Airline Weekly Lounge

United Airlines President Scott Kirby issued a warning to potential new-entrant low-cost-carriers, including JetBlue founder David Neeleman’s Moxie: United will match your fares. Kirby, speaking on stage at Skift Forum Asia in Singapore in June, said he’s heard of about 50 airlines over the years that were supposed to be created but Virgin America, founded in 2004, was the last startup airline in the United States that actually became a reality. The low-cost airline model is predicated on the competition not matching prices, Kirby said, and unlike the situation over the last 30 years, United now has the capabilities with segmentation, including basic economy, to go tit-for-tat with the new entrants. Listen for the full interview with Skift Editor-in-Chief Tom Lowry. 

The latest edition of the Skift Airline Weekly Lounge contains an exclusive interview with Aireen Omar, AirAsia’s deputy CEO. There was no backtracking from AirAsia in its plan to branch out into selling other airlines on its platform, financial services, and more experiences. Asked at Skift Forum Asia in Singapore in May 2019 if becoming the Amazon of travel is overly ambitious, Aireen Omar, AirAsia’s deputy CEO, said it’s “ambitious, but I think it’s very doable.” Another AirAsia executive recently made the declaration that the airline could become the “Amazon of travel.” In this discussion, interviewer and Skift Airline Weekly Editor Madhu Unnikrishnan gets to the core of the boast.

The Skift Airline Weekly Lounge returns with an exclusive interview with British Airways CEO Alex Cruz. Since taking over as CEO and chairman of British Airways in 2016, Cruz has endured his fair share of criticism over some of the changes he made to the airline, particularly with regards to food on short-haul flights. But Cruz, speaking at Skift Forum Europe in London on April 30, 2019, said the changes were necessary in turning the carrier into a more customer-focused airline as well as one that is much more financially stable. “When we started this new phase of British Airways, there were many decisions to be taken with regards to the direction of the company, and some of those decisions that were made early on were indeed probably less welcome than others,” Cruz said.  

With a new year underway, we’re thinking about what will happen in 2019—always a dicey proposition. In this episode, we consider the prospects of airlines around the world. Some, like Aeroflot and Turkish Airlines, are facing huge opportunities. Others, like Jet Airways and South African Airlines, are facing grave challenges. Will the International Airlines Group make another offer for Norwegian? Will Alitalia find a partner? Will Lion Air cancel plane orders? Will Emirates and Etihad merge? In short, what will 2019 bring? In this episode, we reluctantly offer some predictions.

After pummeling each other for years, Icelandair and Wow Air agreed to a truce in the form of a merger. But the merger fell through. Now Wow Air may be finding comfort with serial airline investor Indigo Partners. What will that mean for both airlines? Aeroflot apparently finds comfort in being big. In fact, the Russian airline is looking to nearly double its fleet size in just five years. Meanwhile, Mexico’s airline industry nervously watches as it appears more and more likely that Mexico City’s one-third-built airport won’t be seen to fruition. What did Aegean do this summer? For one thing, it posted a Ryanair-like profit margin. Lastly, U.S. airlines are getting bullish about the fourth quarter.

More and more people are traveling by air in Mexico, but Mexico’s airlines continue to struggle. All four of its main carriers had a disappointing 3rd quarter, which is historically peak season. VivaAerobus at least made a little money. Aeroméxico and Volaris barely broke even. And, Interjet’s numbers were simply alarming. Fortunately, oil prices have dropped so much that the outlook for airlines everywhere has changed. In the U.K., easyJet posted earnings that were strong but not nearly as good as LCC rivals Ryanair and Wizz Air. Is that a problem? LATAM is navigating economic headwinds well. AirAsia X seems to be proving that “low-cost longhaul” remains a difficult business model. Lastly, Flybe’s ongoing struggles raise this question for some: Is an acquisition in order?

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?