Airline Weekly Lounge

SAS has tried and tried to turn itself around, but to no avail—at least judging by its recent earnings report. In fact, on profits alone, the airline’s third quarter was a step backward. What’s going wrong, and can it be fixed? Meanwhile, Frontier Airlines posted a tremendous profit in the third quarter, with an operating margin among the best of the best. And let’s consider JetBlue for a moment. Here’s an airline that for two years has been ascendant, but unlike Frontier, they aren’t pursuing a tried-and-true business model. At times JetBlue looks like a legacy carrier with a lie-flat bed, and at other times it looks like an LCC, densifying their cabin and chasing ancillaries. Is it smart to do both? Also in this episode: Delta, Transasia, Asiana, Korean Air, Spirit, Allegiant and more.

Call it our year-in-preview show. In this first episode of 2017, we look at some of the more interesting stories that are ushering in the airline industry’s new year. Of course, 2017 doesn’t promise answers to all our questions. But we can hope, can’t we? Some of those questions: Leisure demand was one of the defining stories of 2016—will the trend continue? Is the burgeoning low-cost longhaul model for real? What about premium travel? Will Airbus and Boeing see a rebound in aircraft orders? Will the CSeries continue the momentum it saw in 2016? Will Singapore Airlines finally get out of its rut? Where will Qantas fly its B787-900s? Will Ryanair or easyJet interline? Will the Gulf carriers continue to decelerate growth? Will Air Canada continue its aggressive expansion? And in the U.S., have we finally seen a peak in the mighty earnings cycle of 2015/2016?

If anybody needed a reminder that the airline business is an interesting business, they got it last week as Air Berlin announced it will be handing over a big chunk of itself to arch competitor Lufthansa. Will Air Berlin be saved by shrinking itself? Not stopping there, Lufthansa decided it would also become the full owner of Brussels Airlines. Are either of these acquisitions a good thing for Lufthansa? Meanwhile, Air Canada continues to treat the world like it’s a buffet, loading its plate with six new intercontinental routes last week. One thing fueling Air Canada’s aggressiveness is the B787, which, by the way, just crossed the five-year anniversary of its first delivery. Delta has set its sights on Boston, and that could spell trouble for JetBlue. And IAG has further deepened its alliance with Qatar Airways.

South African Airways finally published its fiscal year results for the 12 months ending March 2015. Yes, that’s 2015. And the result—a $442m net loss—wasn’t worth the wait. But with the Ebola scare and high oil prices now in the past, how is the airline doing today? The short answer: We’re not too encouraged. But its competitor Comair is doing pretty well. Kenya Airways seems to be on the mend. Unfortunately, Fastjet is skidding. Meanwhile in Asia, Singapore Airlines reported some ominous load factors and Cathay Pacific continues to endure severe revenue erosion. Not nearly as severe, but still surprisingly bad, is the revenue situation in the transatlantic market, where that cash cow is now wobbling. And in the U.S., two very successful carriers, Spirit and Frontier, face a surprisingly long list of challenges.

Because Frontier Airlines is a non-publicly-traded carrier (which, for one thing, means it doesn’t have earnings calls), it’s all the more interesting to interview the airline's CEO Barry Biffle. Of course, we asked about a possible merger with Spirit or a possible IPO. Not surprisingly, we didn’t get too far there, but Biffle did open up on some interesting topics, such as Frontier’s successful second quarter, unit revenue pressures and what it takes to grow capacity 20% per year. We talked fleet plans, engines, operations, network philosophy, the labor situation and Frontier's soon-to-arrive Havana service. Also, is there enough elbow room in the U.S. for three growing ULCCs–Frontier, Spirit and Allegiant? And how big of a threat do legacy carriers pose as they segment their seats to offer no-frills tickets at a no-frills price? No stone was left unturned. Come with us and explore Frontier!

Despite a major oil bust and the weakening currency that followed, Canada’s airlines continue to plod along. Make no mistake, macro issues are leaving a mark on the earnings reports of Air Canada and WestJet, but the story is more about resiliency than infirmity. Meanwhile, a similar story—one that also includes an oil bust, a weak currency and nonetheless profitable airlines—is playing out in Mexico, where its four airlines of size (Aeroméxico, Volaris, Interjet and VivaAerobus) posted mixed results. We finish with three other stories of survival. Avianca is surviving exposure to the Brazilian and Venezuelan economies. Aeroflot is surviving its country’s own oil and currency bust. And Israel’s El Al is surviving competitive threats from Turkish Airlines, Aeroflot and Hainan Airlines.

Qantas reported a best-ever annual result. Not bad for a company that’s 95 years old. And not bad for a company that was barely breaking even just a few years ago. Virgin Australia, on the other hand, with a 2% operating margin, isn’t breaking any records—well, any records you’d want to break, that is. And then across the Tasman Sea is Air New Zealand… way out there… all alone… with nothing to keep it company except a whopping 15% operating margin. From there, things take a bad turn as we check in on a number of troubled carriers in the world. Turkish Airlines, Pegasus, Gol and Nok Air all had tales of woe in the second quarter (although Gol’s tale of woe at least was a lot better than it was a year ago). Finnair is also doing better, but how good is that? And lastly, will Scott Kirby’s arrival at United give the airline enough star power to finally deliver on its vaunted potential?

Korean carriers Asiana and Korean Air are being squeezed between rapid growth from Chinese carriers and new capacity coming out of Japan. But nonetheless, the two Korean carriers posted some of the most improved earnings among widebody carriers worldwide. Japan Airlines and All Nippon, meanwhile, both regressed in their year-over-year earnings despite a strengthening yen and lower fuel costs. Dismal demand is the culprit. In South America, LATAM is wrestling with the economic breakdown in Brazil as well as pressures to the global cargo market. Jet Airways posted its fifth consecutive profitable quarter. Cebu Pacific continues to take the world by storm. Air Berlin continues to struggle. And Garuda posted one of the worst declines in year-over-year Q2 profits. And lastly, is Delta making the right bet with its newly unveiled Delta One suite?

One of the bright spots in the Lufthansa Group’s second quarter earnings report was its Swiss unit, which bested Lufthansa mainline, the Austrian unit and even the healthy maintenance unit. Meanwhile, Eurowings was the worst performing airline of the group, with a negative one percent margin—but that was a great improvement from the first quarter. All in all, it added up to Lufthansa underperforming IAG but outperforming Air France/KLM, a scenario that’s become a recurring storyline. In Canada, the storyline seems to be changing as Air Canada outperformed WestJet. Icelandair had one of its best second quarters ever. Panama’s Copa continues to weather economic challenges and this time with hopeful signs that the worst is behind them. Indigo is cruising with a 15% operating margin. And, lastly, we discuss Delta’s Monday malfunction.

The second quarter year-over-year profit margin improved at Air France/KLM, but only because of a huge windfall from fuel. In fact, the real story is that the airline group is largely missing out on profits that normally would come from such a lift from fuel. Another airline group, IAG (the parent company of British Airways, Iberia, Vueling and Aer Lingus), did better despite the Brexit vote. But IAG’s results were nothing like Ryanair, who actually lowered unit costs even after excluding fuel, which lowered costs further still. In the U.S., JetBlue continued the profit parade, but it did so rather modestly compared to the giant profits of its peers. Spirit is still cruising along, but conditions in the U.S. now leave the LCC slightly outside its comfort zone. It shows when you compare its results to, say, Southwest. And then there’s Allegiant, who at the moment is certainly comfortable towering over everyone.