JetBlue. WestJet. Azul. Serially successful airline entrepreneur David Neeleman sits poised to try again, reportedly raising $100 million to launch a new carrier in the United States. The name “Moxy” is currently being bandied about (we’ll have to see how Marriott‘s legal team reacts to that) for a new operation focused on point-to-point service in secondary markets with smaller aircraft.
The aircraft of choice appears to be Bombardier‘s CSeries CS300, though that’s soon to be an Airbus product; that transaction is set to close on 1 July 2018. Moxy would take deliver of up to 60 CS300s starting in 2020 to grow out the operations; reports suggest an initial tranche of 18 aircraft in the first couple years to get service off the ground. The CS300 offers a strong balance of size and operating costs for an airline focusing on secondary markets. It also delivers appealing passenger comfort with wider seats, larger windows and quieter engines than prior generation planes of a similar size. The aircraft can support inflight connectivity (Delta Air Lines and Air Canada both plan to fly Gogo‘s 2Ku system on their CSeries) and in-seat entertainment, though early reports suggest that Moxy may forgo the seatback screens in favor of streaming on passenger-supplied screens.
Choosing secondary markets helps reduce competition for the upstart carrier but also limits the passenger demand. With the US aviation market continuing to grow that limited demand likely will remain sufficiently large to fill Moxy’s planes, though it is proving harder and harder to find specific city pairs that need 100+ seats connecting them on a regular basis. Other recent efforts to launch secondary city point-to-point service (e.g. PeoplExpress, Eastern) were less successful, though also operated with larger aircraft.
Moxy aims to avoid the ULCC model of Allegiant or Frontier, even as it offers only point-to-point services. With significant competition in some smaller markets now it is also unclear that the new carrier can induce new travel demand via fare wars without running head first into competition that can bring certain efficiencies of scale and hub operations to bear.
The argument that more competition is needed in the US aviation market is one that many consumers will support. Consolidation forced many travelers, especially in smaller cities, into paying more for reduced flights and longer travel times via fewer hubs. And, despite the pricing power that the network carriers push, there is clearly a growing market for directly connecting secondary markets. It remains to be seen if passengers will pay the fares to support those routes, of course, but most indications today support the idea that travelers do like avoiding the extra connections, congestion delays and other challenges of hubs when alternate options exist.
Fares will be a big part of the proposition for the new carrier. The so-called “Southwest Effect” of inducing travel on new routes by dropping fares gave way to the “JetBlue Effect” a couple decades later. Southwest did it at secondary airports while JetBlue focused on larger destinations.
Maybe the Moxy Effect will follow, though that presents a risk for investors. Early losses are to be expected but getting out of the “fare war to attract customers” mentality is important for profitable airline growth. With recent rising fares into small markets Moxy should be able to drop prices without taking too large a hit.
The move would also be a significant boost to the CSeries. Adding 60 aircraft to the backlog is huge, even if the order is from a startup carrier that may not come through on the full numbers. With the Farnborough Air Show coming up just a couple weeks hence the opportunity for Airbus and Bombardier to make a splash with some big order news is ripe.
It is worth noting that Neeleman was rumored nearly a year ago to be involved in a different airline startup. That was a charter/business service with a pair of CRJ-200s, not a true airline as is rumored with Moxy here.
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