June 21, 2024


Supportive Business Potential

Delaware grants fuel tax break for Avelo

Delaware grants fuel tax break for Avelo

Avelo Airlines will base a Boeing 737 and a staff of 35 in Wilmington to maintain the plane for near-daily flights to Florida. | DBT PHOTO BY JACOB OWENS

NEW CASTLE – In support of Avelo Airlines, the startup commercial service provider that will make the latest attempt to restart air service in Delaware, the state signed off Monday on a request to waive the state’s aviation fuel tax for the airline.

Since 2019, the state has levied a 5 cent per gallon tax on jet fuel, due in part to the Delaware Aviation Council seeking a revenue stream that it could lean on to match federal grant requirements, according to Rep. Ed Osienski, who sponsored the bill. The goal of the revenue stream was to improve infrastructure in aviation and state airports to attract new aviation employers.

“[The tax] is meeting its purpose because it helped attract [Avelo],” said Osienski, who is also a member of the state’s job investment board, the Council on Development Finance (CDF).

The airline is also negotiating the lease of a hangar on the airfield where it will base a maintenance shop, investing in upgrades and fit-out of the building to perform work on the $20 million airplane to be housed there.

On Monday, the CDF unanimously approved a three-year waiver of the jet fuel tax, resulting in a cost savings of about $75 per flight, or about $43,000 a year, to Avelo. Notably, the former provider of commercial air service to Delaware, Frontier Airlines, did not seek or receive such a waiver.

“It’s a small price to pay to provide commercial airline service and invest in this community,” said Thomas Cook, executive director of the Delaware River & Bay Authority, the bi-state agency that manages the New Castle-Wilmington Airport where Avelo will base its six-day-a-week service.

Sean Hopkins, head of contracts for Avelo, explained that the startup is focused on serving smaller airports, offering destinations that customers want and providing good customer service.

“Our ability to keep costs down is what enables us to offer low fares and presumably make money. We’re looking to make a profit this year. But being only a year-and-a-half old, the business is doing well,” he said.

In October, Avelo CEO Andrew Levy told Delaware Business Times that his airline would seek load factors of 80% to 85%, a significant increase over what Frontier was able to find over the past year but in line with the rival’s scuttled first attempt at Delaware service from 2015 to 2017.

“Our business works on volume, so we have to fill airplanes,” he said, noting that their typical budget traveler is less likely to pay for substantial upgrades and amenities. “We need to build up to having a revenue per customer that that works, and a lot of that is driven right now by fuel prices.”

The inflated cost of jet fuel right now has put a strain across the airline industry, and Levy estimated that it currently accounts for about 40% of Avelo’s total costs. The one-way fuel cost of a flight is roughly $7,500 right now, and to be profitable in the long run Levy estimated that Avelo would need to see returns per customer of about $150 one-way.

Introductory one-way fares will start at $49 heading to Orlando, Fort Lauderdale, Tampa, Fort Myers and West Palm Beach. The inaugural flight to Orlando will take off on Feb. 1.

When asked about the airline’s plans for the future, especially in summertime months when visitors to Florida typically slow amid hot weather, Hopkins noted that other destinations like Chicago or Savannah, Ga., where the airline has a presence already, could be possibilities. For that to happen though, customers will need to support the initial service.

“We can’t float a lot of losses for a long time, but we do think that we know how to get started,” Hopkins said, noting that the airline will apply lessons learned from its successful service out of New Haven, Conn.