Insider Q&A: Avelo Airlines CEO Describes the Challenges of Starting a New Carrier

Staff
By Staff
8 Min Read

It’s not easy to break into the U.S. airline industry, which is dominated by four big carriers and a sprinkling of other niche players, but that didn’t scare away Andrew Levy.

Neither did a pandemic that briefly caused air travel to plummet more than 90%.

In April 2021, while COVID-19 still raged and billions of dollars from taxpayers were propping up big airlines, Levy launched Avelo Airlines with flights between Burbank, California, and Las Vegas.

The airline saves money by flying older Boeing 737 jets that can be bought at relatively low prices. It operates out of less-crowded and less-costly secondary airports, and flies routes that are ignored by the big airlines.

Levy was involved in the launch of ValuJet, which became Allegiant Air, and he also did a stint as the chief financial officer of United Airlines before starting Avelo (it rhymes with yellow).

He spoke with The Associated Press about the challenges of starting a new airline, how the carrier is doing, and plans to sell shares to the public. The answers were edited for length and clarity.

Q: Why did you think you should start a new airline?

A: Shortly after I left Allegiant in 2014, I actually started thinking about about doing this. The market had become very consolidated, and there was a lot of opportunity that was out there that wasn’t being served by the existing, incumbent carriers. You have these four behemoths that are massive, that are protected by the government it seems, because certainly they’re stronger than they have ever been, after the pandemic. My view was we had room for more.

Q: What have you learned?

A: While there are these four behemoths, the toughest challenge, quite honestly, might even be the regulatory regime. For smaller companies like ours, it imposes these really substantial burdens on us. I’ll give you an example. For the (Department of Justice) lawsuit (against) JetBlue and Spirit, we had to go spend a ton of money on our end to produce documents for something that we really didn’t care how it ended up. And they’re trying to get us to do the same thing for Alaska-Hawaiian, which again, we could care less if Alaska and Hawaiian merge.

Q: How do you get people to fly on a new airline?

A: Number one, you have an awareness issue. You want people to know that you exist. So that’s one challenge, which is more of a marketing challenge. The other challenge is of course getting people to trust you. Like, ‘Who are these people? Are they going to really get me there? What’s the airplane going to look like? Is it safe? Is it reliable? What happens if something goes wrong?’ All those questions that most consumers may have when they think about choosing an airline that perhaps they’re unfamiliar with. You just have to focus on doing a really great job. Obviously not every flight is on time, but as time goes on I think people recognize that, hey, you know what? These guys offer a lot of value. We offer great convenience.

Q: Where does the name, Avelo, come from?

A: There’s no great story there. I wish I could tell you it was. It was a play on two words: velocity, which is swift in Latin, and convenience.

Q: Avelo reported a profit for fourth quarter 2023 but gave no details. Was that on a GAAP (generally accepted accounting principles) basis? And how much was it?

A: We actually have cash that generates interest income nowadays. Those are GAAP numbers where we have audited financials from Ernst & Young. These are real numbers with no adjustments or anything else. I’m not going to give you the numbers because we are a private company and so we have no real need to provide that kind of information. I’ll tell you that we made money in the first quarter as well.

Q: You’ve talked about your cost advantage as a startup. Is that sustainable?

A: Most costs creep up over time for every airline because our labor costs are tied to pay scales, but it is very sustainable. It’s based on how we designed the business. We distribute our product directly to the customer so we don’t use third-party intermediaries. We go in to smaller, more convenient, less-expensive airports. Your taxi times are lower; you’re not burning gas. We spend money on things that matter, and that includes our people. Our pilot pay is very competitive. It’s not the same as United Airlines, but it’s extremely competitive. We operate older equipment also — midlife (Boeing) 737 NGs, and those are certainly less expensive than brand-new aircraft. They burn a little bit more gas, but not much, and we like that trade.

Q: Do you plan to sell stock to the public, and when?

There’s obviously two issues. The single biggest one is one we don’t control, which is when are the IPO markets going to be actually open and vibrant, and they’re not right now. Beyond that, we have to be ready as a company. We put two straight quarters of profits … so we expect every quarter this year to be profitable. We hope that we’ll have a company that people would want to own, and hopefully by year end or sometime next year. There’s no magic to being public for us. It’s just that historically that is typically the best way to access the capital markets for companies like ours. It is a very capital-intensive industry.

Q: What advice would you give to somebody else looking to start a business?

A: There’s nothing more rewarding than taking control of of your destiny. Just make sure you know what you think you know about whatever it is you’re going to start. I think you have to be wired a certain way to want to do something like this because it’s unbelievably difficult. I’ve been at this now for almost six years. When we get to a certain point, I’ll look back and feel really good about what we’ve done. We’re not there yet, but we’re getting close.

Share This Article
Leave a comment

Leave a Reply

Your email address will not be published. Required fields are marked *