The COVID-19 pandemic has wreaked unprecedented damage to almost all airlines globally, with IATA forecasting massive losses of $48 billion for airlines through 2021. However, with several startup airlines emerging since the pandemic began, current market conditions may in fact represent the perfect opportunity for startups to launch. We explore some of the reasons why.
Cheap planes, cheap crew
With the pandemic forcing a huge number of planes worldwide onto the sidelines, snapping up aircraft on the cheap has never been easier. With an abundance of surplus planes in a market with few airlines looking to buy (or lease), startups are finding it easier than ever to source planes at favorable prices.
In a Simple Flying webinar last week, Nino Judge, CEO of upcoming startup airline flypop, explained how the pandemic allowed flypop to benefit from “bottom of the market” deals.
“We locked all these deals in at the bottom of the market and not at the top of the market. And that is the critical factor in a startup during a pandemic. You have cheap capital, cheap planes, cheap crew. It’s the perfect time to start an airline.”
Birgir Jónsson, CEO of new airline PLAY, added,
“There’s a lot of good and desirable aircraft available with absolutely unbelievable terms.”
Similarly, out-of-work pilots and cabin crew are also available more than ever. The COVID pandemic has forced an unprecedented number of aircraft crew to lose their jobs. Startups are now readily able to recruit seasoned, ready-to-go crew.
However, not everyone agrees about the opportunities presented by the pandemic, especially regarding the staying power of startups in the years to come.
A Wizz Air spokesperson commented,
“Entering the market might be easier given aircraft and pilot availability, but staying an airline will be much harder. So, this will be a marginal phenomenon.”
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Changing dynamics of leasing
Aircraft lessors have always been an important part of the industry, giving startups and established airlines the opportunity to bolster their fleets without shelling out on expensive aircraft purchases.
Before the COVID-19 pandemic, lessors were growing in prominence. Through 2019, over 50% of Airbus and Boeing deliveries were made to leasing companies, emphasizing how important they had become to the industry.
However, the pandemic led to a flurry of deferred or canceled leases and low demand for planes, leading to an oversupply of aircraft. This consequently made lessors more willing to offer favorable leasing contracts (like power-by-the-hour deals) to offload their planes.
As Judge explained,
“We have a ‘power-by-the-hour’ deal on the aircraft. We’re not paying until we fly. That would never have been possible for a startup pre-COVID.”
With a conventional leasing deal, airlines would still be burning through cash even if their aircraft were not operational due to storage and maintenance fees.
Freedom from debt
Many of the world’s leading airlines are heavily laden with debt due to losses incurred over the pandemic (and often before). A fresh startup airline is not burdened with years of debt, giving it a distinct credit advantage over established carriers.
“[We] do not have the headache of having dozens of aircraft sitting on the ground as our rivals do, nor huge amounts of debt.”
“If you don’t have any burdens, and you don’t have any debts or any legacy… then, of course, it can work.”
In May, IATA estimated that total industry debt has risen to $651 billion, an increase of $220 billion over the pandemic. IATA added that it expects airlines to burn through an additional $81 billion of cash by the end of 2021.
Do you think startup airlines are taking a huge gamble given the unpredictable future of the industry? Feel free to share your insights in the comments.