Guest Prophecy: A Shot in the Arm for Airlines
Posted April 27, 2021
I asked my aeronautical son, Richard Gilder, to write me a prophecy on the airlines as they emerge from the pandemic onto runways of profitability.
His encouraging words and possible investment ideas follow:
Back in the late nineties — my awkward middle school years — my father, George Gilder, was writing his book Telecosm: The Coming of Bandwidth Abundance, in the pages of Forbes ASAP and the Gilder Technology Report. As he winged around the world for his various arm-flailing prognostications ("It will be a teleputer; it just might not do Windows! But it will do Doors!"), I would join my mother in picking him up at one of the two local airports in Albany or Hartford.
Watching fascinated through the plate glass windows as the jets took to the skies, I would grab various airline paraphernalia – usually timetables or logoed bag tags from the ticket counters while we waited. There is still a giant plastic tub in my childhood bedroom filled with those treasures. (Let me know if you want the May 1997 Continental Airlines timetable!)
In a 1996 Wired Magazine Cover Story, Po Bronson tells of my father’s retort to Lester Thurow when the MIT professor claimed that ambitious U.S. kids in this new world of the future would have to learn Spanish. “My kids aren’t learning Spanish,” my father declared, “They’re learning C++!”
I probably should have listened to him years later when he signed me up for JAVA classes. But instead of “writing once and running everywhere” over a network of sand, glass and air, I’m at JFK Airport as an operational crew manager of one of the “big three” airlines sending Boeing and Airbus jets on networks of jet fuel and contrails. (Insert disclaimer here that these opinions are my own and not that of my employer).
The airline industry has always been one of booms and busts, and I haven’t been around to really experience the busts…until this past year of empty planes (many parked in the desert), empty airports, layoffs and furloughs. Walking through the terminals was hauntingly bleak, especially during the few months when my company reduced its schedule to only a handful of flights a day.
I’m here, though, not to dwell on the bad news but to look ahead toward the future. United Airlines CEO Scott Kirby remarked at a recent US Chamber of Commerce event, “Domestic leisure demand has almost entirely recovered. It tells you something about the pent-up desire to travel, to remake those connections.”
After bleeding money over the past year (despite much government help), United, American and Delta all report that they are now cash-flow positive as of March. By my own personal observation, the planes flying domestic flights to warm weather places are now all full. Forward signs from bookings into the summer are equally positive.
Over the past year, the airlines have all thrown out the playbook, completely reinvented their route networks and simplified their fleets. Since they are not flying to Japan or Australia, you see wide-bodied Boeing 777 jets flying routes that once were flown by much smaller single-aisle planes. The government is subsidizing the flight and ground crews with the CARES Act funding so, with diminished payroll expenses, the airlines can eek out profit margins as long as they keep putting butts in seats.
We’re talking about domestic leisure-flights, termed V.F.R. travel -- visiting friends and relatives -- or taking that vacation to Key West, Waikiki or the national parks around Kalispell, Montana. But the industry’s bread and butter has always been the premium business traveler and that segment has not revived yet. Companies are keeping their workers home and there are no major events for them to fly to and gather in what Governor Baker calls “troubling clusters”.
Scott Kirby reports that at United, business travel is still down 80% and is slow to recover. And most international borders are still closed. Heck, as a US citizen you still cannot fly to Canada. So, as an airline employee, I know we are not out of the woods just yet, but it’s good to see the airport showing signs of new life.
In this world of domestic, leisure travel, new opportunities beckon. The chief winners are the “Ultra Low Cost” airlines that are nimble enough to react to the market changes. Two of them, Sun Country ($SNCY) and Frontier Airlines ($ULCC) both have gone public with IPOs in the past month.
Sun Country — which you may have never heard of unless you live near their home base of Minneapolis — made a shrewd (and potentially business-saving) move in the middle of the pandemic and started flying your One-Click Shopping packages in dedicated freighter 737s for Amazon Air. And Frontier, with such destinations as Orlando, Vegas and Spanish speaking points South, has just kept growing and growing over the last year.
Two new airlines are coming on the scene too. The former president of leisure-oriented Allegiant ($ALGT) Andrew Levy has founded Avelo Air with flights launching from Burbank California to cities like Medford, Oregon and Ogden, Utah beginning on April 28. And waiting in the wings is serial airline entrepreneur and JetBlue founder David Neeleman with Breeze Airlines. Breeze is launching sometime in the next few months flying “points east of the Mississippi river and primarily north-south” (as per their filing with the DOT). Both will fly to secondary airports avoiding head-to-head competition with the established carriers.
Veering a little from my talk of public airlines in this pandemic world, the ultimate social distancing domains of private air travel remains very resilient and even thriving. A recent Daily Prophecy highlighted “SPAC Mania” so I would be remiss not to mention Wheels Up Aviation, the second largest private aircraft operator (after NetJets). They will be going public soon using the vehicle of the “Aspirational Consumer Lifestyle Corp” ($ASPL) SPAC.
Now back to your regularly scheduled programming. I’ll be keeping an eye on things and I hope to be able to report back soon with more good news.
(Disclaimer: We own shares of $ASPL)
Editor, Gilder's Daily Prophecy