Airline Weekly Lounge

The merger of Alaska Airlines and Virgin American is now well under way and begs the question: How is the integration taking shape? In a word: rosy. Of course, Alaska will be sacrificing the Virgin brand. But Alaska’s management says it’s finding more synergies on both the cost and revenue sides than expected. One of the more interesting moves is that Alaska won’t be joining the Big Three and JetBlue in providing a lie-flat product on transcontinental routes. In other news, Norwegian is adding two new routes out of London Gatwick. While Virgin Atlantic reported a third consecutive annual profit in 2016, that streak might end in 2017. Lastly, Cathay Pacific reported its first annual loss since 2008 and there are, unfortunately, a few reasons that make a turnaround tough.

When is a $2 billion annual profit disappointing? Answer: When you’re a giant airline group like Lufthansa, and $2 billion amounts to a mere 5% operating margin—and that lackluster result comes despite fuel costs dropping 16% year over year. But there are a few signs of hope. Meanwhile, American Airlines is purchasing a $200-million stake in China Southern. Frontier Airlines and Silver Airways are ending their short-lived Cuba service. And LATAM, still recovering from Brazil’s economic and currency collapse, is fighting two other battles—a cargo malaise and increased competition. Nonetheless, South America’s largest airline did enjoy improved annual profits year over year.

Once again we consider the ongoing demand problems in Turkey. The numbers are in, and they’re not pretty. Turkish Airlines posted a $300 million loss in 2016. Pegasus Airlines chipped another $50 million loss, a comparably bad number. But there are signs of hope. One of those signs could be the recent decline in oil prices. If this is the beginning of a downward trend, many—but not all—airlines around the world will rejoice, especially in the U.S. Pop quiz: What do the giant, mature airports Amsterdam and Seoul Inchon have in common? Answer: They’re both growing relatively fast. Why? Also, what does the upgauging trend mean for the A319-NEO and B737-MAX? And we close the show with a look at the weather—seriously. Click here to subscribe to podcast. –Jason Cottrell Subscribe to Podcast  | Listen Whenever: iTunes | Stitcher

With its fourth quarter results and a standout 2016, IAG, the airline group that includes British Airways, Iberia, Aer Lingus and Vueling, continues to separate itself from the other two members of Europe’s Big Three airline groups. And leading the way was IAG’s still rather new acquisition, Aer Lingus, which had the highest annual operating profit margin of all the IAG units in 2016. Posting even better numbers was Air New Zealand, which saw record profits for the year. Nearby, Qantas seems to be enjoying a golden age of its own. Meanwhile, there’s nothing golden about a weak peso for Mexican carriers, although Aeromexico clearly is weathering it better than VivaAerobus.

Air France/KLM had some good news in 2016. For one thing, its Transavia unit broke even. Also, KLM made a decent profit. But the story is rather disappointing from there, with the group posting a mere 4% operating margin for the year. Could some positive revenue trends turn 2017 around? Air Canada and WestJet together have become quite a rivalry. Depending on where you put the decimal point, Canada’s two dominant carriers tied in the 2016 profit race as Air Canada closed the gap. Finnair, Virgin Australia and Norwegian all turned in lackluster performances for the fourth quarter and 2016 overall. Meanwhile, Copa, Gol and Azul are all slowly but surely putting their Brazil problems behind them. Click here to subscribe to podcast. –Jason Cottrell Subscribe to Podcast  | Listen Whenever: iTunes | Stitcher

Europe certainly has its share of struggling airlines, but Ryanair, easyJet and Wizz Air are not among them. And for Ryanair and Wizz, fourth quarter earnings simply topped off a triumphant 2016. (easyJet has yet to report on its fourth quarter.) In the U.S., Spirit’s fourth quarter numbers were great—just not great for Spirit, as the hunter has become the hunted. Meanwhile all those LCCs and ULCCs were bested in 2016 by Alaska Airlines, a carrier that’s never been happier to call Seattle home. And in Asia, South Korea’s two biggest carriers—Korean Air and Asiana—are persevering despite a slowing home economy and competition from Japanese and Chinese carriers.

Japan Airlines is enjoying a charmed life right now. How good is it? In 2016, JAL was the most profitable of the large global airlines outside the U.S. All Nippon Airlines is also doing pretty well. ANA has narrowed the gap between it and JAL, which is still benefiting from the retrenching that followed its 2010 bankruptcy. But both are facing revenue pressures. Meanwhile, Avianca chose United as its dance partner in the western hemisphere. What that dance will look like still remains to be seen. Lufthansa is feeling good about its longhaul premium economy product. Indigo saw profit margins cut in half but still has plenty to smile about. And Jet Airways? Well, at least they have a profit margin. And lastly, Allegiant posted a ho-hum 20% margin in the fourth quarter. That was down considerably from the year before but still will likely end up being among the best in the world.

While the revenue story has improved for U.S. carriers, the cost story has become a headwind. Still, as American Airlines demonstrated in its fourth quarter results, costs are a headwind that can be overcome. With that, AA joined Delta and United in delivering solid fourth quarters and downright strong full-year results. And things only got better from there. Southwest delivered a higher profit margin than the Big Three despite new labor contracts and higher fuel costs. JetBlue continues to ride its strong Boston base and healthy transcontinental markets to spectacular heights. And then there’s Hawaiian Airlines—the only carrier (of those reporting so far) who didn’t see costs rise faster than revenues. It’s all smiles so far in the U.S. earnings season, but Hawaiian’s smile might be brightest.

By just a tenth of a percent, United’s fourth quarter operating profit margin bested that of Delta—and likely that of American, which reports later—making United, for the quarter, No.1 among the Big Three U.S. carriers. So, has the natural order shifted from United being a perennial laggard to leader? We’ll see. But, make no mistake, United is performing well. Not performing well is Cathay Pacific, an airline that has in recent years been stymied by intense competition. Some job cuts notwithstanding, investors are waiting for a comprehensive turnaround plan at Cathay. Meanwhile, we introduce a new segment and pose some interesting questions such as: Why is Emirates flying Athens-Newark? Will JetBlue catch Spirit in terms of profitability? And if the U.K. follows through with a so-called “hard Brexit,” will Ryanair abandon its domestic service there?

Rising labor costs at Delta dented its fourth quarter results significantly—but not enough to prevent the airline from posting a terrific profit for 2016. And the big story within the story is that revenues have stopped falling. All in all, Delta remains bullish, which is a nice way to kick off earnings season. Also in this episode, we consider a rumored Etihad-Lufthansa merger. One airline that certainly doesn’t need a merger is Volaris, but how worried should it be about U.S.-Mexico relations? And in India, Go Air, Indigo and now SpiceJet all have placed fairly big aircraft orders. Are they too ambitious? And is Jet Airways, which doesn’t have as many aircraft on order, being too cautious?