Happy New Year! When I see a chart like the above, it’s unfathomable to believe that it’s a good time to be in the airline business, let alone be a startup trying to enter the capital intensive sector. But that’s what David Neeleman (the founder of JetBlue) plans to do. History is littered with failures of upstart airlines due to a myriad of factors that make it an extremely difficult sector to compete in. Today’s 3 large legacy carriers (Delta, United and American) are the result of years of consolidation and currently control ~50% of the US market.
But maybe Breeze can find a niche. Unlike the legacy carriers that use a hub and spoke system, Breeze plans to fly point-to-point from secondary airports and utilize smaller Embraer and Airbus 220 aircraft while keeping flight times <2 hours. Where they are really looking to innovate, however, is in controlling labor cost. In a controversial move they are hiring flight attendants who do not have a college degree and requiring them to enroll at a university in Utah in order to join. Furthermore, they are providing shared housing which is something that’s been absent from the legacy carriers for years. Starting pay for crewmembers will be in line with the regional airlines – which has brought up some concern that they will have trouble finding talent especially when the cost for pilot training to be type rated in an Airbus is higher but salaries are not being adjusted to reflect this.
VC’s and corporate venture capitalists have mostly stayed clear of this space. Even JetBlue Technology Ventures (The VC arm of JetBlue) isn’t interested in making investments in a new airline; but is instead focused on companies that make up other parts of the value chain – modern accommodations, aviation operations and avionics, innovation in loyalty and sustainability, for example. I’ve always loved the airline business, but I don’t see how it’s a good time to start one. I’m much more interested in startups that operate in the ecosystem but aren’t bogged down by high barriers to entry. Even the Oracle of Omaha, Warren Buffet jokingly once said “if a far-sighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.” Maybe Breeze will find success, but it feels too similar to what Frontier, Allegiant and to some extent, Spirit are already doing.