Airline Weekly Lounge Podcast

Of Europe’s “Big Three” airline groups, International Airlines Group (IAG) continues to significantly outperform the other two, namely Air France/KLM and Lufthansa Group. A big part of IAG’s success is simply British Airways’ coveted slot portfolio at Heathrow. But it didn’t hurt that pretty much everything else is working too. Still, Lufthansa navigated a difficult quarter operationally to deliver a respectable 14% operating profit margin. Air France/KLM, meanwhile, rode the seasonal strengths of its Transavia unit to a profit margin that outpaced Lufthansa’s by a fraction of a percent. Ryanair saw its Q3 profit margin drop by 7 points. But no matter—it still did better than every other European carrier reporting so far. Icelandair bought competitor WOW Air. Lastly, with Turkish Airlines looking fully mended, will it return to its fast-growth ways?

American Airlines truly set itself apart from its peers in the third quarter—and not in a good way. AA posted a dismal 7.5% operating profit margin, nearly half of Delta’s 13.9% margin. But, with good reason, management remains optimistic. United, on the other hand, has plenty to smile about right now as it offset 100% of its rising fuel costs with rising revenues. Southwest didn’t have trouble with fuel thanks to hedges, but non-fuel costs posed a headwind. Hawaiian Airlines posted the best Q3 margin of the major U.S. carriers. But Spirit might be the biggest winner of all, vaulting itself from the middle of the pack last year to nearly the front. JetBlue and Allegiant again stumbled. And although Alaska didn’t have a great result, there are plenty of reasons it should soon rejoin the leading carriers in the U.S.

Delta is doing a remarkable job keeping pace with rapidly rising costs. Sure, the airline’s third-quarter fuel bill rose 35% year over year. But rising revenues offset enough of those costs that Delta’s operating profit margin fell only two points. Meanwhile, what’s behind American’s recent troubles? Unfortunately, when American reports later in the month, it’s expected to be a much less happy affair. Alitalia looks like it will be restructured. Is this new direction the right direction? Canada’s WestJet announced its first Dreamliner routes, which were a little surprising—at least until you look at Air Canada’s network. Lastly, Russia’s Pobeda is proving to be an atypical success.

Sun Country is largely missing out on the golden age that U.S. carriers have been basking in since 2015. In the past 12 months (ending with the second quarter, the most recent to be reported) all the U.S. carriers posted operating profit margins ranging from a healthy 9% to an excellent 16%—except for Sun Country, which delivered a distant 4% margin. Will Sun shine again? One airline enjoying the U.S. party is Frontier, which had a solid second quarter despite a 19% increase in operating costs. Talks of an Emirates-Etihad merger have heated up, according to a Bloomberg report. A merger might save Etihad, but who will save these other troubled airlines? South African Airways, Fastjet and Jet Airways are all facing dire straits. Lastly, JetBlue is adding a basic economy fare class. Will it be the last U.S. airline to do so?

Qantas continues to romp. In the first half of 2018, the flying kangaroo posted a 9% profit margin—one point better than in the same period last year. And with that, Qantas is working on its fourth consecutive calendar year with double-digit margins. Despite more exposure to rising fuel prices, Air New Zealand still mostly kept pace. Virgin Australia, meanwhile, continues to miss out on Australasia’s booming airline sector. Scandinavia’s SAS appears to be having a great summer, which of course it will need if it’s going to have merely a good year. In India, Jet Airways is facing severe pressure. Qatar Airways is enduring a blockade that’s now more than a year old. Lastly, we explore this question: Have airline loyalty programs peaked?

Revenues and margins improved for Cathay Pacific in the first half of 2018, and the second half is usually better for Cathay. Still, will it be enough to lift the Hong Kong carrier out of its malaise? Fuel costs dented Singapore Airlines’ Q2 results, which were similarly mediocre to Cathay’s. VietJet’s soaring growth is helping it control unit costs and deliver solid profits. Also delivering solid profits was Cebu Pacific, however, those profits came amid a huge margin decline. Turkish Airlines is now existing amid a currency crisis, but it’s weathering it surprisingly well. Ethiopian Airlines is making money and has plans to make more. Icelandair is feeling the chill of too much capacity in Reykjavik. And JetBlue is charting new territory in charging for bags.

Thanks to rising costs, it’s no surprise profits have declined at Air Canada and WestJet. But rising costs alone don’t explain how these Canadian carriers continue to consistently underperform their U.S. peers by a noticeable margin. Meanwhile in Europe, carriers like Ryanair, Aer Lingus, British Airways, Lufthansa, Swiss and others are putting up numbers very much like their U.S. counterparts. Unfortunately, Air France is not one of those carriers, as that airline nearly lost money in the usually healthy second quarter, and that reduced the Air France/KLM group result to a scant 5% operating profit margin. Meanwhile, the Lufthansa group is making great strides, posting an 11% second-quarter margin, which is quite comparable to IAG’s 13.5%.

So far all U.S. carriers have reported shrinking year-over-year profits in the second quarter. But nobody’s margin decline was worse than that of JetBlue, which posted a 9% operating margin, down from 19% the year before. Allegiant had the best margin of the bunch, narrowly besting Southwest and Delta, both of which had shining quarters. American’s quarter was marred by its mishandling of basic economy, plus it wasn’t helped by its domestic-heavy network. Alaska has been lacking the right product to take advantage of booming premium demand in the transcon market. Spirit, while still quite profitable, is learning to live in a world where big carriers now pay attention to it. Hawaiian couldn’t have been happy with its nine-point margin decline. Speaking of happy—that might describe United, which showed surprising resilience in Q2.

Rising costs aren’t keeping Delta down. Delta overcame a 33% year-over-year increase in fuel costs to produce more than $1.2b in net profits (excluding special items) and a handsome 16% quarterly operating margin. In fact, despite the increased costs, Delta almost matched last year’s 18% Q2 margin. And the airline thinks it can return to improving margins by year’s end. Meanwhile, it’s hard to imagine Norwegian’s results being more different. Norwegian chalked up a negative 3% operating profit margin, a ghastly result for the usually strong second quarter. JetBlue ordered CS300s—except now we’re calling them A220-300s. That deal surely made Airbus and its new partner Bombardier happy. In turn, Boeing is partnering with Embraer. What does this shakeup to the aircraft manufacturer space mean?

Frontier Airlines has had one of the most topsy-turvy histories of any airline, and its first-quarter earnings report was no exception. Sporting a wild animal on each tail, the airline has been soaring in recent years. In 2017, Frontier had the seventh best operating profit margin in the world. But something happened in Q1 2018, as its margin was cut in half. Meanwhile, Air France/KLM searches for a CEO. Also, how important is it that United Airlines—by a wide margin—gets more revenue from Asia than Delta and American? Norwegian continues to lose money and remains, for the moment, without a buyer to bail it out. But at least Norwegian isn’t Fastjet, which notched a negative 55% operating profit margin in 2017.