Airline Weekly Lounge

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?

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!