The founder of JetBlue, Azul and Breeze discusses the U.S. and Latin American airline markets, sustainability, air traffic control and supply chain challenges with host Aaron Karp.
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Transcript
Aaron Karp:
Hello, and thank you for joining us for Window Seat, our Aviation Week Air Transport podcast. My name is Aaron Karp, and I'm a Senior Editor with Routes and Air Transport World.
My guest today really needs no introduction: David Neeleman, the CEO and Founder of Breeze Airways. He has been involved in founding five airlines, starting with Morris Air in 1984, which was eventually bought by Southwest Airlines. He was involved in founding a Canadian carrier, WestJet in the late '90s. And then I think what you're most well known for is JetBlue in the year 2000. You then went on to found Azul Brazilian Airlines in Brazil, and in 2021 founded Breeze Airways, a startup US carrier that already has a network of more than 70 cities and 280 routes. So David, thank you so much for joining us.
David Neeleman:
Sure, great. Thanks for having me on, Aaron.
Aaron Karp:
We'll start with the big picture view. How do you view the US airline market right now in this post-pandemic time? We've moved past the immediate post-pandemic time. How do you view the market right now?
David Neeleman:
I think you could probably sum it up as the haves and the have-nots. COVID just changed some things. I think it was maybe coincidental too, because I think the big airlines, Delta, United, American, you can even put Alaska in that category, they're doing really well. They had a plan. I think over the years they looked at JetBlue and said, "Wow, it's pretty cool to have TVs on your airplane." Well, yeah, I mean, giving free wifi seems to make a lot of sense. Let's go with leather seats. Let's add 20, 30 seats on those airplanes, not because we're going to squish people in, but let's go to an Airbus A321. Let's bag the A319s, let's go to the Boeing MAX-9s and if we can get MAX-10s, all the better. And then let's really focus on our hubs, but let's really step up our game and really focus on our credit cards, our frequent flyer miles. And it's been in the works for a long time.
I think about what these big guys were during, and there were more of them obviously before the mergers. Before, when I started JetBlue, they were just not good. And today they're good, they're really good, they've really got their act together and they're doing a really great job. So I think you've got to really distinguish yourself. You’ve got to be a little bit different, you got to do something different. You can't just be flying the same routes, doing the same things.
And on the ULCC side, Spirit and Frontier, and to a lesser degree, Allegiant, thought, well, if we can just put more and more seats in an airplane and we can get bigger and bigger and bigger, there's just no way that anyone can compete with this. And then we can just have the lowest fare, that'll always win, it doesn't really matter. But then those two things collided, and all of a sudden you had incremental seats on the big guys and they said, "Hey, I've got these 20 or 30 seats cheaper than you do on yours. I don't care how many seats you put on an airplane, and we can match you and create basic economy." And so there's been a divergence really, since COVID.
And I think obviously there was a lot of money passed out during COVID as well, which certainly would've caused more bankruptcies had that not happened, had not the $57 billion been given out by the US government. So yeah, it's interesting times for sure in the US business. And I talk to Europeans and they say, "Well, Ryanair's still doing great. Why are these other guys not doing great? Why is it different in the US?" And I think it has to do with overlap. When you're flying wingtip to wingtip, you're just more susceptible to competition.
Aaron Karp:
And Breeze ultimately is going to have 90 A220-300s in its fleet, and so you're taking a lot of new aircraft. Right now there's a lot of concern about the supply chain and delivery delays for aircraft. How do you see that right now? Are you confident in your deliveries? And more broadly, how do you see how the manufacturers are doing in getting these airplanes out to airlines?
David Neeleman:
Well, it's a challenge. Again, last time I checked we're four years beyond COVID and we still have supply chain issues. It's what happened during that time. But we're getting new deliveries, they're not on schedule, but we're getting them. Maybe two to four to six to eight weeks late, and we see it coming so we can adjust the schedules for that. And obviously the bigger issue is the engines. We do have geared turbofan engines and our tech ops team does a great job of taking care of our engines. We're in a fairly benign environment compared to some of the other environments that planes fly in.
So right now, knock on wood, we're hanging in there with the engines, we're working really close with Pratt, they're being really supportive. And so I think planes keep coming, engines keep going to the shop and coming back. And so, we don't have any parked airplanes like some of the others, but for now we're just out doing our own thing and controlling what we can control.
Aaron Karp:
And do you think the supply chain issues will get better, particularly with the tariff issue now, now a big deal? Do you see improvement coming or is this a problem we're stuck with for a while?
David Neeleman:
Well, the tariff issue is interesting because I was in Washington last week and had some really good meetings back there. And one thing I didn't realize as I got educated from others in the industry, and as I had the ability to tell the story, not only of Breeze but also of the industry, one of the focuses of the administration is trade imbalance. We first saw those tariffs come out and we're like, wait a second, why are we tariffing Vietnam? 45%, 40%? Because they don't have a 40% tariff on our stuff and we learned that it was because of a trade imbalance. It wasn't reciprocal, it was reciprocal in the imbalance. And then we hear a lot about China's six to one trade imbalance with us. Obviously a lot more Chinese stuff coming in than we export to China.
Well, it's just the opposite for aviation. The United States of America is the greatest exporter of aviation-related parts and planes and engines and avionics in the world. We have a 6 to 1 ratio to the rest of the world. We exported $124 billion worth of goods last year to the world and only imported $20 billion. So, I think when that word gets out and if that's really the goal of the administration, and there has been this understanding since 1980, 1979, there was an agreement that aviation was the economic driver of the world. We contribute about 7% of the world GDP. And so you don't want to tax that, because this creates a lot of movement of goods and services and people and business and all that kind of stuff.
So the industry's telling the story and saying look … there could be some really bad consequences for American products and companies, especially Boeing, if there were reciprocal tariffs from the other side. So hopefully, got my fingers crossed, that that gets worked out and aviation, it goes back where it was prior to Liberation Day.
Aaron Karp:
And given that Breeze is taking Airbus aircraft, is this something you're worried about or are your aircraft being actually manufactured in Alabama?
David Neeleman:
Yeah, our planes are manufactured in Alabama. There is potentially some tariffs because their parts come in from other places, but the engines come from the United States, more than 51% content. Our flight deck, all the most expensive parts on the airplane, are done by US companies.
Aaron Karp:
And another issue that has cropped up is air traffic control and some of the shortages of controllers. Do you see an issue now, in terms of the efficiency of the system and being able to fly everywhere you want to fly and on time and just generally the US market and how air traffic control is affecting the efficiency of the airline system?
David Neeleman:
Well, thank goodness. Thank goodness we don't go flying to congested airports and congested airspace. That's part of our business plan, is that we don't go to JFK or LaGuardia or Newark. We go to Islip, we go to White Plains, we go to Stewart. We go to these secondary airports that are outside of this metro area, but we are affected by it. I'm not saying that we aren't, because there is flow control coming from the Jacksonville Center, and it's concerning, and especially since it takes so long to create an air traffic controller. We've read over the weekend about the issues of Newark and one person working in the tower and walkouts and all that kind of stuff.
But I am hopeful, because I have had the opportunity to meet with Secretary Duffy at the Department of Transportation, he's very good and he's very solicitous to the industry. What can he do? He's focused on getting the money together to fix the technology from the air traffic control system, but he's also dealing with the personnel issues. He's been to Oklahoma City, he's upped the wages, the training pay wages. He's including other schools in the training. And so, he's got a plan and we're here to support him as an industry and we're really confident and happy that he's in that position.
Aaron Karp:
And before we get into Breeze specifically, one other issue that's really talked about these days is the environment and whether airlines can grow efficiently and lower their carbon emissions. There's been some concern lately that there's no new aircraft coming online, that sustainable aviation fuel, there's just not enough of it, it's too expensive. Where do you see all that and whether the industry will continue to grow and will be allowed to grow by governments?
David Neeleman:
I don't know about what's going on in Europe, but this whole thing has been a facade for so long, this SAF thing, it's all just fake. It's billions of dollars wasted on fake solutions. It's not a solution at all. It's just window dressing. It's basically politicians trying to feel good about themselves. And industry leaders, particularly in Europe, kind of mimicking and parroting and saying they'll be carbon-neutral by 2050 when none of them will be working at those airlines. It's all just BS. I'm not a climate denier and I obviously think it's something that we have to think about as we make a next step to hydrogen or whatever, or maybe we can do some things at a much smaller scale.
I was at a conference with Willie Walsh, who's head of IATA, in Amsterdam last year, and he said that to convert the whole industry to SAF, it would be $167 billion a year in extra costs, and we only make $20 billion as an industry worldwide. So basically, when he got through saying that and he was sort of pushing it, I just said, "Well, no one in this room is going to have a job. You might as well shut down aviation because there's no way to pay for that." And then you’ve got to worry about food supply and making sure people have food to eat. So, it's all just nonsense and I'm happy to see the veneer is just falling off it now and people aren't really talking about it anymore. Not to say that we shouldn't come up with something. Like I said, the next generation, but SAF is not the answer, it is not the answer.
Now, I do believe that as we go more and more electric with cars and gasoline goes away, because diesel is just one cut of the barrel of oil, it's like 30%. So if all the gasoline goes away, we're going to get refineries going out of business and then our fuel will go up in cost if there's no refineries. So, maybe we do something as an industry to help other industries. Maybe I propose a $5 tax per ticket worldwide that would go into a fund that would only go to offset other people who use distillates, power plants … trucks that use diesel. And get rid of everybody else using diesel so we can have it all to ourselves, and I think that'd be a much smarter path.
Aaron Karp:
Let's get into Breeze. You founded Breeze in 2021. What motivated you? Why did you think Breeze was necessary in the market and what led you to found this new airline?
David Neeleman:
We actually started and launched it before COVID, and obviously it took us a while to get going because of COVID, and this has accelerated since then. But before COVID, what we saw was this thing that I started with, where planes were getting bigger and bigger and bigger. You basically had the regional jets that were capped at 74 seats, the A319s, which were very inefficient airplanes because they were shrunk down A320s. And 737-700s and-500s, and all of that was going away. People were going to the 737-800, MAX-8, MAX-9, getting rid of A321s, even moving away from A320s and going to A321s. And it just left this wide open area right in the middle where people were just abandoning.
And I looked at this amazing map that showed, there were 123 airports in the United States that lost at least 25% of their air service over the last 10 years. So I'm like, okay, well let's dig through the database of the DOT … and there was also this migration of people that were leaving the Northeast and were going to smaller cities. Where people usually would go from New York to Miami, or then moved from New York to LA, they [instead] were moving to places like Charleston and they were going to Raleigh and they were going to Greensboro, Spartanburg, South Carolina, and they were going to Huntsville, Alabama. And all of these places, Pensacola, Florida, people were moving and spreading out and finding cheaper real estate. So we really thought that there was a place for a lower-trip cost airplane that was new technology instead of old technology. So using the Airbus A220 with the newest technology and using the E-jets that we started with that were basically stretched versions of the 74-seaters, we got more seats for basically the same price, and then we could do some point-to-point service.
And so today, four years in, we'll have our four-year anniversary of flying, we will be in about 280 city pairs. We're … coming up at 70 cities today. By the end of the month we'll have about 72. We’re the sole carrier on about 87% of our routes, we fly twice a week in some markets, we fly twice a day in other markets, so it just depends on which market it is. But this is really the key for us. We generate, I would say eight or 10 times more traffic than we steal, if we steal any at all. We're really just generating traffic.
I remember I was in Charleston for [a route] announcement and there was a lady that worked at the Charleston Airport and she said, "My mother lives in New Orleans and I only go visit her once or twice a year, but now, with tears in her eyes she told me this, "I'm going to go and see her every month because now I can." It's not just the cost, it's being able to get over there, see her mother and then come back and stay a weekend. And so, it's just taking the friction out of travel by [eliminating] making a connection. And we're finding a lot of people buying second homes between places where we fly down into Fort Myers or Vero Beach or into these other cities where people will go and buy a second home because it's just easier to get back and forth. And so generating all this traffic in these markets and getting people to fly more often or fly when they wouldn't have flown otherwise, is really our business.
Aaron Karp:
And you mentioned that on 87% of your routes, they're noncompetitive. Do you have a concern about the majors coming in and trying to steal some of your traffic and push you out of these markets, or do you think they're essentially going to ignore you?
David Neeleman:
Like I said, we have lower trip costs with the airplane and we have a premium section. So, we're kind of doing the same thing that everyone else is doing, where we have 12 first class seats, we have 45 extra legroom seats, we have wifi. And our plan, we think depending on what airline it is, it's about a 20% to 30% advantage on trip costs. And they can try and come with a regional jet with 74 seats, but the economics aren't that great on that airplane.
I think where the ULCCs have gotten into trouble is that they went right into the heart of [the majors’} business and started really just taking business away that was on an existing route. Where we create most of our traffic, we're not really hurting anyone, we're just generating new traffic. And also, we have this lower trip cost airplane, but if they want to come into a route, we've identified 1,500 routes that we can serve and we're flying 280 of them. And if someone comes into five or 10, we're not building office buildings, we've got mobile assets we can pick up and go anywhere we want to. And that flexibility is really important in this business.
Aaron Karp:
And how about flying internationally? When do you expect that that could occur?
David Neeleman:
We do fly internationally today. We have a charter authority, so we do charters internationally … but we really want to do scheduled service. And so there's a process you go through with the FAA once you get your regular certificate, you get what's called flag status so you can fly international. And so it's revising the manuals and we've submitted all that to the FAA and they're reviewing it. And then once they check off on all that, you do proving flights, you do 50 hours of flying. And once we get that, we'll be certified to fly international, and we're hoping that by this winter we'll be able to add some international destinations.
Aaron Karp:
And what kind of range will you have with the A220 to go international?
David Neeleman:
The plane has about a 3,000-mile range, 3,200 miles, so seven hours of range. So yeah, we can get into South America, all through Central America, if we go from Florida. We can't go too far over the ocean like to Hawaii or anything yet until we get the ETOPS certification. But there's a lot of things we can do from going south and hopefully going west, and even some destinations going east at some point in time.
Aaron Karp:
And you mentioned South America, that's a good segue to talk about Azul. Well, you've had a real success in breaking into the Brazilian market and the South American market. How do you see the South American market right now, in terms of where it stands and how much growth potential there is down there?
David Neeleman:
We believe there's a lot. I mean, Azul is a great story. It's got a little sad chapter in it, and that was COVID. Unlike the US carriers, the Brazilian government did not support [airlines]. It's not a rich government to be able to give billions to industry, they were more worried about feeding their people. So Azul was one of the most profitable airlines in the world prior to COVID, and then came out of COVID with a significant amount of debt. And so all of our competitors, pretty much, LATAM, GOL, Aeromexico, with the exception of Copa, filed for bankruptcy. And so we're in the midst of a restructuring now. The core business, it does very well. It's more profitable than it's ever been, but it's laden with a lot of debt. And so we're restructuring all that and converting that to equity, that's really the goal.
To answer your question directly, there's a lot of growth, especially in Brazil. The amount of people that travel in Brazil compared to even Mexico or Chile or even Colombia is far less, so we think there's a huge opportunity there. And Azul's a little bit like Breeze in a sense, because we patterned Breeze a little bit after Azul. Azul serves 150 cities in Brazil, more than double what our competitors do. We have 1,000 flights a day and a wide-ranging fleet. There's growth opportunity, especially in the developing areas of Brazil and agribusiness and other areas. So, we're really positive on the futures of Brazil and the growth potential there.
Aaron Karp:
And it seems like one thing in South America is there's so many people that haven't flown before or are flying once every two or three years. Do you see that more people will be able to fly and does that drive growth in Latin America?
David Neeleman:
Absolutely, yeah. I mean, the more you can be efficient and offer fares and the more the economies develop and people move into the middle class and they can afford to buy airline tickets, then that's what helps the market growth.
Aaron Karp:
And do you see any potential tie up between Breeze and Azul, in terms of connecting passengers?
David Neeleman:
Absolutely, yeah. Breeze is growing our Orlando operation world now, something with Azul in the not too distant future where people can come from all the cities we serve from Orlando and make a pretty good connection and head off to Brazil. Azul serves four cities, I think, four cities from Orlando into Brazil. So yeah, with the cities we serve, with the 20 or so cities, combining with Brazil, there'll be lots of options for people to go visit Brazil or go visit family if they're from there.
Aaron Karp:
Well, we really appreciate your time. One final question. How is Breeze doing in terms of finances, and is there any thought of taking it public?
David Neeleman:
Well, every airline talks about going public. And I think the really good thing about Breeze, when you're growing quickly, and we grew about 50% this year, the markets that you fly in your first six months, you always lose money because you have no repeat business, and nobody knows who you are. They got to come back and fly again and layer on top of it, and that's the maturity of the market. So as we get more and more mature markets, then obviously we move to profitability. So we didn't actually make money in the fourth quarter last year. The first quarter is always not the best quarter because of January, but we're doing good in the second quarter. Still hoping, knock on wood, to make a little money in the second quarter. And then if we can do that, then we got a really good shot of making money for the year. So that's really the key for us, is getting the profitability and even in this really tough environment and people struggling, it could always be better but we feel very fortunate to be in a position we're at.
Aaron Karp:
Well, thank you so much, David, for joining us today on Window Seat. And I also want to thank our producers, Cory Hitt and Guy Ferneyhough. And make sure you don't miss us each week by subscribing to Window Seat on Apple Podcasts or wherever you'd like to listen. I'm Aaron Karp, disembarking from Windows Seat.
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