U.S. budget airline Avelo raises $42 million in new funding

CHICAGO, Jan 6 (Reuters) - Avelo Airlines, an ultra-low-cost carrier created by a former United Airlines executive, on Thursday said it has raised $42 million in a Series B funding round led by an investment fund managed by Morgan Stanley.

The Texas-based airline, which began flights last April, had raised $125 million in January 2020. Avelo currently serves 19 popular destinations across the United States with six Boeing (BA.N) Next-Generation 737s.

In an interview, Avelo's founder and chief executive, Andrew Levy, said the company has plans to add nine more 737s to its fleet by the end of the year as it looks to fly to at least 40 cities in the United States.

The carrier has seen a spike in ticket cancellations in recent weeks following a surge in COVID-19 infections driven by the Omicron variant. Levy, however, said the company is "cautiously optimistic" about a pickup in travel demand once COVID-19 cases begin to dip.

"People's purchase behavior really tracks the news on the virus," said Levy, the co-founder and former president of low-cost carrier Allegiant Airlines and chief financial officer of United Airlines. "The demand for travel is massive."

Avelo has plans to hire more than 450 crew members this years. But attracting talent in a tight labor market has been "really difficult", Levy told Reuters.

The company has had to increase wages of its pilots, flight attendants and airport staff and is under pressure to offer similar raises to other groups of employees.

"You have to compete for talent like everybody else does," Levy said.

Reporting by Rajesh Kumar Singh; Editing by David Gregorio

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