Former United CFO raises $125 million for startup US airline

A new budget airline created by a former United Airlines executive has raised $125 million in funding and plans to start service before the end of the year.

The company, operating as Houston Air Holdings Inc., is “getting ready to spool up to transform this little charter airline we bought,” Andrew Levy said in an interview Wednesday. The strategy is to offer nonstop flights from secondary airports to midsize and large markets, Levy said. The project is the second new U.S. airline planning to start flights in 2020.

“We’re going to grow at a measured pace,” said Levy, a co-founder of Allegiant Travel Co., which specializes in leisure travel from smaller markets to vacation destinations such as Florida and Las Vegas. “We’re going to build the company a little bit like Allegiant, slowly and steadily,” with a foundation of “far more capital than we think we’ll ever need.”

The Houston-based startup will employ a fleet of Boeing Co. 737-800’s. It will take its first plane next week from General Electric Co.’s aircraft lessor, and use them for charter service over the summer. Jets will be configured with 189 seats for short-haul passenger service later in 2020.

Neeleman Contrast

Levy is taking a different tack from David Neeleman, the founder of JetBlue Airways Corp., who’s planning to debut his new Breeze Airways late this year using Embraer SA E-195 aircraft leased from his most recent startup carrier in Brazil, Azul SA. Neeleman also plans to add Airbus SE A220 jets.

Both carriers will focus on markets they view as lacking adequate air service after U.S. airline consolidation over the past decade. But while Breeze plans to fly longer-haul service using the A220’s range on routes without nonstop competition, Levy’s is focused on shorter-distance routes connecting smaller airports with domestic leisure markets.

Neeleman has pledged to invest $50 million of his own money in Breeze. He estimates that the carrier will require $65.6 million for three months of regular operations, plus $45 million for costs before it begins service. Neeleman launched JetBlue in 2000—which involved a fleet of new Airbus A320 aircraft—after raising about $100 million in the prior three years. That’s about $150 million today, adjusted for inflation.

Levy left United Airlines Holdings Inc. in May 2018 to work on forming a startup airline. Three months later, he purchased XTRA Airways Inc., a Florida-based charter carrier. XTRA’s parent had sold most of its fleet to Swift Air, but kept one Boeing 737-400 to retain its Part 121 commercial airline certification.

Avoiding Competition

The company will seek to avoid the markets and travelers that are critical for large competitors, much as the networks at Allegiant and Sun Country Airlines Inc. are structured away from business traffic.

“The best way to compete in the airline industry is to not compete,” said Levy, who is also a director of Copa Holdings SA. “I think that’s what we did at Allegiant, and that’s what we’re looking to do here.”

The new airline will make its business from “a small, small niche” of air travelers who are price sensitive and eager to avoid large, congested airports. “But in the U.S. market even a small niche can be a large opportunity,” he said.

Levy said the funds were raised from a variety of private equity firms, family offices and individuals. The company is still exploring names for the airline and which airports it will serve.

“We’re not looking for world domination here,” he said. “This is about offering choice and taking advantage of a market where the fare structure is relatively high.”