When the Executive VP of a start-up airline begins a presentation by telling you they aren’t crazy, it’s probably not a good sign. But sure enough, Avatar Airlines EVP Michael Zapin began a recent media call by saying “First, we’re not crazy to start a new airline in the midst of a COVID pandemic.” I’m not sure anyone is calling them crazy for starting up an airline during the pandemic. People are calling them crazy for starting THIS airline.
Avatar is a long-running startup airline with efforts that date back nearly 30 years. The airline was called Family Airlines in a previous life, and it is indeed the current record-holder for most comments on a Cranky post with 319. So when I was invited to attend a media briefing, I just couldn’t resist.
Even better, there were only two of us on the call, so I was able to ask several questions about the company. I bring those to you here today. My questions were submitted via a chat window and they responded live. Both Michael Zapin and founder Barry Michaels were there to give their wisdom. So let’s get right into it.
Brett Snyder, Cranky Flier: What’s behind the Avatar name? Does it have important meaning to the company? What does it symbolize?
Barry Michaels: For years I fought changing the name of the airline; it was originally Family Airlines. Everybody wanted to change the airline and I was walking through Walmart one day shopping, and I got a phone call from our CFO at the time. He said… Avatar Airlines… and this was year after the movie came out. I thought for a moment and said “I like it.” There’s nothing in the name anymore; there’s no brand loyalty, nobody cares.
And that really does boil down the essence of this company. Nobody cares about anything except getting a cheap flight, and they are trying to create a deliverer of cheap flights. The idea has barely changed in 30 years. Avatar wants to run jam-packed 580-seat 747s domestically. This plus low fares equals profit in their world.
The presentation was full of fluffiness about the importance of people, how it’s all gonna be great, and how the airline will change the world… but if I wanted substance, I knew I’d have to get it through questioning and hope I’d get answers that made sense.
Cranky: There’s been an effort to start this airline up for something like 30 years now. Why is this different now?
Michael Zapin: To be perfectly candid, the short answer… I’m sure you’re aware it takes a good chunk of change. Money actually solves a lot of the issues this airline has had through the years. We probably could have launched a lot sooner…. Also, I want to say the team… there are a few legacy members of the team, but for the most part it is a different team now, there is a different energy.
Everyone that is working now is firing on all cylinders. It’s not like the company has been actively struggling for 30 years. There was a momentum and then there were lulls. When no-one is getting paid, there is an attrition, but for the last couple of years, that momentum has certainly picked up.
The difference today is that there has been a swelling of consumer outrage… the level of dissatisfaction in the domestic market has really reached a breaking point with people. We have an opportunity to distinguish ourselves… we can come out stronger than the other airlines because of what they’re faced with enormous expenses and not having the revenue.
Barry Michael, Founder: This airline was incorporated in 2004. There was a gap between that one and this one. We perfected it to the very utmost.
Ok, so in summary… we didn’t have money. We needed money. We still need money. I asked a follow-up.
Cranky: If the [current] airlines are going to be saddled with “enormous” expenses and low revenue, doesn’t that point to there being a need for less capacity, not more?
Michael Zapin: Yes, even if that’s true, when you look at the consuming public, we all know that price is king and most people gravitate to wherever they can get the cheapest ticket regardless of how miserable the flying experience is…. So if you’re 40 to 50 percent cheaper, even if demand is down and you’re competing against other airlines, we’re talking about filling up 1 flight a day. We don’t need to put everybody on to our planes. We’re confident we will fill up first.
Barry Michaels: Fuel costs the same for most airlines. If we have to raise the costs of the ticket, so do other airlines and we’ll still be 50 percent below the lowest cost ticket out there. People will always fly; there will always be a market. The same airlines are flying to the same city pairs with the same equipment and they’re competing on schedules, what not…. There’s no such thing as a low cost carrier.
It was striking to me how little about airline behavior seems to be understood by this team that’s been working on this for so many years. There is no way that the existing airlines are going to let Avatar get a massive price advantage like that. The ULCCs will sit on top of them, and the legacies might, depending upon how demand is looking. These days, fares are dirt cheap as it is. And the airlines can absolutely afford to sit on Avatar’s fare on a few routes if it makes them go away.
Then there’s the demand problem when you have 580 seats.
Cranky: You can make money on a Friday night to Vegas, but how do you do it on a Wednesday mid-day with 580 seats? In other words, how do you handle off peak?
Barry Michaels: I love this question, because to me when you fly to a certain market, that market, that city pair has 10,000 seat a day and we’re looking to fill up 500. It’s kind of a no-brainer if you’re 50 percent below the lowest fare out there. Today it’s a different market entirely. You go on the internet and you know who’s got the lowest fare out there.
The airline is not the type of airline that we could fly everywhere. We’re limited to certain markets and those markets are the big markets. To me it’s mostly about the price of the ticket. then the question is, can you make money at it?
Do you know how many airlines have started and failed that came in saying “we just need a tiny piece of the market and then we’ll be good.” It doesn’t happen that way. Existing airlines don’t let you come in and steal traffic like that.
But Avatar is planning on making money in other ways. There was a lot of talk about selling advertising on airplanes wherever possible, but they are leaving the biggest revenue generators like bag fees off the table. This is an all-in pricing model. Even the wifi will be free, but it’s going to be sponsored by someone else.
Oh, and the 747s with their massive bellies? Those will be gold mines as well. See, Avatar thinks it can just sell its belly space to a freight company like FedEx and they’ll pay a flat fee per flight and fill it as they see fit.
Cranky: Why would FedEx use your capacity when it has its own, especially on trunk routes?
Barry: It’s not only FedEx, it’s other freight carriers as well. It’s like an insurance policy. The ideal operation for us is we sign a deal where they own the bellies of the aircraft… but we have no doubt that whether FedEx or UPS or Joe’s freight, we’re gonna fill those bellies up…. There’s great demand for freight, especially now.
So there you have it. Now Avatar is pushing hard for investors, and it’s holding regular investor calls to get people on board. I will not be one of those investors, that’s for sure.