Were you expecting 3 links I love today? Well, this is way better. I will run 3 links tomorrow instead.
JetBlue and Azul founder David Neeleman has been not-so-secretly working on his next airline for months now. Today, he is officially unveiling that the name is not Moxy but rather… Breeze. This is anti-climactic since the Salt Lake City-based holding company already publicly has that name, but it’s just one more step toward launch. This week, David says they are filing paperwork with the Department of Transportation, and they’ve been working hard with the team to get the FAA work done as well.
Breeze previously ordered 60 A220-300 aircraft, and it has just finalized a sub-lease of up to 28 Embraer 195s from Azul. That’s a lot of airplanes, but we still don’t really know that many details about the airline itself. That’s why I was pleased to speak with him at length this week.
My summary is that David is trying to build an airline with smaller, low-cost aircraft flying an Allegiant-style network that has the customer technology interface of Uber. But he’s also willing to spread his wings into a ton of different areas from charter to… wait for it… real estate partnerships. But don’t take my word for it. You’ll find our conversation below. It’s a long one, but with David, it’s always worth the read.
Oh, one last thing. If you know David, you know that any conversation with him can involve jumping around from topic to topic, so I’ve tried to clean this up and organize it for clarity, including the use of topic headers.
On Acquiring Embraer 195s For Cheap
Brett Snyder, Cranky Flier: You’re announcing the name Breeze. And what else? What else are we gonna learn on Friday?
David Neeleman, CEO, Breeze: I’m not gonna tell you Friday where we’re flying, but I will tell you conceptually what we’re talking about.
Cranky: Okay! You ordered the 220s. Those are coming in April next year and now you’ve got [the Embraer 195s coming from Azul]. Are you getting rid of those when the [220s] come?
David: No. One’s an apple and one’s an orange. They have completely different missions to them and will never overlap, probably. They’ll be doing different things. The 195 is an airplane that’s great. Two-by-two seating, millions of people flying it every week in the United States. The 175, this is just a longer version of that. The planes are relatively new. They’re six or seven years old by US fleet standards. They’re pretty young. They’re very young. And Azul had the opportunity to get a more fuel-efficient airplane with more seats from Embraer.
Cranky: Yeah, I read through the investor presentation over on that side.
David: Yeah, so they took the write-off and got us some planes. Now we’ve got some planes for a really low cost; what can we do with that?
On Flying Embraer 195s Short-Haul With Low Utilization
David: I’ve got a bunch of guys on the team that were at Allegiant. And this plane has a 15 to 20 percent lower trip cost than Allegiant’s [A]320. We think we can fly a lot of markets that couldn’t be flown by a 180-seat airplane without planning to have 122 seats on it. So we think between the 74-seat regional planes and 150 to 180 seats, this is a niche that we can fill, and we can serve a lot of markets.
Cranky: Do you know what the configurations gonna be on the 195s? It sounds like on the 220s you’re going to do more of a quick change type of thing, but on the 195s it sounds like will be more dense with no premium?
David: We’ll have premium up front. Today we do [at Azul]. We have ’em at 118 seats. We’re gonna have 118, but we do have the option if we go with some new seats that will allow us to put one more row in the back and keep almost the same legroom we have today with the thinner seat. Then we go to 122 seats and premium seats up front.
Cranky: And the routes?
David: A lot of it is overflying hubs; where we can look at what the [daily passengers each way] PDEWs are and say “okay, well there’s 30 people to go between these two cities a day. If we lower the fare by half and can get them there twice as fast — which in some cases is even more important — instead of taking 4 hours to get you there, it’ll take an hour and 22 minutes to fly direct… People will go more often, and that’s been proven over and over again with what Allegiant does.
Cranky: You talk about the Allegiant-style model here and, I know I saw with the 195s, Lukas [Johnson, Chief Commercial Officer of Breeze]’s quote about being a good short-haul, low-utilization airplane and even getting into charters which I’ll talk about in a minute. Is the idea in these markets that you’re going in with more of an infrequent sub-daily kind of schedule?
David: Yeah, I mean some markets we can do daily and other markets we’ll do twice a week and other markets we’ll do four days a week. A lot of these markets will be leisure-oriented. People don’t want to go Tuesday, Wednesday… they want to go Thursdays or Friday and come home Sunday or Monday, so we’ll fly on those days. Lukas was at Allegiant for 10 years, and nobody knows how to do it better than he does. I have a lot of faith. He’s got a list of 500 city pairs he’s looking at right now.
Cranky: I know originally the idea with the 195 was that you wanted to be able to get flying sooner than you’d have the [220s]. Now it doesn’t sound like you’d really get much of a jump on when the 220s arrive. Is this just opportunistic? Azul wanted to get rid of these, you could pick them up for a good deal to start this off, and it was just an easy way to do it? Or is there something about this model of having this airplane that you think really is going to help lead toward the success of the overall network?
David: Well, when you can spread the overhead, it’s good. It just gives us more planes, economy of scale quickly. They’re different, they’re apples and oranges, they don’t apply to the same missions at all. But you know, I think it’s opportunistic. We got the planes for a really great price and if you look at what Azul is paying for them versus what we’re paying for them, and then we negotiated some other things on the maintenance side…
Whenever you have a plane that is starting to get parted out, parts are a lot cheaper and they’ll be seven-, eight-year old airplanes. These are ones that came along late in the thing and then the E2s came along so they got obsoleted, but they’re kind of new in a sense. We’ll have an advantage on maintenance, advantage on capital costs. It just works good for low-utilization, four hours a day, five hours a day.
On the Commercial Strategy
Cranky: The commercial strategy here is… should people be thinking about this as a small-scale Southwest from a network perspective? By that I mean more point-to-point but it’s sort of a meshed network that connections are possible. Or is this really going to be more Allegiant-like where it’s point-to-point and no connections at all?
David: I’d guess more Allegiant-like. Our head commercial guy [Lukas Johnson] was at Allegiant ten years. I talk to him about markets and we sit there for hours. How about this market? No. How about this one? Yes. The guy knows. He’s brilliant to begin with, but then add 10 years of experience on top of that. It’s invaluable for us.
Cranky: It sounds like if we’re really talking Allegiant-style point-to-point here, is partnering, interline, is that not really a something that interests you? Or is that something that makes sense in a niche area like with Azul or something?
David: Yeah, with Azul it would make sense or maybe TAP in Portugal. We could do some of that if we flew to Lisbon or from cities they don’t serve. But I don’t think it makes a lot of sense to do it. Maybe some international stuff but not domestically.
On the Difference Between Embraer 195 and A220 Missions
Cranky: Is the big differentiator here just the size of the airplane? Is that what you’re saying, because Allegiant’s got plenty of A319s. This is obviously smaller [than the A320], but the A220-300 is probably in the same range.
David: Yeah, but that’s different. [The 220] has 7-hour range. We can fly Salt Lake to Maui or Denver to Kahului. That’s a whole different bird. It’s not a “cheap” thing in that case. What you can do [with] premium, you can’t really put economically on the 195s. But we could pull out a bunch of coach seats [overnight] and put first class seats in the 220s. So that plane will be flying long-haul and we’ll be flying thin markets where…
I’ve done this before. We’ve got [A]330s flying on Azul to the US. And an eight-hour flight on that airplane costs, call it, $100,000 for a flight. And if you can put an [A321]LR on it — a little range-challenged so you need an [A321]XLR — but if you have an XLR you’d probably be $50,000 to $60,000. And then [the A220] is under $30,000. So it’s just a whole different thing where you can actually fly city pairs that nobody has been able to fly before…. Usually range is equated with widebodies.
Cranky: Your point still goes back to this idea of the secondary/tertiary markets that that need longer range with the 220s that you can now serve because there really isn’t another airplane that can do it… unless it’s a giant airplane that’s not gonna make sense anyway?
David: Correct, exactly right.
On Route Opportunities
Cranky: You mentioned a western US to Hawaii market, but what other types of markets are are you interested in?
David: Transcon, secondary transcon, Northeast [US] to Europe, Florida to South America… particularly in Brazil and Azul’s network to some of the capitals they don’t fly and makes no sense to fly with a widebody. So, just all kinds of stuff that works, and we’re even talking about putting on some auxiliary fuel tanks a couple years later. It would give us another 500 miles on top of that; it would take us over four thousand miles. That would take us almost anywhere in Brazil from Florida, for example.
Cranky: So when you think about a lot of these domestic markets, you’re really talking more about these as 195 markets? Maybe not transcon or Hawaii or something like that, but you’re seeing the 195 as the base for that?
David: The 195 works good at about 2 hours. Once you start getting to 3 hours, the fuel consumption per seat is… I mean the E2 has the same engines as the 220 and it’s burning 20% less fuel than the 195s are. So you can imagine if we have 145 seats on a 220 — that’s the coach configuration — and it’s burning less fuel than the 195s and you fly the thing on three-hour, four-hour, five-hour stage lengths… there are a lot of three, four-hour transcons in the US as well.
I don’t think we’ll have any routes for the 195 that are over 2 hours, maybe 2 hours 15 minutes. The fuel doesn’t make sense. It burns 600 gallons an hour and the 220 will burn maybe you know, 560, or something. But the [acquisition] cost of the 220s is a lot more, obviously. So you have to fly it more but if you’re flying it losing money on certain days of the week, then that doesn’t work either, so [the 195 and 220] work good together.
Cranky: Is there anything else you can tell me about the network? What might we see at the start? Obviously, it’s the Embraers so it’ll be shorter-haul, but is this gonna be in the middle of the country or more along the the coasts? I’ll take anything you’re willing to tell me at this point.
David: Wherever there is anybody flying. We have 500 routes we’re looking at, and there’s not one that I can think of that has another nonstop competitor on it. So, that’s about as much as I will tell you. Certainly I don’t want to give our competitors any kind of jump on anything, because obviously there’s a lot of people looking at us, but we’re very confident there’s a lot of opportunities.
If I was flying around [A]380s, I could only fly New York to LA. You go smaller, smaller, smaller. The lower trip cost airplanes you can get, exponentially more markets you can fly especially if your seat mile cost is down. It’s not like a 74-seat airplane that’s a scope airplane like the 175. It’s a fine airplane, but it’s not optimally sized for [unit cost] CASM because their pilots make the same, their maintenance is the same. Their capital cost isn’t more, burns a little less fuel because it’s lighter but they have basically 50 less seats than we do. That allows us to charge lower fares and stimulate the market.
On Network Focus
Cranky: When you start, are you going to have certain cities that you focus on and you’re gonna fan out, or are you really going to be all over the place and just put a couple airplanes here, a couple airplanes there?
David: I think a little bit of both. I mean, we’ll go into a city that we think’s a very attractive city that has nonstop service to a bunch of cities but doesn’t have [nonstops] to a bunch of other cities. Let’s say Orlando is the city that everyone’s flying to. It’s pretty much nonstop from every market, but there’s still some markets where it doesn’t have it. I’m not saying I’m going to Orlando but every single market has cities that could take [new service]. Wherever you’re flying over a hub, and you’re paying more, and it’s taking a long time, and there’s any kind of PDEWs in the market… it’s something that makes sense for us to do. Whether we have one of these cities and 10 [destinations] that aren’t being served and we can connect those cities to each other or we just go one-offs everywhere, it just gives us flexibility to do both.
Cranky: You’re talking markets that are smaller, so is one-a-day the ceiling of what you’re doing on these? Or are some of these gonna be more business style routes?
David: Yeah, one a day. Some would be two a a week and others four a week…. Allegiant started flying from Provo to Mesa, Arizona one day a week and now they do it two times a day, so there will be markets that this will work and other markets that just need less. It just depends on how they develop.
Cranky: It’s all going to be on a leisure focus, it sounds like.
David: Pretty much. There may be some business markets that don’t have service today that we can fly, but it’s gonna be leisure primarily.
On Charters and Other Distractions
Cranky: Let’s talk about charters.
David: There’s just a big need for charters. Big airlines are not really suited to do charters. You’ve got Swift out there. You know Swift is up to like 36 airplanes doing charters, all kinds of different charters. You’ve got sports charters and team charters, special event charters, and some flying low-utilization between certain markets. We’re gonna do all the above. We have a person that actually worked for me at Morris Air years and years ago. We started together. He came over from Swift, so we’ve got a lot of opportunities on charters. And those are very low risk obviously because you get paid before you ever take off. [The 195s are] perfect for that type of flying as well.
Cranky: Isn’t that a distraction though from the core business? I mean, doesn’t that spread you thin when you’re trying to make this airline work and stand up from nothing?
David: No, no it’s not. You know, if you’d have said to me, when we started Azul that we’d buy a bunch of 195s, and then you said, “10 years from now you’re gonna be flying five aircraft types,” I’d have said you’re crazy. But there’s a market there; we exploited it. So we went and got ATRs and then we went and got 330s and started flying international. And we saw the [A320]neos coming on. We needed those so we bought a bunch of 320neos and 321neos.
I think there’s actually a play with these airplanes, with 195s, also…. We’re talking to some real estate people too in areas that have almost no air service [about] bringing in air service and either them subsidizing it or us making money off the real estate. Because every time we fly into a market where there’s no air service, real estate values go up, so how’s that for distractions?
Cranky: Yeah, seriously. Do you have an example of the kind of market you’re talking about?
David: No. Just go up and down the coast on the west coast and the east coast. There are a lot of places. But you know, we can walk and chew gum at the same time.
On the Product
Cranky: Let’s talk a little bit about the product. Obviously from your history the product was a big differentiator at JetBlue. That was revolutionary in a sense with Live TV and all that. I know that this is a technology focus, but if you can talk more about what that means… what will actually be different here?
David: [Ed note: The exact transcription was garbled, but he said there won’t likely be TVs.] The in-flight experience is not gonna be JetBlue-like in a sense. We’ll have internet on the 220s, you know, maybe even free. I’m the big fan of that, but we’ll see.
But on the on the 195s from the customer-experience point-of-view, booking [will be better]. You know, changing it. Being able to see all the stuff, the ease of dealing with us. Our goal is just to make it like ordering an Uber car, and being able to change it, redirect it. We just don’t want you to have to pick up the phone and call us. We don’t want you to ever be aggravated. We want the fees to be reasonable. Change fees, we’re looking at maybe lowering them significantly over what the other guys do just because that’s a pain point. We’ll charge for bags, because it’s a cost to us. Those that don’t have bags, they save us money and they should get a lower fare. But we want to have more options. We want to have more food options where you’ll pre-order all your food beforehand, and we’ll serve it to you, just have it be kind of special from that perspective.
Ed Note: This would explain the design of the logo the company released today which has EZ and a check mark in a different color.
On the 220s, we’ll have internet and we’ll also have broadcast on your iPads and stuff, similar to what Southwest has.
Cranky: Will you have power, though, unlike Southwest?
David: Yeah, we’ll have power in all seats. We’ll have these quick change with 24 hours notice be able to pop in. You know, 36 first class seats before the exit row. If it’s flying in a leisure market in the summer time, shorter stage lengths, we can go 145 seats with the premium up front. Or we even have configurations that have lay flat seats, so we could actually have a mid-type lay flat service where we could put 21 lay flat seats in the front before the exit row. It’s flexible, and we’re gonna go where the business is and where the money is. We’re not gonna go try and do anything anyone else is doing.
On Competitive Response
Cranky: Ok, so that’s the biggest differentiator. The play here is “we’re gonna fly markets where no one else is going non stop. We’re gonna stay out of the way and do our own thing,” but what do you think the current competition’s gonna do? You may not be on competitive non-stop routes, but you’ll still be in cities that are served by other airlines that they may have an interest in defending. What’s your concern about the competitive response?
David: There will always be competitive response, but it depends on how much it’s hurting the other guys. If we go into a market that has 5 PDEWs, and we take it to 80 people, how many people did we actually steal? They probably will get some of that anyways over their hub. If we’re creating ten times more than we’re stealing, then there will probably be less reaction. People react if you’re going after their breadbasket, not if you’re creating markets.
It’s also not an office building. I can put this wherever I want to. If somebody wants to add 10 flights on top of our 1 flight… we’re gone.
Cranky: So you’ll just move around as you need to. I guess they can’t get you everywhere; it’d be like whack-a-mole.
David: Yeah, whack-a-mole.
On the Next Steps
Cranky: Alright, so when will we know more? Is it all dependent upon the certification timing or do you have a timeline mapped out for when you’re going to start releasing more info?
David: We’re not announcing any cities until we get certified. Can’t sell them, so I’m not going to announce anything I can’t sell. As soon as we get certification, then we’ll announce some cities and then be going 60 days later.
Cranky: All right well Breeze is coming soon, I guess and we’ll just have to wait for more info.
David: Yeah, I appreciate your time. We’re excited about it.
And with that, we were done. There’s nothing quite like talking to David. His grasp of what works and what doesn’t is just remarkable. Numbers roll off his tongue effortlessly and with authority. So far, that has grasp of what works and what doesn’t has helped him to build several successful airlines. Now we wait to see if Breeze will join that group. When we have more details about routes and all that, then I’ll try to break this down further.
