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Private Equity Strategies

Indigo Partners Latest Low-Cost Airline Investment Takes Off

Thursday, March 02, 2017

By: Bailey McCann, Private Equity Strategies

Earlier this month, Indigo Partners, the private investment firm of Bill Franke announced that it was launching a new low cost airline in Chile. The airline will be the first low cost provider in the region, but the model is nothing new for Franke who has made a name for himself with critical growth investments in other low cost providers including Spirit and Frontier Airlines.

He is currently the Chairman of Frontier Airlines and Wizz Airlines another low cost provider in Eastern Europe. Prior to starting Indigo Partners he was the CEO of America West Airlines.

JetSMART, the new Chilean airline will launch with three aircraft to take passengers throughout Chile. The airline will operate brand-new Airbus A320 aircraft and expects to grow the fleet to nine by the end of 2018.

"We are excited to do business in Chile and believe there is an overlooked customer segment wanting to fly, but for the right price,” Franke tells Private Equity Strategies. “There are many other reasons why Chile is an attractive entry point for the launch of a low fare carrier, including its economic stability and aviation traffic growth; Chile’s growing economy; supportive and fair regulatory environment; and open skies and strong bilateral treaties with neighboring countries, among others.”

Franke says that after the announcement went public he was approached by other regional entities looking to either expand JetSMART or set up a similar low cost model in their countries. Unlike traditional airlines, the ultra low cost model offered by JetSMART and others, gives fliers a seat on the plane and little else unless they pay incrementally for specific services like checked baggage, legroom, beverages and other amenities. The model is popular with a growing number of travelers who don’t mind a bare bones trip from point A to point B.

According to Franke, outreach to millennials has been positive in terms of grabbing market share for low cost carriers, because they don’t come with the fond memories of airline glamour that defined flying in the industry’s early days.

"In Europe, low-cost airlines account for 40% of all air travel. In the United States, they represent about 7% and the market share has grown for these companies by 10.3% in the last three years. By 2034, low-fare operators are expected to account for 21% of the world market,” he says.

When it comes to getting an airline like JetSMART off the ground, Franke says finding millennials online is easiest. Outreach to older generations happens with a mix of print ads and television. Once fliers get comfortable with the itemized approach low cost carriers use in pricing, they are usually hooked he contends.

"This business model ensures that consumers will not pay for products and services they do not want or need. And even if you select additional services and products, we want customers to pay less than the average fare currently available on the market", explains Franke. In this way, people have the option to build their experience according to their needs and the services they want."

 
This article was published in Opalesque's Private Equity Strategies our monthly research update on the global private equity landscape including all sectors and market caps.
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