Airline Weekly Lounge Podcast

Things haven’t gotten better in Mexico. Although Aeroméxico is at least coping better than its domestic competitors, all of which posted negative first-quarter margins in the double-digits. To make matters worse, construction of Mexico City’s much-needed new airport might be suspended as soon as July. North of the border, Delta and Southwest are seeing more cost pressures in the second quarter. Lastly, America is getting a new airline called Moxy. Adding to the excitement is that the man behind the project, David Neeleman, is known for inventive business models such as JetBlue and Brazil’s Azul. Sure enough, from what we know, Moxy appears to have some unique qualities.

Despite a 29% year-over-year increase to its labor costs, Ryanair still posted a positive profit margin in the first quarter. Ryan’s eastern European counterpart, Wizz Air, meanwhile faced an even more daunting 43% rise in labor costs and handled it with equal aplomb. Scandinavian Airlines is plodding along, but so are a lot of other legacy carriers in Europe. For the moment, that’s okay. Doing much less than okay is El Al, an airline suffering a big loss in its first quarter despite Tel Aviv enjoying terrific growth in tourism. In the U.S., Delta and United say they don’t fear high oil prices or low-cost longhaul carriers. Should they? Lastly, airBaltic looks for a suitor, and Aeroflot takes a step backward.

For the moment, WestJet is the more profitable carrier. But in recent years, Air Canada has closed the gap and, in the first quarter of 2018, we see signs that Air Canada—after years of giving chase—might overtake its long-dominant rival. Emirates appears to be emerging from its malaise, but can it return to its former glory? AirFrance/KLM continues to struggle with its unions. Lufthansa had its best first quarter in a decade. And IAG, the airline group that includes British Airways, Iberia, Vueling, Aer Lingus and Level, continues to dazzle. However, IAG’s brilliance hasn’t proven alluring enough to capture more than 5% of Norwegian.

Revenues for U.S. carriers remained terrifically healthy in the first quarter, and everybody made money. But rising labor and fuel costs generally shrunk year-over-year profit margins. United, which continues to trail Delta and American in profitability, did a pretty good job of preserving its margin. Profits slid a bit more at American, but it was especially buoyant in Latin America, where AA is the leading U.S. carrier. One airline that saw rather grisly margin deterioration was Alaska as fuel, labor and maintenance cost increases severely outpaced revenues. JetBlue and Spirit both did okay, but one was happier than the other. Southwest and Hawaiian posted handsome 12% margins in the off-peak quarter. Meanwhile, Allegiant was in a class by itself, posting a 19% first-quarter profit margin.

For a second straight year, Delta’s operating profit margin has fallen year-over-year in the first quarter. The reason for the decline, once again, is rising costs. The good news: Rising revenues—from nearly every corner of Delta’s network—propelled the airline to a solid 8% operating profit margin. One of the rising costs is, of course, fuel. Are fuel prices putting a damper on earnings overall? IAG seems interested in expanding its empire, having purchased a small stake in Norwegian and considering a full takeover. Lion Air, meanwhile, is purchasing planes… lots and lots of planes. In the U.S., Allegiant came under fire over safety concerns. Lastly, Frontier is adding 69 routes this month alone.

Numbers were put to the misery South African Airways has been experiencing when, last month, the airline finally reported earnings for its fiscal year ending in March 2017. Those numbers included a gut-wrenching negative 9% operating profit margin on the year. “Crisis” isn’t too strong of a word. What is SAA doing to turn things around? Elsewhere, it’s steady-as-she-goes for Cebu Pacific, which again is sitting among the world’s profit leaders. The Indian government has solicited bids for a 76% stake in Air India. Any taker would get the surprisingly-profitable Air India Express but would also have to assume a considerable amount of debt. Plus, the comeback continues at Kenya Airways. And lastly, will Berlin’s new airport ever open?

Air France/KLM and Lufthansa have a lot in common, including the fact that both distantly trail IAG (the parent company of British Airways, Aer Lingus, Iberia and Vueling) in terms of profitability among Europe’s Big Three airline groups. What does IAG have that the others don’t? Meanwhile, Virgin Atlantic turned in a profitless 2017 partly because of hurricanes. The fiesta has fizzled in Mexico right now as overcapacity, a weak peso and political concerns made it a miserable 2017 for the airlines there. Aeromexico can at least chase money overseas. Volaris has not been so fortunate. Hopefully, Volaris can make a comeback like Copa and Turkish Airlines. Both carriers have gone from tears to cheers in recent years.

Life is good in Australasia—especially if you’re Qantas or Air New Zealand. Both carriers are enjoying a bit of a golden age that stems from good management and some macro tailwinds. Meanwhile, Virgin Australia, seemingly unable to catch those tailwinds, drifted toward a disheartening 2% operating profit margin in 2017. Scandinavia’s SAS, meanwhile, had a negative margin that really wasn’t disheartening, because it was a small loss (-3%) and came during the airline’s always-difficult fourth quarter. Avianca managed to profit despite a painful pilot strike. And finally, Seth Kaplan caught up with Qatar Airways Vice President of the Americas Günter Saurwein to chat about the new airline's business-class product and much more.

Not only does Ryanair keep on rolling, it seems to be gaining speed. Its full-year 2017 operating profit margin will almost certainly be the world’s best after every airline has reported. Ryan-like Wizz Air is also among the world’s profit leaders despite paying a lot more for fuel than last year. Korean Air and Asiana saw their China problem solved in Q4, and both received a lift from cargo and won appreciation. Air Canada and WestJet are trying just about everything to compete against each other, and it’s working—for the moment. Spirit is delivering solid profits, although they aren’t Spirit-like. Meanwhile, fellow Scandinavian carriers Norwegian and Finnair likely have divergent views on 2017—one was glad to see it go, while the other likely wished it would never end.

With the bulk of U.S. airlines having now reported fourth quarter earnings, what has unfolded is largely a success story. 2017 wasn’t as good as 2015 or 2016, but it was generally good. Gone are the exhilarating margins of 25% and 27%. Instead we’re seeing healthy margins of 17% and 19%. Delta continues to set the pace for the Big Three. United continues to trail its peers, and that has led to some head-turning growth plans. American saw revenues surge in Dallas, Phoenix and its transatlantic market. Southwest overcame a fuel hedge reckoning to deliver strong results. Alaska appears to be coming down to Earth. JetBlue, which saw some of its Caribbean markets decimated by hurricanes, nonetheless, had a good quarter. Allegiant delivered disappointing results by its standards, but the airline still bested all U.S. carriers that have reported in Q4. And while it continues to enjoy sunny results, Hawaiian may be facing more competition in 2018.