The former chief financial officer of United Continental Holdings Inc. is betting that the U.S. airline industry needs another budget airline.
Andrew Levy, who also helped establish Allegiant Travel Co., is raising money for a new low-cost niche carrier designed to serve secondary airports with a reliable experience that differs from current players in the market.
“We think the opportunity exists for a real high-quality, highly reliable, extremely low fare, basic transportation service,” Levy said Tuesday. The airline, which has not yet been named, will offer “a better product and experience but still offer really low prices,” he said, comparing the venture to the past experience of Southwest Airlines Co. “I think Southwest showed that for many, many years.”
The Houston-based company has not decided on an aircraft type but is leaning toward leasing Boeing Co.’s 737-800, given the worldwide grounding of the company’s new 737 Max. The planes would seat 189 passengers, a high-density approach designed to help the company offer fares below the industry average.
Levy, 49, purchased XTRA Airways Inc., a Florida-based charter carrier, in August. XTRA’s parent last year sold most of its fleet to Swift Air but kept one Boeing 737-400 to retain its Part 121 commercial airline certification. The charter company, which operated two 737s for Hillary Clinton’s presidential campaign, is being transformed into the new scheduled operation. The airline is seeking to raise $100 million and expects to finish its fundraising by June.
The carrier could start service with around five aircraft late this year or in early 2020, Levy said.
The aggressive schedule would place its debut ahead of another planned U.S. airline entrant—dubbed Moxy—that is expected to begin flights in 2021 using the new Airbus A220. That carrier is being formed by David Neeleman, the serial entrepreneur who established JetBlue Airways Corp. and Azul SA in Brazil, and also holds a large stake in TAAP Air Portugal.
Levy said his revamped airline would not be a clone of ultra low-cost carriers like Spirit Airlines Inc. or Frontier Airlines Inc. It would seek to innovate parts of the low-cost travel experience, including offering a more simplified fee structure than competitors, which typically charge ancillary fees for things like seat assignments, water and carry-on bags.
“You have to do something different,” he said, declining to discuss specific details of the proposed airline’s product, service or network. “The idea that you can come in and just do what others do but just do it better, I don’t buy that.”
New airlines face long odds of success in the U.S., the world’s most mature aviation market. Levy’s strategy calls for building a “defensible” network, away from the big airlines, to avoid incurring a response. The business envisions stimulating new air travel, as all low-cost carriers must, and selling into unmet demand on underserved routes.
The business model is based upon the notion that most of the large U.S. airlines’ capacity growth has trailed general economic growth for several years, firming up their profits and making fares higher than they might be without the spate of industry mergers.
U.S. airlines’ consolidation and the resulting financial stability—marked by billions in annual profits—represents a dramatic turnaround from decades of boom-and-bust cycles. It also signifies that airlines are no longer “suicidally competitive,” as stocks sage Warren Buffett once put it, a situation that has induced him to invest heavily in the industry. His Berkshire Hathaway Inc. is now among the largest owners of the four biggest U.S. carriers, including a stake in Delta Air Lines Inc. that now tops 10 percent.
Levy’s plans were reported earlier by WBUR, a Boston radio station.
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