 or CRJ200, where everything’s at 30 inches. We can provide a much more comfortable service having the bigger overhead bins so that you don’t have to valet check your bag like you have to on an ERJ145. Part of our mandate is we need to change Americans’ perception of flying on Turboprops.
Russell: Well, that is a good challenge to take and one that we’ll watch closely.