Seth Kaplan officially broke the news on WBUR this week. Andrew Levy, the former President of Allegiant, has decided to go public with his plans to start a new ultra-low-cost-carrier (ULCC). The question is… is he too late? Or is there actually room for his efforts?
Ever since Andrew left Allegiant as President in 2014, there have been rumors about what exactly he was working on. Whatever it was took a back seat when he opted to become CFO of United in August of 2016. Almost immediately after that announcement, Scott Kirby was brought on as President and Andrew’s fortunes changed. Andrew managed to last for almost two years before he abruptly left. Now he’s back to his entrepreneurial ways.
Though we don’t know a ton, the details have started to come out about his plan for a new ULCC. Here’s what we know from both the WBUR piece and one from Bloomberg.
Not Starting From Scratch
XTRA Airways is a long-time charter airline that up until last year had eight airplanes doing some high-profile work, including flying a couple of aircraft for Hillary Clinton’s campaign in 2016. The company’s owners decided they wanted out., so they sold off 7 airplanes and flipped what remained over to Andrew in August of last year.
Why would Andrew want XTRA with a single, nearly 30-year-old 737-400 that has barely even flown this year? It’s all about the certificate. As the press release said when the owners announced they were selling the airline…
XTRA Airways has an impeccable safety record, is one of the few charter carriers having scheduled service (U.S.-flag) authority, is certified to fly within Europe, and is authorized by the U.S. and China to conduct scheduled service between the two countries.
This means Andrew has a platform to easily launch service. The 737-400 will clearly go away when the new airline launches. It’s just squatting on the certificate right now, and that’s well worth it. There is no need to go through the painful and lengthy certification process. They can stand this thing up tomorrow if they have the money. But what exactly will the airline be?
A Friendlier ULCC
I think it’s safe to assume that the charter business that has powered XTRA for years won’t be a part of this new airline. The name will undoubtedly change as well. Just think of XTRA as a paper certificate. Everything else is going to have to change.
We know that the new airline will have an ultra-low cost model. That usually means cheap base fares and then a variety of ancillary fees on top of it. But more importantly it means having really low costs. If that sounds like Allegiant or Spirit or Frontier… well, that’s the basic idea. But this one is going to be different. According to a quote from Andrew in the Bloomberg article:
We think the opportunity exists for a real high-quality, highly reliable, extremely low fare, basic transportation service…. [The airline will have]
a better product and experience but still offer really low prices.
Hmm, ok. Costs will be key here, as they always are for a ULCC. What this airline will do differently than others isn’t yet clear except that it will focus on secondary airports to keep costs down.
Right now the airline is trying to raise $100 million and expects to have 5 airplanes flying by the end of the year. It sounds like the aircraft decision hasn’t been made, but Bloomberg says the airline is leaning toward a 737-800 packed with 189 seats. That matches what Ryanair does on its 737-800s today, but it’s a far cry from Southwest and its roomy 175 seat configuration.
Will It Work?
They key to this whole thing is understanding what it means to be “real high-quality” and “highly reliable.” A couple years ago, there was a need for a ULCC to follow that model. Spirit ran a terrible operation, as did Allegiant and Frontier. But it’s a different world now with Spirit running one of the best operations in the country from primary airports. Operational reliability is no longer enough to differentiate a ULCC.
But as Andrew notes in the Bloomberg article, “you have to do something different.” So if this isn’t about beating Spirit, Frontier, or Allegiant at their own game, then what is it? We’re too early to know just yet.
An effort to have a better product and experience very often means sacrificing low costs. If this airline is going to work, that can’t happen. It has to have exceedingly low costs to be successful, so a “better experience” has to be provided in a way that doesn’t hit the cost base.
It’s hard to imagine exactly what this airline looks like from the scant information that’s public. People love the idea of a better ULCC, but for most people, that means more legroom and frills. That kind of thing can’t really be in the cards, not if costs matter above all, as I believe they do in ULCC-land.
This doesn’t mean it won’t work. Andrew is smart and will certainly assemble a team filled with brains as well. He also knows this business extremely well. He likely has an angle that he thinks will propel the airline to profitability, but in a world where operational reliability is no longer a differentiator, I have to wonder what the angle is. I eagerly await more details.