Raphael Stevens

Avelo and Breeze Airways debuted in 2021.
Avelo and Breeze Airways’ CEOs each said they expect their airlines to turn a profit this year.
The airline industry has recently faced a rise in oil prices, supply chain snarls and shortages of pilots and air traffic controllers.

The inaugural flight of an Avelo Airlines Boeing 737-800 takes off from Hollywood Burbank Airport to Charles M. Schulz-Sonoma County Airport in Santa Rosa on April 28, 2021.
Patrick T. Fallon | AFP | Getty Images

In the nearly four years since the Covid-19 pandemic upended air travel, the largest U.S. airlines have returned to profitability. The CEOs of two upstart airlines that launched in the middle of the pandemic say they’re about to join them.
Avelo and Breeze Airways, two low-cost carriers that debuted in 2021 when U.S. air travel demand was more than 30% below pre-pandemic levels, have both grown their operations rapidly.

They’ve launched dozens of new routes across the country, and their founders say their strategy of linking cities where there’s less competition from large carriers is paying off. Think Los Angeles’ Hollywood Burbank Airport, rather than Los Angeles International, or Islip, Long Island, over New York City.
“When you have Goliaths, and you’re just David, it’s really hard,” said Avelo Airlines CEO Andrew Levy.
Delta, American, United and Southwest together control about three-quarters of the U.S. market, according to Cirium data.
Avelo says it flew 2.3 million customers in 2023, and that its planes were more than 80% full on average. Breeze flew more than 2.8 million travelers last year, and its flights were 77% full, according to the company. The carriers are still tiny. For comparison, Southwest Airlines, the largest domestic carrier, flew more than 137 million passengers last year.
Yet, Avelo reported its first profitable quarter in the last three months of 2023, and a company spokesperson said the airline will likely turn an annual profit in 2024. It brought in revenue of $265 million for the full year 2023, up 74% from the prior year.

Levy said he had expected the airline to turn a profit sooner, but high fuel costs during a period of broad inflation and Russia’s invasion of Ukraine two years ago pushed back the timeline.
Breeze is also on track for its first profitable year in 2024, said CEO David Neeleman.

David Neeleman, founder and CEO of Breeze Airways, before boarding the airline’s inaugural flight at Tampa International Airport in Tampa, Florida, on May 27, 2021.
Matt May | Bloomberg | Getty Images

It typically takes two to four years from launch for airlines to turn a profit, said Henry Harteveldt, president of Atmosphere Research Group, a travel industry consulting firm. Avelo and Breeze each faced additional challenges that have weighed on the entire industry, including a jump in oil prices, supply chain snarls and shortages of pilots and air traffic controllers.
“The fact that the airlines are both still operating is a credit to [Levy’s and Neeleman’s] visions, their leadership, but also the dedication of their employees,” Harteveldt said.

Skipping hubs

Both airlines have staked a claim in the low-cost carrier segment, which also includes Frontier and Allegiant, which offer base fares, add-ons and secondary airport flights.
Avelo flies to about 50 destinations and operates out of six bases including Connecticut’s Tweed-New Haven Airport and Delaware’s Wilmington Airport. Many of its destinations are from the Northeast to popular vacation destinations in Florida and South Carolina, but it also serves destinations in California and other western states in the U.S.
The carrier moved beyond the continental U.S. in 2023 when it launched service to Puerto Rico and will likely expand to international destinations this year, Levy said.
Breeze, which Neeleman founded after also starting JetBlue Airways and Brazilian carrier Azul, mostly eschews major hubs and flies out of about 50 airports such as New York’s Westchester County Airport and Akron-Canton Airport in Ohio.
It flies to standard vacation destinations, but also offers cross-country flights from cities such as Hartford, Connecticut or Charleston, South Carolina, to destinations including Las Vegas and Los Angeles. It hopes to launch international service by 2025.
Avelo and Breeze have both continued to announce new routes and destinations this year. Avelo had 11 routes shortly after launching in the summer of 2021 and now has about 75, while Breeze flew about 16 routes that summer and is currently selling roughly 180.

A Breeze Airways airplane on the tarmac at Tampa International Airport in Tampa, Florida, on May 27, 2021.
Matt May | Bloomberg | Getty Images

Breeze and Avelo sell base fares — some as low as double digits — and charge fees for checked luggage and advanced seat assignments, upcharges that have become common not just among budget airlines, but most large carriers, too.
Breeze’s lowest-fare option allows travelers to bring on only a personal item, but the airline also sells first class seats and extra legroom options with more amenities. Neither airline’s base fare includes a carry-on bag.

Operational costs

Offering low airfares has made industry-wide cost increases all the more daunting for Avelo and Breeze. The nationwide shortage of pilots following the pandemic and rising labor costs, for example, have posed a challenge.
Large airlines, which can offer pilots big salaries, have hired away pilots from smaller carriers in recent years to staff up after the pandemic.
“What you really want to watch with pilots is attrition. … We had an attrition rate that was higher than we liked, and now it’s where we want it,” said Neeleman.
The carrier has many first officers who are poised to be upgraded to captain, helping alleviate the shortage, he added.
Airlines have also struggled with late deliveries of aircraft and difficulties getting thousands of replacement parts.

Founder, Chairman and CEO of Avelo Airlines Andrew Levy speaks at Hollywood Burbank Airport in Burbank, California, on April 7, 2021.
Joe Scarnici | Getty Images

Avelo has faced delays in delivery of its used Boeing 737 aircraft that it leases, CEO Levy said. The company currently has 16 planes in its fleet and has five on order.
“The whole aviation supply chain system has been mucked up since Covid. And it still is not quite back to what it was,” Levy said.
Breeze said last month that it will exercise options on 10 more Airbus A220 aircraft. The company will exclusively fly the A220 for its commercial service by the end of 2024. It currently flies 22 A220s and will have 32 in operation by the end of 2024, according to Neeleman.
Neeleman said Breeze is aiming to be profitable before it decides whether to file for an initial public offering or another option. Avelo also hopes to achieve sustained levels of profitability before an IPO.
Levy said Avelo’s focus is “on getting to a point where the company is IPO ready,” and that he has no interest in selling the company.
Some airlines, particularly low-cost carriers, have in recent years looked to merges to chip away at the dominance of the big four carriers. JetBlue and Spirit announced plans to combine in July 2022 in a deal that would have created the fifth-largest airline in the U.S., though a federal judge blocked that merger in January. Those airlines have appealed that ruling.
Hawaiian Airlines and Alaska Airlines plan to combine, though they’ll continue to operate the brands as distinct carriers.
Both Levy and Neeleman said there is room for multiple players in the low-cost carrier space.
“The more competition we have in the U.S. airline industry, the better it is for the traveling public,” Atmosphere Research Group’s Harteveldt said.
— CNBC’s Leslie Josephs contributed to this report.Don’t miss these stories from CNBC PRO: More

Lockheed Martin submitted a bid to acquire spacecraft manufacturer Terran Orbital, the defense giant revealed in a securities filing.
The cash offer values Terran at just below $600 million.
Terran went public via a SPAC in early 2022 at a $1.8 billion valuation.

Terran Orbital’s banner above the New York Stock Exchange on March 28, 2022.
Terran Orbital

Lockheed Martin submitted a bid to acquire spacecraft manufacturer Terran Orbital, the defense giant revealed in a securities filing on Friday.
The nonbinding proposal would see Lockheed acquire Terran Orbital’s outstanding common stock at $1 a share in cash, as well as pay $70 million for Terran’s outstanding warrants and assume the company’s $313 million in outstanding debt.

Together, the offer values Terran Orbital at just below $600 million. Terran Orbital stock closed at $1.07 a share on Friday.
Terran Orbital did not immediately respond to CNBC’s request for comment.

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The small spacecraft maker went public via a SPAC in early 2022 at a $1.8 billion valuation. Like many space stocks, the yet-unprofitable company has been hit hard by the shifting risk environment in the market.
Lockheed Martin is already a significant stakeholder in Terran Orbital, with a 28.3% stake as of Friday, having bought in during the company’s SPAC process and again in late 2022.
Additionally, Lockheed noted in its letter to Terran Orbital management that the defense giant “continues to be Terran’s largest revenue generating customer accounting.”

Terran Orbital

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NASA said it is shutting down a $2 billion project to test satellite refueling in space.
The agency’s auditor recently criticized the OSAM-1 program’s lead contractor, Maxar, for “poor performance.”
OSAM-1 has been in development since 2015, with the goal of docking with Landsat 7 imagery satellite in orbit, to repair, refuel and extend the life of the aging spacecraft.

A “grapple test” of the OSAM-1 spacecraft’s robotic servicing arm.

NASA is shutting down a $2 billion project to test satellite refueling in space, it announced Friday, after the agency’s auditor criticized the program’s lead contractor, Maxar, citing “poor performance.”
The space agency said in a statement that the OSAM-1 — On-orbit Servicing, Assembly, and Manufacturing 1 — project was being discontinued after nearly a decade of work.

NASA cited in its announcement “continued technical, cost, and schedule challenges, and a broader community evolution away from refueling unprepared spacecraft, which has led to a lack of a committed partner.”
The agency said in a statement to CNBC that about 450 personnel are supporting OSAM-1, but that NASA “is committed to supporting project workforce per plan through fiscal year 2024.”
“While we are disappointed by the decision to discontinue the program, we are committed to supporting NASA in pursuing potential new partnerships or alternative hardware uses as they complete the shutdown,” Maxar Space Systems spokesperson Eric Glass said in a statement to CNBC.
Maxar was taken private by private equity firm Advent International in May 2023 before being split into two businesses: Maxar Intelligence, focused on satellite imagery and analytics, and Maxar Space Systems, focused on spacecraft manufacturing.

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NASA’s Goddard Space Flight Center in Maryland was leading the work on OSAM-1, with Maxar Space Systems as the project’s prime contractor under multiple deals. OSAM-1 has been in development since 2015, with the goal of docking with the U.S.-owned Landsat 7 imagery satellite in orbit, to repair and refuel the aging spacecraft to extend its life.

But OSAM-1 has fallen years behind schedule, while the program’s cost to NASA soared. In a scathing October report, NASA’s Inspector General “found that project cost increases and schedule delays were primarily due to the poor performance of Maxar,” while noting that the agency’s Goddard center has also struggled with key parts of development.
“NASA and Maxar officials acknowledged that Maxar underestimated the scope and complexity of the work, lacked full understanding of NASA technical requirements, and were deficient in necessary expertise,” NASA’s Inspector General said in its report, following a yearlong audit.
The agency’s auditor noted that OSAM-1 was likely to both “exceed its current $2.05 billion price tag and the December 2026 launch date,” which was already six years behind schedule. The report, citing Maxar representatives, noted the company was “no longer profiting from their work on OSAM-1” and, in NASA’s view, it no longer appeared “to be a high priority for Maxar in terms of the quality of its staffing.”
NASA’s cancellation of OSAM-1 comes months after Maxar delivered major segments of the spacecraft to Goddard in Maryland — but other key parts were yet to be finished.
Satellite servicing is a nascent sub-sector of the space industry that’s only recently begun to be proven out, with Northrop Grumman’s extension missions representing an early effort. More

Boeing is in talks to acquire fuselage maker Spirit AeroSystems.
It comes less than two months after a section of a Boeing 737 Max 9 jet blew out during an Alaska Airlines flight.
Both companies have been scrambling to stamp out manufacturing flaws on Boeing’s top-selling plane.

Airplane fuselages bound for Boeing’s 737 Max production facility sit in storage at their top supplier, Spirit AeroSystems Holdings Inc, in Wichita, Kansas, U.S. December 17, 2019. 
Nick Oxford | Reuters

Boeing is in talks to buy back Spirit AeroSystems, which makes fuselages for Boeing’s 737 Max jets, the companies said Friday, as the manufacturers scramble to stamp out production flaws on the top-selling plane.
Shares of Spirit rose 15% on Friday, while Boeing’s stock fell close to 2%. Spirit AeroSystems had a market capitalization of $3.8 billion as of Friday’s close.

Boeing in 2005 spun off operations in Kansas and Oklahoma that became the present-day Spirit AeroSystems. About 70% of Spirit’s revenue last year came from Boeing, and roughly a quarter came from making parts for Boeing’s main rival, Airbus, according to a securities filing. Airbus declined to comment on the deal talks.
“We believe that the reintegration of Boeing and Spirit AeroSystems’ manufacturing operations would further strengthen aviation safety, improve quality and serve the interests of our customers, employees, and shareholders,” Boeing said in a statement on Friday. “Although there can be no assurance that we will be able to reach an agreement, we are committed to finding ways to continue to improve the safety and quality of the airplanes on which millions of people depend each and every day.”
Spirit also confirmed the talks.
Boeing CEO Dave Calhoun, when asked about outsourcing production of parts of its airplanes, told CNBC in January: “Did it go too far? Yeah … probably did, but now it’s here and now I gotta deal with it.”
Spirit has struggled financially, and was last profitable in 2019, before the pandemic. In October, Spirit appointed Pat Shanahan, who spent about three decades at Boeing, as its new, interim CEO.

The deal talks come less than two months after a section of a Boeing 737 Max 9 plane blew out during an Alaska Airlines flight. The Federal Aviation Administration temporarily grounded all of the planes in January, leading to investigations into the accident and Boeing’s production lines.
It was the latest and most serious in a host of flaws on the Boeing 737 Max, the company’s bestselling jet.
The bolts on the door plug of the Max involved in the January accident appeared not to have been attached when it left Boeing’s Renton, Washington, factory, according to a preliminary report from the National Transportation Safety Board.
Boeing has disclosed several production problems and quality flaws on the fuselages that Spirit makes, including incorrectly drilled holes and wrong spacing on some fuselage components, problems that have slowed deliveries of new jets to airlines.
The FAA, which oversees Boeing and certifies its planes, has vowed deeper scrutiny of the company’s production lines since the Jan. 5 accident. Earlier this week, after a meeting with Calhoun, the FAA’s administrator, Mike Whitaker, said the agency was giving the company 90 days to come up with a plan to improve its quality control and safety systems.
Boeing and Spirit’s deal talks were reported earlier by The Wall Street Journal.
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A federal judge rejected AstraZeneca’s legal challenge to Medicare’s new power to negotiate the prices of certain costly prescription drugs with manufacturers.
The decision is another win for the Biden administration in a bitter legal fight with the pharmaceutical industry over the constitutionality of those price talks.
U.S. District Judge Colm Connolly’s decision also comes one day before manufacturers have to respond to Medicare’s initial price offers.

Activists protest the price of prescription drug costs in front of the U.S. Department of Health and Human Services building in Washington, D.C., on Oct. 6, 2022.
Anna Moneymaker | Getty Images

A federal judge on Friday rejected AstraZeneca’s legal challenge to Medicare’s new power to negotiate the prices of certain costly prescription drugs with manufacturers.
The decision is another win for the Biden administration in a bitter legal fight with the pharmaceutical industry over the constitutionality of those price talks. The negotiations are a key policy under the Inflation Reduction Act that aims to make medicines more affordable for seniors and could take a bite out of the pharmaceutical industry’s profits.

The legal wrangling over the policy is far from over. Manufacturers have said they intend to escalate the issue to the Supreme Court. 
The judge’s decision came one day before a crucial deadline in the process. 
Manufacturers of the first 10 drugs selected for negotiations have until Saturday to respond to Medicare’s initial price offer for their treatments. Those drugs include AstraZeneca’s Farxiga, which is used to treat Type 2 diabetes, chronic kidney disease and heart failure. 
Final negotiated prices for the first round of drugs will go into effect in 2026. 
In a 47-page opinion, U.S. District Judge Colm Connolly of the District of Delaware said AstraZeneca has not identified a property protected by the constitution that will be jeopardized by the price talks. 

He wrote that AstraZeneca’s participation in the Medicare market is voluntary, so the company’s “desire” or even “expectation” to sell its drugs to the government “at the higher prices it once enjoyed does not create a protected property interest.” 
The opportunity to sell drugs to more than 49 million Medicare and Medicaid beneficiaries is a “powerful incentive” for manufacturers to participate in the price talks with the government, Connolly wrote. But he said that incentive is not “a gun to the head” like AstraZeneca contends in its suit.”It is a potential economic opportunity that AstraZeneca is free to accept or reject,” Connolly wrote.
In a statement, AstraZeneca said it is “disappointed with the court’s decision and the potential negative impact it will have on patients’ access to future life-saving medicines.” The company said it is evaluating its path forward.
AstraZeneca’s lawsuit claimed that the talks would force it to sell medicines at huge discounts, below market rates. The company asserted that this violates due process under the Fifth Amendment, which requires the government to pay reasonable compensation for private property taken for public use. 
The judge’s decision is another blow to the pharmaceutical industry, which has filed a flurry of lawsuits claiming that the negotiations are unconstitutional. 
The ruling comes a month after a federal judge in Texas tossed a separate lawsuit challenging the price talks. 
A federal judge in Ohio also issued a ruling in September denying a preliminary injunction sought by the Chamber of Commerce, one of the largest lobbying groups in the country, which aimed to block the price talks before Oct. 1.
But many of the other cases are still pending. On March 7, Bristol Myers Squibb, Novo Nordisk, Novartis and Johnson & Johnson will present their oral arguments to a federal judge in New Jersey in the same hearing.Don’t miss these stories from CNBC PRO: More

CVS and Walgreens will start selling the abortion pill mifepristone this month at certain pharmacy locations in states where it is legal to do so, spokespeople for the companies told CNBC.
CVS and Walgreens have received certification from the FDA to dispense the commonly used mifepristone at their retail pharmacies, spokespeople for each company said in separate statements.
The pharmacy chains will not provide the medication by mail.

A container holding boxes of mifepristone, the first medication in a medical abortion, are prepared for patients at Alamo Women’s Clinic in Carbondale, Illinois, on April 20, 2023.
Evelyn Hockstein | Reuters

CVS and Walgreens will start selling the abortion pill mifepristone this month at certain pharmacy locations in states where it is legal to do so, spokespeople for the companies told CNBC on Friday. 
CVS and Walgreens received certification from the U.S. Food and Drug Administration to dispense the commonly used pill at their retail pharmacies, spokespeople for each company said in separate statements.

CVS will begin filling prescriptions for the medication in Massachusetts and Rhode Island in the coming weeks, a spokesperson for the company said. They added that CVS will expand to additional states, “where allowed by law, on a rolling basis.” 
Walgreens expects to start dispensing prescriptions for the pill within a week at select pharmacy locations in New York, Pennsylvania, Massachusetts, California and Illinois, a company spokesperson said.
Notably, the chains will not provide the medication by mail. The New York Times reported the news earlier Friday.
Mifepristone is the first pill used in the two-drug medication abortion regimen.
The FDA is squaring off with anti-abortion physicians in an unprecedented legal challenge to its more than two-decade-old approval of mifepristone. An anti-abortion rights group sued the agency in 2022 in a bid to declare that approval unlawful and completely remove the pill from the U.S. market

On March 26, the Supreme Court will hear oral arguments in that closely watched case.
The FDA in January said it will allow retail pharmacies to offer mifepristone in the U.S. for the first time. 
Under a regulatory change at the agency, pharmacies can apply for certification to distribute the pill with one of the two companies that make it. That certification would allow pharmacies to dispense the medication directly to patients upon receiving a prescription from a certified prescriber.
Before the FDA’s regulatory change, only a few mail-order pharmacies or specially certified doctors or clinics could distribute mifepristone.
The regulatory change will potentially expand abortion access as the Biden administration wrestles with how best to protect abortion rights. The right to abortion in the U.S. was sharply curtailed by the Supreme Court’s 2022 decision to overturn the landmark Roe v. Wade ruling.
The Biden administration has sought to make abortion and contraception access a main platform of the president’s 2024 campaign.
Medication abortion is the most common method of terminating a pregnancy in the U.S., according to data from the Centers for Disease Control and Prevention. That method is approved by the FDA for use up to 10 weeks into pregnancy.Don’t miss these stories from CNBC PRO: More

Yum China CEO Joey Wat told CNBC that the Chinese consumer has been growing more rational for years.  
Housing costs in top-tier cities such as Shanghai and Beijing have grown even more expensive in recent years, putting pressure on consumers’ disposable income, according to Wat.
Yum China has used a barbell strategy to attract diners looking for deals and those seeking higher-quality fare.

A KFC restaurant in Wuhan, China.
Source: Yum China

While economists and investors fret over China’s low consumer confidence and sluggish growth, Yum China CEO Joey Wat says the Chinese consumer is growing more rational — and has been for years.  
Weighed down by investors’ concern about the broader Chinese economy, shares of Yum China have fallen 27% over the past year, dragging its market value down to $17.51 billion. For comparison, Licensor Yum Brands, which spun off the Chinese unit in 2016 and has a global footprint, has seen its own stock rise 8%, giving it a market value of $38.87 billion.

Despite Wall Street’s worries, Yum China’s sales are growing. In the fourth quarter, the company’s revenue climbed 19% to $2.49 billion, fueled by new store openings. Its same-store sales rose 4% for the period, topping StreetAccount estimates of 3.3%. Wat pointed to the restaurant industry’s strong recovery from the Covid-19 pandemic, but also acknowledged a bigger consumer shift.
“I think the Chinese consumer has become more rational over the last few years,” she told CNBC.
Housing costs in top-tier cities such as Shanghai and Beijing have grown even more expensive in recent years, putting pressure on consumers’ disposable income, according to Wat. But in lower-tier cities, such as Chengdu, Yum China is seeing stronger sales growth because housing is cheaper and consumers have more cash to spend.
Cities in China are often classified into tiers based on factors such as population and gross domestic product, although there’s no official ranking system.
“We have a really good business model, not only in a top-tier city, but all the way to the tier five, tier six city,” Wat said.

Joey Wat, CEO of Yum China Holdings Inc., during a Bloomberg Television interview in Xi’an, China, on Sept. 15, 2023.
Qilai Shen | Bloomberg | Getty Images

The overwhelming majority of Yum China’s current footprint is made up of KFC locations, but the company also runs Pizza Hut restaurants and Lavazza coffee shops. China is KFC’s largest market and Pizza Hut’s second largest.
While some diners in China have been cutting back, others are upgrading their spending, shifting from instant coffee to KFC’s sparkling coffee, for example.
“There’s a consumption upgrade happening in the long term and in a subtle way,” Wat said.
At KFC, Yum China has used a barbell strategy to attract diners looking for deals and those seeking higher-quality fare. For example, the company sells a chicken breast sandwich for less than $2, as well as a Wagyu beef burger.
Yum China uses a similar strategy at Pizza Hut. Only about 30% of Pizza Hut’s sales in China come from actual pizza. The chain is introducing cheaper pizza options to appeal to the deal-hunting diner and build market share within the pizza category.
One of Pizza Hut China’s other popular entrees is steak, helping it stand out from the competition.
“In a top-tier city, you can have some choices of steakhouses,” Wat said. “Go to tier two, tier three, tier four city, and Pizza Hut might be the only choice.”
Yum China has built about half of its new stores in lower-tier cities in recent years, in the hopes of attracting consumers with more disposable income. The company has a footprint of more than 14,600 restaurants, making it the largest restaurant company in China. By 2026, the company wants to have more than 20,000 locations.
The World Bank and the International Monetary Fund are both forecasting that China’s economic growth will slow in 2024, citing weakness in the country’s real estate sector and softer global demand. Beijing is set to reveal its annual GDP target at a parliamentary meeting that kicks off Tuesday.Don’t miss these stories from CNBC PRO: More