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- [00:02]
A
I'm Brian Summers and I write the Airline Observer. You're listening to the Air show, the podcast where we talk about what goes on in the business of the sky. John and Brett are both on vacation this week, and since I'm hosting solo, I thought this might be a good time to record my dream episode. For the next 30 minutes, I'll share my thoughts on the industry's best cheese plates. I presume you must want this episode because over the weekend I received unsolicited texts from the coos of two giant North American airlines with pictures of shelf stable cheese. Okay, as much fun as that episode would be, it's a joke. Today I have a guest. It's Lucas Johnson, Chief Commercial Officer of Breeze Airways. He's a person I like very much and I've known him for a long time, but I need to be honest about Lucas Johnson. I think he might be both the second smartest commercial and analytical mind in US Airlines and also the second most arrogant. But hey, I love a big ego. And while I know that probably sounds like a dig, remember that number one on the talent ego meter is. Is Scott Kirby. And he does pretty well for himself. Lucas Johnson, welcome to the Air Show.
- [01:27]
B
Thank you for having me, Brian. It's been a long time coming here. I'm sure the invite is because you'd like somebody that's not going to have a scripted opinion on anything and also isn't part of public company. So I'm kind of half terrified, half excited for what's to come.
- [01:41]
A
Yeah, I've been waiting to grill you for a long time and I'm looking forward to this. So let's get right into it. Delta Airlines reports reported its first quarter earnings on Wednesday on a GAAP basis. The pre tax margin was negative 1.4%. Of course they did better in non GAAP. But this is not a podcast about Delta. It's a podcast about a breeze. So why don't you tell our listeners. How much money did you lose in the first quarter?
- [02:10]
B
We're starting off strong here, Brian. Well, in the first quarter we in fact did not lose money. I know you're going to be shocked to hear that, but we did have a tremendous increase in unit revenues. Almost mid teens improvement year over year in operating margin. So really strong work by the team finished out the fourth quarter as well. Really strong on that side. Both in the top half of the industry. So really excited to share that.
- [02:32]
A
You didn't tell us kind of on what basis you made money in the first quarter. Can you Give us some more color on that.
- [02:38]
B
Yeah. On an operating margin basis. Right. So if you're taking a look at how we did on the income statement for the quarter, what we're accounting for, what we're accruing for on that side, it's really the metric we're looking at for the health of the business on that.
- [02:51]
A
Okay. So it's a wonderful thing about being a private company. Right. You can tell us only what you want to tell us and then nothing else.
- [02:58]
B
You know, if you think being a private company. Right. Is going to be at least six to 12 months behind because that's most of the data. But there's been constant improvement. So we're always feeling better than, I think the, you know, what yourself and others might be thinking.
- [03:13]
A
Okay. It's a little hard to compare your airline to others because you do things in your own way. But there are airlines out there similar to Breeze that tend to do very well in the first quarter because it's cold in a lot of places and people want to go on vacation to the places you fly. Is it fair to say that you generally have a better first quarter than other airlines?
- [03:35]
B
No. I mean, actually, up until this point, it's always been one of our weakest quarters. Typically, we've been strongest in the second and fourth quarters. Those were our first profitable quarters the last couple of years. But through a lot of different improvements, you know, both maturation of our markets and a lot of the network improvements, just an improving macro trend that you've heard from all the other airlines out here, we've been able to turn it around.
- [03:56]
A
Okay, let's talk about politics, because we all love politics on this show. We're not actually going to talk about politics, but how can you talk about fuel prices without politics? How much are you paying for fuel this week? And then how bad is the situation right now for you guys?
- [04:15]
B
If we're talking Wednesday, we're talking Tuesday, we're talking Monday. It really has depended over the last month since the start of this almost on a daily and weekly basis, we're looking at forward fuel curves.
- [04:26]
A
All you have to look at, Lucas, is the taco.
- [04:29]
B
Brian. Yeah. How does that play into the gross margin calculations for future months? It's not been easy. I'm sympathetic or empathetic with all of the other schedule planning teams around the world. It's been a really difficult time to kind of predict what that forward looking capacity is. But, you know, with the spike, I think this is the largest quarterly increase in, you know, fuel price we've seen certainly in, you know, at least since I've been in the industry. And it's not easy on that side. So you're, you know, you're always looking at the forward curve. We've made some adjustments already for the second quarter. I know that a lot of the other airlines have or will be doing so, but you do have to take it on a day by day basis because you don't really know what's going to happen.
- [05:09]
A
Yeah, you were talking about some cuts. Brett and Courtney Miller wrote in last week's cranky Network Weekly that you slashed block hours on flights over 2,250 miles by a third for May, and then you had some smaller cuts for flights over 1500 miles. Why'd you cut those long flights? And is it possible we might see future cuts over the summer? I'm a little bit sad that you're not going to be the third airline flying from Los Angeles to Paris, Pittsburgh in May.
- [05:41]
B
Yeah, I think it was probably a little bit overstated on that because the majority of our flights, you know, are kind of under a 1000 stage length on that side. So it looked big on, you know, Brett's chart there, but a little bit understated. But what we did was slide one of our transcon lines from kind of the shoulder period in May to more peak June start date. And again, yeah, that's definitely due to, in part due to fuel prices. Everybody's doing the calculations on flying on that side. Should be flying this many hours, should be looking at reducing off peak flying or shoulder peak flying on that side.
- [06:13]
A
I want to get back to the demand situation in a moment, but first I want to give you a hard time. It seems to observers that you have had a tough time with some of the transcontinental routes. And Lucas, one thing I love about you is you get very excited about certain things. And I know that a couple of years ago you were very excited about Westchester county to lax, some very good markets that you were going to connect together with the A220. And I believe you failed. What was it? Miserably. Why do you guys have trouble with some of these transcon routes? And then more specifically what happened with that route? I thought it was a can't miss.
- [06:52]
B
Yeah, I mean, I think it would have been a can't miss, Brian, if you had ever bothered to book it outside of your home of Los Angeles. We just didn't get quite the demand profile we were looking to see on that. If you took it back to a couple years ago, Especially with The onboarding, the 220 in 2022, our second year of flying, you know, you had a model that was still yet to be proven, certainly a capable, you know, aircraft in terms of being able to go different ranges. It's really fuel efficient on that side. But you know, we were very nascent as a carrier and so I think you've got a lot better sense now what's been working versus not, you know, and candidly, secondary airports have always been challenging on transcon routes or the further you fly on that side.
- [07:35]
A
Are you saying that the seriously nice brand of breeze does not resonate outside of third rate markets? Huntsville, where, where else are you flying? Where else are you big? Tampa.
- [07:47]
B
Oh God, Brian, look, we, we love all our markets. I wouldn't consider them second rate or third rate as you would in the big bad town of Burbank.
- [07:58]
A
I'm going to be in so much trouble.
- [07:59]
B
You are going to be in a lot of trouble. No, I mean like the reality is most of the mid sized underserved or unserved markets left typically are in non hub major metrics on that side. And that's what we focused on. You know, we're proud to be able to serve, you know, 85 of these airports is kind of the, the hometown leisure carrier and offer a premium service. You know, these are markets that by and large have nobody connecting those two city pairs. And that's something that the team is really excited and proud. I'm super excited. I love small cities. I love midsize airports. I think they're super convenient and I think most guests do as well.
- [08:31]
A
All right, let's go back to the present for a little bit. We talked about Delta having its earnings call on Wednesday. I'm going to adopt some verbiage from Brett. He likes to call Ed Bastian, King Ed. And you know that King Ed likes to talk about how robust demand is, especially for those very premium Delta customers. But how is demand right now for Breeze Airways and is it enough to cover the run up in fuel?
- [09:04]
B
Yeah, I mean, the first quarter, we talked about this a little bit earlier. First quarter is typically a weak quarter for us and it was the highest recorded trasm quarter in our history, highest total revenue. So it is a unbelievably strong environment on that side going forward on the second quarter, still pacing well ahead double digits on that side. So you know, it's still very good. But is it covering whether it's a $5 fuel spot price? 450, you know, on that side it starts to get harder and harder the higher the bar goes up. But we were covering certainly the initial run up in fuel on that side. So again, getting back to the, you know, how are you managing this on a, you know, a daily or weekly basis? It does depend a bit on the forward curve there.
- [09:43]
A
Have you found that with any pricing in any markets that maybe in the past month you've gone too high, people just aren't willing to spend the money?
- [09:52]
B
Yeah, I mean, I think that's a valid concern for the industry as a whole. You know, certainly, I think you guys were at the euphoric point at Jamie Baker's conference in mid March where, you know, demand couldn't get any hotter. And honestly, we, we had seen unbelievable demand. But a bit of that may have been forward polled, you know, demand where people were expecting prices to rise for the summer. You know, it's possible that there was, there was some of that. So I think it remains to be seen on that side. But for us, it continues to be really strong. You continue to see really strong yield increases across the board. And so, you know, compared to some of the other large run ups in fuel, you know, I've been in the industry 15 years now. It feels like the recapture has been quicker this time. So it's just a matter of can we sustain that?
- [10:39]
A
You have some ridiculous name for your premium business class style cabin. It's like a premium light, maybe better than a big front seat. But also not Delta first either. Are you finding people are still willing to buy up to that product or have you found recently that customers might be a little bit more skittish?
- [11:01]
B
No, I mean, absolutely. It's still doing incredibly well. It's called Breeze Ascent, by the way. It is our what you'd consider domestic first, Brian, I know you're a big premium guy.
- [11:09]
A
I'm gonna guess you didn't hire an agency to come up with that name. You must have just come up with that name yourself. What is Breeze Ascent? How are you supposed to know what that is, Lucas?
- [11:19]
B
Well, first, Brian, I would say it starts with repeat guests. You got to be a first time guest to be a repeat guest, Brian. So let's, let's.
- [11:26]
A
I'm a zero guest. You're right.
- [11:27]
B
You're a zero guest. Right. So if you get on board, the 220 is a beautiful plane if you've flown on any of the other carriers that fly it. But it does feel different. And you walk by and you see these amazing domestic first class seats. Which one of your favorite airlines Uses a very similar type seat on their domestic product on that side. So you know, you get in and universally the second time a guest flies us, they're buying up in that seat. The third time they're flying up to even higher rate. Right. So it is about seeing the product in person, I think on that side. And you know, it's different. Right. It's not expected to be, you know, your Delta one class or what you'd consider on that side. That's not the intent of the product. I think we've got to serve and segment kind of our markets in our own way. But you know, we've never had free upgrades in the sense of what the other loyalty programs have had. So guests have been buying up with their own money from day one. And I think that's the model going forward for that side is can you properly segment the people coming on the cabin?
- [12:24]
A
Do you see the same trends as say the big four? And remember the big four, the fourth one is Alaska. It's not Southwest anymore in my opinion, where premium revenues are growing at a much faster clip than economy revenues or because your business is a little bit different, is it not the case?
- [12:43]
B
Yeah, I mean I'd say premium and premium segmentation. We've got a large cabin of extra legroom seats as well. We've got 12 Breeze Ascent first class seats, 45 extra legroom seats, 80 standard on our 220s. And those have been pacing as good or better than the standard legroom seats for sure.
- [13:04]
A
Do you want to talk about an embarrassing moment in your career for which you will not take the blame? You do not want to take the blame.
- [13:12]
B
Are you talking about the continual Lopa battles of how many first class seats?
- [13:16]
A
I'm talking about the continuous Lopa battles. Why don't you tell our listeners how many Breeze Ascent seats, although I don't think it was called that in the beginning. You put on some aircraft in the very beginning.
- [13:29]
B
Yeah, it's a story that is recounted many times at our office. We launched our 220s with 126 seats. Yes, we did have 36 first class seats at the time, Brian. And it is a really efficient plane because it's a two by two configuration versus you're only losing half as many seats as is a 3x3 on that side. So you know, certainly the thought process is we can produce a very efficient, you know, J seat on that side and can you monetize it? But it is a little bit too premium and. But look, you know, going back to the ingenuity and kind of the nimbleness of the, of the company. We were able to switch that out very quickly and standardize around the 137.
- [14:13]
A
I believe that your boss said before the airline launched that you could switch out the Lopa overnight. By very quickly, do you mean overnight or do you mean longer than overnight?
- [14:24]
B
I think the we'll say the decision was made overnight.
- [14:26]
A
Lucas, you are something else. All right, a safer question. I am sorry, tired about hearing about the letter K, but everybody talks about it. Where do you find your customers are on this K where some people are still doing very well in the economy, some people aren't. And the K goes up, the K goes down.
- [14:49]
B
Certainly we benefited. We launched out the gate on the 220s with having a premium product and an extra legroom product. And so I think you've seen a lot of the low cost base try to mimic and copy that as they saw those trends go out. But for us, if you're in a smaller middle size market, if you're the only carrier non stop in a market, you need to have a product that fits all across that segment. And so I don't think we just serve one point. I know one of the other airlines mentioned this a lot at the JP Morgan that we have to serve both sides of it. And I think we do with our style product.
- [15:21]
A
The other interesting thing that came out of the J.P. morgan conference was that Jamie Baker, who I like very much, the analyst at JP Morgan, asked most airlines what their moat is, what protects them from competition. What do you think is your moat at Breeze? And if you use the word nice in your answer, I'm going to be extremely upset.
- [15:45]
B
All right, let me rephrase this since I didn't script anything around nice, even though we do consider ourselves nice and that is an internal moniker on that side. So for us, we're a challenger brand. You are starting from scratch. People don't know you. And so how do you build around that? If you're looking at us, we've got above the regional space, the lowest variable cost trip plane out there, right? So the next unit of economics that you can produce to fly in a market is going to be our 220, right? We've got a lower cost base than the other 220 providers. It's the next most efficient plane on that side. However, most of the other people you're competing with on that space don't have a brand or product to capitalize on that. Right? So if you looked at this and the way that we look at it, most of carriers that have come in and competed with us, they found, hey, we don't actually want to serve this demand or this route. It's near the bottom of our P and L when we look at it, it's not really that interesting to us. And so for us, if you looked at the last, you know, the current space right now, the, the carriers that are smaller and are successful, they have a successful niche. Right. They have built their mode around something that nobody else wants to compete against. Right. And they've been very good at that. That's about combined with, you know, really high guest satisfaction. You know, NPS scores really good product on board to segment and then, you know, obviously a really low variable cost unit. We don't need to go out and compete for the, the jfk LAX is right. With a really big plane.
- [17:10]
A
Yeah, you talked a lot about cost in that answer, but how much of it is due to labor costs? I understand that your boss seems to not be a big fan of organized labor, but I don't think there's been an airline in the United States ever that hasn't started with very low cost because you don't have to pay very much in the beginning. And then over time they unionize and they want to get paid the same amount of money as everybody else. And then you lose a lot of that cost advantage. I mean, how much of this is just because you're a new airline?
- [17:43]
B
You know, I'd say the rates are per seat are actually still higher than your competitors on that side. We do benefit from juniority. Right. Of being a younger airline. Right. So you don't have as mature seniority down on that curve and that that will rise over time. We have grown at a rate that is scaled into that side. But I'd say the fixed cost and what the team a really good job of is how do you deliver a really high guest experience with a really low fixed cost base. Right. If you go, which, you know, if you come out and visit our, you know, headquarters, we don't have massive, massive amounts of, you know, offices and desks. You know, we all sit at the same, you know, style open seating, I'd say per headcount and per fixed cost, we're still very efficient on that side. So we've adopted a lot of the, the things I think are going to keep us competitive long term. And it's actually gotten better. Right. As we get to single fleet, you're seeing our unit costs contract and improve year over year throughout. And by the second half of the year, we'll be pretty much exclusively 220.
- [18:39]
A
Lucas, I've long dreamed of visiting Provo, Utah, so perhaps someday I'll get that chance to come to your headquarters.
- [18:47]
B
Open invitation. We have just started up your hometown airport to ours. And there is no excuse now, Brian, other than getting out of your podcasting studio.
- [18:55]
A
I'll do it at some point. Lucas, let's take a quick break here, and when we return, I'll ask you some questions about how some of your competitors are trying to put you out of business.
- [19:11]
C
Remember that teeny tiny antenna we used to talk about?
- [19:14]
A
Oh, I love that bit. It's part of air show lore. But why do we care about it today?
- [19:20]
C
Because, my friend, that antenna is the subject of our ad. It happens to have the greatest name in all of in flight connectivity, the Gilat Stellar Blue Sidewinder. And what we didn't mention before is that it can support many connectivity systems. That means lots of airlines could be, maybe I should say should be in the market for this teeny tiny antenna.
- [19:41]
A
This is exciting. So you mean that the teeny tiny antenna has a lot of versatility?
- [19:47]
C
Yes, it does. And that, along with its size, is the brilliance of it. Sidewinder is an open architecture any orbit multi network terminal that's already flying on more than 550 aircraft worldwide. We should soon see it on more planes because Boeing Embraer and Airbus now support Sidewinder as line fit equipment via Gilat's Internet service providers. It's actually the only line fit option for low earth satellite services today.
- [20:13]
A
Linefit is a big deal that makes it so much easier than having to do aftermarket work. But still, why is this the best way to go?
- [20:22]
C
We haven't even talked about what might be the best part, at least for airlines. An airline that installs Sidewinder and wants to change providers has considerable flexibility because this antenna isn't proprietary to anyone's system.
- [20:35]
A
Sounds like a win to me. And it sounds like I'll be able to log on to CompuServe way faster than I do with my 9600 baud connection at home.
- [20:45]
C
I don't even understand that. But I do know that Sidewinder customers today are experiencing true broadband service similar to their home or office. I also know that many military and government customers use this terminal because it offers true global coverage and a second backup network.
- [21:02]
A
That's the dream, right? In flight connectivity that works everywhere. Please contact your preferred ISP or your aircraft OEM for more details on how to Get Sidewinder on your aircraft. And we're back. Lucas, before I did this podcast with you, I asked a very senior executive at one of your competitors if they had any questions for you. And this person wrote back, how's his resume looking? And then I got an emoji, the laughing one with the. With the tears coming out of the eyes. Okay, we can take that as a joke. Haha. But I do think it's broader than that. A lot of people that I contact about Breeze are really skeptical of your airline and they wonder how it's going to survive long term. That was true before this fuel crisis. I think it's even more true now. What do you say to your competitors who talk smack against you?
- [22:08]
B
Yeah, I mean, I would just say the continual improvement on that side is building that out. The last couple of quarters strained together, profitable quarters being in the upper half of the space. Cash for us is as strong as it's ever been. You know, I'd say that's a proof that the model is working and we're maturing into it and we're, you know, internally really confident. Yeah, I get the skepticism, but again, I think that's, you know, 6 12, 18 months in the past, and obviously a lot of wishful thinking from people that have tried to put us out of business the last five years.
- [22:36]
A
Yeah. How many of these other carriers do you think are legitimately trying to put you out of business right now, being overly aggressive?
- [22:43]
B
I would say nobody wants competition in their back door. You know, it's a. It's a competitive industry, especially the network side. You got a bunch of, you know, little nerds running around trying to beat each other up. Right. And that's who we are.
- [22:57]
A
A lot of nerds that really like airplanes.
- [22:59]
B
It's. That's who we are. Right. And. But on that side, you know, I think again, if you looked at the results and if they see, okay, these guys have kind of figured it out, they are doing their own thing in their own space, the proof is in the pudding there. In terms of the results.
- [23:13]
A
I'm just curious, how much money do you think American Airlines is losing with its new flights, I believe from Phoenix and DFW to Provo? You think those are really nice markets for them?
- [23:25]
B
I don't run their P&L don't know, Brian. I would suspect it's probably not at the top of their yield curve. And I'm sure somewhere in their organization, somebody's responsible for it, and they're probably happy about it.
- [23:40]
A
Lucas, I promised the Other co hosts that I would not talk about cheese today but I will talk about my other favorite topic, loyalty program. Your loyalty program is absolutely useless to me. I can't even understand it. I don't live in a market where you have a robust network. But I do know that you launched a co brand credit card faster I think you said, than any airline in history. Just a few years in to the airline existing. How are earnings from that co brand credit card and then how big do you think you have to be in any one market for people to actually apply for that credit card and use it?
- [24:22]
B
We just hit our two year mark with our partners Barclays and Visa on a Breezy's Visa card and we've smashed expectations the first two years and just recently, three months ago, we launched kind of the full loyalty revamped into the program. So yes, for you Brian, who has flown zero times, it's not going to be the most appealing program. But in, you know, a lot of our small and midsize cities where you have, you know, over 25, 30 of our cities, you've got the most destination, you actually do have utility. Right. But it's really important to I think differentiate between what makes us valuable and attractive on that side and who may take the card. Right. If you are a true, you know, 100k Miler Road Warrior, it's unlikely going to be the right program for you. Right. It's not the network, it's not targeting business guests on that side. But if you are, you know, going to your second home, you've got the non stop, you've got frequency and utility on that side. It's, it's a super attractive program. And so when we were designing loyalty, you had to really kind of strip it down. What makes the program unique? Why would somebody want to choose us versus really, you know, most of the time you're competing with a bank card and everyday card. And so for us that's the competition. Right. There's so much of the space is not actually just airline cards right there, you know, the big guys and you know, certain major metros like L A is probably the most competitive, LA, NY, probably the most competitive metros. Right. For the card and card spend we're you know, going to be a very small player in a metro like that. But in a, in a smaller midsize city you've got 20, 25 destinations, there's really utility on that. And so I'd say once you get to, you know, double digit percentage of traffic out of there or the Most destinations, you really start to pick up traction.
- [25:56]
A
I've heard a lot of airline executives at smaller carriers kind of complain about the co brand credit card portfolios that the big airlines have. I don't know that it's sour grapes. It just is what it is. But when you have an airline like Delta doing almost 10 billion with American Express, do you look at that and say, man, that is a major shortfall for us. We'll never get anywhere close to that and it's kind of unfair or what do you think?
- [26:24]
B
I would say that's a bit more sour grapes. I mean, we try not to make excuses about things. This is the reality of it. Right. And so, you know, guess continuing on, if we're designing a loyalty program, what do people really want? We've had guests pay for that Breeze product, your upgraded product, the entire time that we've operated it. They really, really like it. Right. And so how do you actually give them something that's not complimentary, but they can earn upgrades offering things like that to them in a paid earnout way that actually can make sense for us and offer outsized value? Right. You are going to have redemptions, are going to be way wildly valuable on that side. And I think that shows a guest that you really can redeem something that is of a higher value than the beginning somewhere else. Right. And so when you go back to yes, you know, you're not going to compete with the 10 billion. We live in Utah. It's an almost insurmountable thing if you looked at them out of the Delta Amex card you see just going into any restaurant, but you get that and you just have to understand the landscape and how you fit into it. And I think you got to build towards what makes sense for you versus just complaining about the ecosystem.
- [27:23]
A
Well, we had Jude Bricker, your old colleague at Allegiant, on the podcast in September and we all love Jude around here. He said what he thinks. Jude said the world would be a lot better if interchange fees went down to near zero and these programs didn't exist. Shall I assume that you don't agree with Mr. Jude Bricker?
- [27:44]
B
Yeah, I mean, fellow fellow member in a fellow Delta Focus Hub City. I feel you, Jude, on that side, but the ecosystem is the ecosystem, right. If it adapts or changes or an act came out that would adapt. You know, for us, the core business is can you get somebody's loyalty? And we'll evolve the business model around that, you know, versus, you know, I'm going to complain about an unfair Advantage
- [28:07]
A
about xyz, you have the Delta credit card in your wallet, don't you?
- [28:10]
B
I do not, Brian. And by the way, I fly Delta plenty. I live in, I live in Salt Lake. And everything about this says you should get the Delta card. And you know, I won't out of, out of principle. But it doesn't stop other people from doing it. You know, it's a great program.
- [28:22]
A
Delta, in addition to the loyalty thing, it is obsessed with its brand. It wants people to go out of their way, way to fly Delta, to spend more, to fly Delta because they feel good about that brand. I know that at Breeze, you're trying to build your own brand that people want to choose. So it's not a commodity airline. Do you feel like you've been successful or do you find that, Lucas, when you go out in the wild and you tell people what you do for a living, they say, what? What is that?
- [28:54]
B
Yeah, I would say three, four years ago, outside of, you know, aviation sides, it did feel more like that. But we've been really fortun. We have worked with a couple incredible brand minds. Amy Curtis McIntyre on our board and Angela Vargo, who leads our brand team. Really strong brand DNA, folks that worked with really big companies both inside and outside airlines. And so when we're coming up with the challenger brand, I think the guts are there, right? It's an optimistic brand on that side. It really does speak to something that can go up market, but it also can meet people where they're at. Right. It's all a card on that side. So as you've built awareness over time, I think it's, it really has been able to wrap around that. I would say, is it where it's going to be in terms of awareness compared to the big four, Big five, however you want to define it, Brian, you know, no, because you don't have 100 years of, of brand building on that side. But if you compare to your space, you know, one of the big things, if you're looking at brand and why we're able to sell, you know, a premium ticket to a guest that otherwise would not have considered it. When you're comparing brands on the low cost space, you know, half the people, 25% of people won't even consider certain brands. And for us, that's the, that's the thing that we never want to, to be, you always want to be in the consideration set. You never want to be looked at like, oh, I would never buy a premium product from that person. So brand really does matter. Even on Our scale on a guest mindset.
- [30:14]
A
Lucas, I know years ago you were a math major. You're really good at math. I think you were also an actuary earlier in your career, is that right?
- [30:24]
B
That's right.
- [30:25]
A
So a lot of times when people with your brain look at marketing and brand and they can't actually measure it, they get really skeptical. Do you even try to put a number on this stuff? How does your brain handle it?
- [30:40]
B
Yeah, I would say you have to look holistically. And this is something that for me started right as an actuary, as you mentioned on that side.
- [30:47]
A
How boring was that job?
- [30:49]
B
It was incredibly boring. And that's why you switched into something that's the most exciting field out there. But yeah, it's harder to measure, but you can see it in the numbers. And it is more holistic, it is more upper funnel and it is more awareness. Right. So we do track awareness, as do plenty of our competitors who somehow seem to really care about how we are building in certain markets. I get it. But for us, we've had continual march upwards in terms of awareness on that side. And a lot of that is the brand halo effect that is going to lead into a bottom funnel conversion later down the road. Right. You've. You've got to be somewhat aware of a brand a lot of times, if you're not trying to choose this as a commodity product, to be able to charge something more than the bargain basement fare you're going to see on an aggregator.
- [31:31]
A
Thank you, Lucas. Let's talk Basic Economy for a moment. You have told me in the past that you don't think basic economy itself was as important as some analysts and insiders believe. You've told me that the real key here has been up gauging itself, which is related to basic, but not quite the same. What do you mean by that?
- [31:54]
B
If you looked, if you rewinded back, you know, 10 years ago as BASIC was starting to get introduced, it was absolutely the right thing for legacies to do. Makes sense, right? It is tied to up gauging that you have extra seats to sell, but it's not, you know, the end all be all but the real reason. And you know, let me rewind it even a little bit earlier than that. Earlier in my career, I had the fortune of working with the amazing 757. I know John and Brett are not on to gloat about this plane that you probably don't even know what it is and what it flies, but that is rude.
- [32:23]
A
I know that you failed at alleg with flying that machine to Hawaii. I remember it well. I remember like the overnight delays that happened every week.
- [32:31]
B
Yeah. So maintenance issues. Yes. Small sub fleet. You know, these are all real reasons that it is difficult. But the thing that it, you know, it teaches you earlier in your career when you get handed a plane like this is that you cannot take a very infrequent market and suddenly jam 220 plus seats onto it. Right. The dilution curve when you're not flowing through a hub is, is immense. So after you start transferring twice a week markets over to this and it doesn' work what it tells you to do and what we ended up doing, what was successful was fly LAX to Honolulu as your best market because it's the thickest market. When you have a gauge of a plane that big. When you have a plane that big, you need really big O and D markets.
- [33:09]
A
Right.
- [33:09]
B
And that's why you see the carriers with really big gauge. Now on the low cost side, you have to fly the biggest markets and you can debate whether the cost structures of those airports are going to allow it or not. But that is the, the reality. Right. You need really big thick markets when you're flying to a hub with that gauge. And it's incredibly cheap incremental economics for those additional seats on the plan. They can connect guests. The economics work a lot better for a network carrier. And so when you're looking at up gauging past a certain point, that's why it does incrementally benefit, I think the strongest hub network carriers.
- [33:42]
A
So you're saying that up gauging would have worked to the legacy carrier's benefit with or without the invention of basic economy.
- [33:51]
B
I think it goes hand in hand. But the reason that people, certain airlines are going to fail is not because basic con was in there and the credit card game was rigged. It's that fundamentally half the country doesn't want to fly your airline.
- [34:04]
A
Ouch. I told John that I would ask one and only one question on his behalf and it dovetails with up gauging. Where are you with the A200 2500?
- [34:17]
B
Yeah. So Airbus is heavily hinting, you know, at launching the program. We have not gotten anything public that we'll say on that, but it is should be theoretically more capable economics on that side. I know a lot's been written from you, John Courtney, etc on that piece. I think it is an interesting plane, but it really just comes down to what price are they going to offer it at. Because if it's, you know, going to be a price that only makes sense for network carriers, then only network carriers are going to take it. If it's going to be at a more reasonable price, then I think it's going to make sense for. For a broader base. So it really depends on their program goals. If they're trying to sell more into it versus, you know, potentially cannibalize a different.
- [34:53]
A
So if you do do it, it's a ways away and it's not a high priority right now.
- [34:58]
B
You can always move priorities depending on price, Brad. There's always a price for everything.
- [35:02]
A
Are you negotiating in public, Lucas?
- [35:04]
B
No, I'm just saying that that is. That's just a, you know, a phrase you use on the revenue side. There is always a price for everything.
- [35:10]
A
I understand. A quick few questions before we go here. I'll try to make you uncomfortable, but I probably won't. All our listeners want to know when's the IPO going to be? When are you going to be worth of millions of dollars? Personally, I want it for you. When's it happening?
- [35:29]
B
Well, it was, I would say this. The last month has not helped. You know, we're certainly moving in that direction for sure. There's no definitive timing, but Brian, you know, you'll be the first one of many phone calls, I'm sure, when we get to that time, can you give us an idea?
- [35:45]
A
Are we talking months? Are we talking years? Are we talking. Nobody knows?
- [35:49]
B
No, I mean, I mean, the biggest things, right. Are stringing together profitability. Yeah. I didn't mention earlier we did hit our first 12 months. Fully operating profit margin positive. Right. So that's a huge mile. I mean, like a tremendous milestone for the team. It's what we've been working for. And so, you know, hitting milestones like first quarter, string of quarters, first year, those are really important pieces as you get to an IPO story. So we've got a lot of work ahead of us that we still got to do to get to that point. But when we feel comfortable, you know, we think we've got a great story on that side. We've just got to continue to build off of it and hopefully have a really positive, stable macro environment would be great. Brian.
- [36:23]
A
Yeah, that's sort of out of our control, isn't it? Speaking of the macro environment and going back to the government for a little bit this week, Lucas, the secretary of transportation went on television and said something like, my boss really likes big deals. You're probably not going to tell me if Breeze is up for a merger, although I hope that you Will. But what do you think the landscape is? We have one merger ongoing now. It's kind of boring. What else are we going to see?
- [36:53]
B
I think that question does depend on the timing of the deal. Makes sense now, but the macro ultimately plays into this. You've got a couple of airlines that have got to make decisions one way or the other by this year. Three to six months, most likely. I would expect it sooner than later, especially at a more distressed time. It's going to be the natural move for the industry one way or the other.
- [37:17]
A
Other. Who's buying JetBlue? Lucas?
- [37:18]
B
I am the last person to know, but you could talk to my boss, who probably would have a thousand theories.
- [37:24]
A
He probably would. He could go on and on and on. Another insider question for you. You're an astute observer of the industry. Scott Kirby has made it very clear that he wants to get eventually to a higher margin than Delta. There's some questions about whether Delta's advantage is structural and it's going to be hard for United to catch up. But Scott Kirby is Scott Kirby. So in this two horse race, who do you like to win and when might United win?
- [38:00]
B
Trying to make me choose sides here, Brian?
- [38:02]
A
Well, both of these airlines hate you. What's the difference?
- [38:06]
B
Not just them two, you can add in the other eight. Brian, it's fine. You know, nobody's around. Do I have to charge you a quarter? What's the official policy here?
- [38:14]
A
Well, if you say something nice about Scott Kirby, you've got to put the quarter in the driver.
- [38:18]
B
Are, I would say, the most impressive thing they have done structurally over the last 10 years. You took, you know, really big cities that were big and competitive and you've gained significant share there. Right. And so you do have a powerful setup on that side. Whether they're going to continue to be able to own those markets to an even greater extent, that's what it would take to defeat kind of the Delta structural event. I mean, Delta's super stable, smart start, you know, capable company. They're going to run their own race on that side. And they, they do have several structural advantages that they've been really good at at keeping on that side, you know, so I would say it's hard to make a determination, but they, you know, they are in the biggest metros. And if their game is to own the biggest metros, you do have a, a strong potential case for United.
- [39:04]
A
So you didn't answer the question.
- [39:05]
B
No, I'm not gonna, I'm not gonna answer that. You know, you already, you Know, if everybody already hates you, Brian, why make somebody hate you twice as much?
- [39:12]
A
Well, let me ask another question. You compete with American Airlines. How much longer do you think Robert Isom might have as the CEO of that airline?
- [39:19]
B
Oh, God. This is. Brian. This is why you invited me on. Now, I am not the insider of the domestic airlines. I tend to fly them the least on that side. So I don't have any specifics on that side, but I think we both feel strongly there's going to be a fresh candidate that would be amazing at that job. I'd love if somebody would give them a look book that's going to be on the market in the next couple of months.
- [39:44]
A
Jude Bricker. I know who that's. That's who you mean.
- [39:47]
B
That is. That is who I mean. Jude. Jude's an amazing leader. Don't think it's reality, but would love to see what, what it could do, you know, on my, on my things that I've Learned over the 15 years, never being on the other side of Jude in a deal is one of the, like, top five or 10. So he's made the list.
- [40:04]
A
And he already has the cowboy boots for Texas.
- [40:07]
B
And the draw, you know, he is a Texan. Slash every, you know, know, he can morph.
- [40:11]
A
Last question for you, Lucas, but I said two things about you that I think are a compliment. One, I think you're the second smartest person that I've spoken to in the industry. And two, I think that you're the second most arrogant person in the industry. But of course, number one in both of these things is Mr. Scott Kirby, and he's done very well for himself. And I'm curious, do you consider what I said to be a compliment or are you mad at me?
- [40:42]
B
Honestly, I would consider that a compliment. Scott's been an incredible leader and has changed quite a bit over the years. You know, I think at least public Persona has changed quite a bit on that side. And contrary to, you know, public opinion or the opinion that you put out, Brian, I don't think I know everything, but I do want people to, you know, disprove it. And it's not the easiest to work for me. I get it. I get it.
- [41:02]
A
Thank you for coming on the air show. Lucas Johnson, you've been great.
- [41:05]
B
No, I appreciate it, Brian. Thank you so much.
- [41:10]
A
You've been listening to the air show. If you have suggestions or questions for us or if you're interested in sponsoring the podcast, go to our website, theairshowpodcast.com to get in touch. Leo Duran produced and edited this episode. Our theme unit music is by Joshua Mosher. Thanks for listening and we'll be back soon.