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Coming Airline Competition

Summary:
An invaluable source of information on transportation is Reason Foundation analyst Robert Poole. In his latest post, dated May 13, Bob Poole writes: The ULCCs [ultra low cost carriers] continue to grow and are among the world’s most profitable airlines. Frontier, for example, last year signed a code-sharing agreement with Mexico’s Volaris, adding 12 more destinations in Mexico, as part of growing to 100 destinations (now including Calgary in Canada). This kind of growth has stimulated two very experienced airline veterans to plan new airlines, likewise aimed at price-sensitive travelers and smaller airports. David Neeleman, a pioneer of JetBlue, WestJet, and Brazil’s Azul, last year announced plans for a new start-up US airline. He has already placed an order for

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An invaluable source of information on transportation is Reason Foundation analyst Robert Poole. In his latest post, dated May 13, Bob Poole writes:

The ULCCs [ultra low cost carriers] continue to grow and are among the world’s most profitable airlines. Frontier, for example, last year signed a code-sharing agreement with Mexico’s Volaris, adding 12 more destinations in Mexico, as part of growing to 100 destinations (now including Calgary in Canada). This kind of growth has stimulated two very experienced airline veterans to plan new airlines, likewise aimed at price-sensitive travelers and smaller airports.

David Neeleman, a pioneer of JetBlue, WestJet, and Brazil’s Azul, last year announced plans for a new start-up US airline. He has already placed an order for 60 of the new Airbus A220 aircraft, with deliveries beginning in time to launch airline service in 2021. He points out that from 2014 to 2017, the US economy grew significantly, but the number of domestic airline seats remained unchanged. Airlines up-gauged to fewer, larger planes, with less service to smaller airports. Hence, Neeleman sees a significant market niche.

The other new-airline entrepreneur is Andrew Levy. He co-founded and managed Allegiant, the pioneer ULCC and more recently served as chief financial officer at United Airlines. His new ULCC will be based on a small charter airline, XTRA Airways, which he will convert into a serious airline targeting price-sensitive leisure and business travelers. Like Neeleman, Levy sees secondary airports as the key to success. They are not crowded, they charge low fees, and most have room to expand. Some offer an alternative to crowded large hubs—such as Mesa Gateway near Phoenix and Gary Chicago near O’Hare and Midway. Neeleman has also mentioned Providence, relatively near Boston. Levy, as far as is known, has not yet placed any aircraft orders, but an April 12th article on Skift.com says his business plan calls for five planes by the end of 2019, 14 by the end of 2020, and 45 by the end of 2023. He told NPR’s “Here and Now” that he will acquire “new or nearly new” planes, and Bloomberg News speculates that these might be Boeing 737-800s.

David Neeleman’s story is really interesting. He helped start Morris Air, a regional airline in western United States. My wife, daughter, and I flew it in 1992 or 1993 and I will never forget the flight attendant’s line:

If you don’t know how to fasten a seat belt, which means you haven’t been in a car since, oh, about 1975, here’s how.

I was charmed. Morris Air was sold to Southwest Airlines in December 1993 and Neeleman moved to Southwest. There he found the environment stifling and he left. But the legendary Herb Kelleher of Southwest insisted that he sign a 5-year non-compete agreement. No problem. There’s a country north of here that could use a low-cost airline, right? So he went to the Great White North, aka Canada, and founded WestJet. WestJet is, essentially, Canada’s version of Southwest Airlines.

After the five years was up, he founded JetBlue. A lot of the story is here.

There’s an old joke that goes as follows:

How do you make $100 million with an airline?

Answer: Start with $1 billion.

That joke doesn’t seem to apply to David Neeleman.

David Henderson
David Henderson is a British economist. He was the Head of the Economics and Statistics Department at the OECD in 1984–1992. Before that he worked as an academic economist in Britain, first at Oxford (Fellow of Lincoln College) and later at University College London (Professor of Economics, 1975–1983); as a British civil servant (first as an Economic Advisor in HM Treasury, and later as Chief Economist in the Ministry of Aviation); and as a staff member of the World Bank (1969–1975). In 1985 he gave the BBC Reith Lectures, which were published in the book Innocence and Design: The Influence of Economic Ideas on Policy (Blackwell, 1986).

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