Airline Weekly Lounge

Emirates last week posted an operating margin nearing 10% for its fiscal year. That’s significantly better than the 7% the year before and a whole lot better than the 5%, 4%, and 3% posted in the years prior to that. Is the airline permanently out of its funk? Turkish Airlines meanwhile is struggling in the face of serious revenue declines brought on by fears of terrorism, among other things. To make matters worse, costs are rising too, which is particularly nasty when combined with low revenues. Still, Turkish remains undeterred if its 19% capacity growth rate is any indication. By the way, is such growth sustainable? Plus we check in on two very sick airlines, Gol and Air Berlin. And Frontier posted a mediocre Q4 in what was otherwise a terrific year.

Is growing Eurowings a safe bet? Lufthansa’s low-cost unit had a rough first quarter and that might not be the last. Eurowings is growing like gangbusters, propelling itself into the teeth of a crowded airline market and doing so with an unproven low-cost longhaul model. Lufthansa’s competitor Air France/KLM meanwhile posted a first-quarter loss, pulled down by its own low-cost unit Transavia. Perhaps a new CEO can turn things around. Meanwhile, JetBlue presumably wants nothing to turn around as it posted a 22% operating margin in Q1, which was once considered a weak quarter in the U.S. airline industry. Nonetheless, JetBlue is reportedly considering Bombardier’s CSeries. Would it be a good fit?

Delta’s new CEO Ed Bastian thinks it’s great that the competition is trying to catch up to Delta in terms of operational performance. He also says, without hesitation, that the competition—namely American Airlines—won’t catch his airline and makes the case in this 30-minute interview. The interview covers a lot of ground and touches on Delta’s fleet philosophy, its network and its joint ventures around the world. Other topics include online travel agencies, fuel hedging and the SkyMiles program. We even broach what some have called Delta’s arrogance, or as Bastian refers to it, the airline’s “maverick style.” And we learn the real reason Korean Air and Delta haven’t formed a joint venture—Bastian’s response was something we’ve never heard before.

While Delta, American and United have all seen both revenues and costs dropping, Southwest and Alaska just experienced the opposite in the first quarter. In fact, Southwest and Alaska rode a wave of rising revenues (say that three times fast) and rising costs to fantastic profits—and they did it in the normally sluggish Q1, no less. Speaking of American, how serious is the airline’s declining revenue, which is getting dinged by Southwest in Dallas and bruised by the economy in Brazil? Meanwhile, United is getting roughed up in Asia and simply hammered in Houston. Continuing to underperform its peers, United is making a change to its board. Will it help? And we raise a mai tai to Hawaiian Airlines, which posted a breezy Q1 in its own right.

Here’s a simple recipe for success: Make all the right moves in all the right places. Whether overseas or in the U.S., Delta has managed to avoid the pockets of pain being experienced by its U.S. peers, who have even been successful in their own right. Also, if one of the most successful airline in the world places a CSeries order, will it change the momentum of that aircraft program? TAP Portugal lost money in 2015—a big deal with fuel prices so low—and it’s impacting other airlines. One of those is Azul, a big investor in TAP, and Azul, being a Brazilian carrier, doesn’t need another headache right now. And through the miracle medium that is the lightning round, we look at the 2015 revenues and profitability of airlines around the world.

Is China’s slowing economy taking its toll on the country’s Big Three carriers? So far Air China, China Eastern and China Southern have held up well and posted a rather good 2015. But the fourth quarter of 2015 showed some signs of deterioration—even by the standards of this off-peak quarter. In the U.S., Alaska Airlines and Virgin America are, unlike a lot of mergers in the past, merging from a position of strength. But is that a good thing? Delta’s upcoming first quarter earnings report will surely be terrific and begs the question: Does the U.S. airline industry have an off-peak quarter anymore? Air New Zealand has some shares of Virgin Australia they want to sell you, Air France/KLM is looking for a new CEO, and we finish the show with our first lightning round of 2016.

Alaska Airlines clearly wants to be the dominant carrier on the West Coast, and if its purchase of Virgin America goes through, it will have four focus cities—Los Angeles, San Francisco, Portland and Seattle—all clustered on the Pacific. Such a network might look very different from the network of United, Delta, or American, but that doesn’t mean it won’t work, and it actually resembles the networks of a couple of other successful carriers. All in all, in this episode, we give our blessing to the Alaska-Virgin marriage, even if the wedding will cost a fortune. Plus, we check in on Brazil’s Gol, an airline that reported some frightful losses. And lastly, little Cebu Pacific did it again, serving up stellar profits in Q4 and making 2015 a stellar year.

If the U.S. airline market were to see even more consolidation, what kind of effect would it have? That’s one question we consider in a discussion about the possible acquisition of Virgin America by another airline. We also talk about possible consolidation in Europe, where it’s a more urgent need. There are reasonable airline pairings to be made there, including IAG tying up with Finnair. But will it ever happen? Virgin Atlantic, meanwhile, had a decent 2015. Will the profits continue in 2016 with Norwegian breathing down its neck? And lastly, Israel’s El Al had one of its best years ever despite a host of challenges—but Israel’s open skies agreement, which ushered in more competition, doesn’t seem to be a challenge at all.

Attacks at airports are rare, and Tuesday’s bombing at Brussels Airport will no doubt have repercussions around the world. Which airlines will see the worst financial impact from the attacks? Brussels Airlines, not surprisingly, is most vulnerable. Unfortunately, the airline is not starting from a position of strength. Its 2015 earnings report released last week depicts an improving airline, but not quite a healthy one. Lufthansa is another airline likely to see revenues suffer in the wake of the attacks. And although the Lufthansa group is certainly a strong company, its fourth quarter earnings report was a disappointment. Lastly, will the Brussels bombings usher in another wave of security measures at airports around the world?

It’s good to be a Gulf carrier—Gulf carriers are well positioned to connect the whole world. But it might be better to be a near-the-Gulf carrier like Turkish Airlines. Turkish offers a blend of service as an intercontinental carrier and also as a gateway to an entire continent. We discuss Turkish’s fleet, revenue concerns, growth plans and what kind of threat Pegasus poses. Cathay Pacific had a rather ordinary fourth quarter, but the Hong Kong carrier was likely happy to get that. In South America, LATAM might be thinking the same thing despite very different circumstances. Ethiopian Airlines had a terrific quarter, growing revenues and notching a 10% operating margin. And Air New Zealand and United announced a joint venture just days after we discussed it on the Lounge. Coincidence?