Skift Airline Weekly Lounge

After losing $300m in 2016 as a result of some horrific exposure to terrorism and political tumult, things are looking up for Turkish Airlines. In its second quarter, the airline posted a 5% operating profit margin and with that likely will turn a profit for the full calendar year. How did Turkish do it? Other airlines facing some political duress include Korean Air and Asiana. South Korea’s two major carriers are caught in a crossfire of political tension among the U.S., China and North Korea. Nonetheless, both managed to grow second-quarter profits year over year. In Europe, Lufthansa, IAG, and Air France/KLM are all enjoying what seems to be a rising tide. But none of them is enjoying it as much as Ryanair.

United is still trailing its peers, but can it catch up? That’s the question we weigh first in this episode. In the second quarter, American Airlines bested United with a 16% operating margin versus United’s 14%. One thing that went right for AA: Latin America. One thing that went wrong for United: Asia. Meanwhile, little is going wrong for Alaska Airlines, which is enjoying life in all the right markets at the right time. JetBlue’s transcontinental routes, which used to be a vulnerability, are now making a mint for the airline. JetBlue even beat mighty Spirit by a whisker. Allegiant did fine despite an eye-popping drop in its profit margin. And, lastly Southwest was again a profit leader with its very conservative approach.

The airline is on such a roll that not even a grouchy demagogue can stop Delta. The Atlanta-based carrier posted a better second quarter than it did last year, and it leaves Delta with at least a slim shot of having its best year ever. Low fuel prices were a defining factor for the industry during the quarter, and Delta took full advantage. But it saw success on the revenue side too. Not all airlines were so lucky, including Norwegian, which posted a slightly negative operating margin during a quarter it really needs to be making money—a lot of money. Things are even more dire at South African Airways, although SAA has one thing Norwegian doesn’t have: a state sponsor. And Air France pilots agreed to allow the airline to create a low-cost unit. But is that even a good idea?

Terror attacks… a blockade… Alitalia… The first half of 2017 has been interesting—even against the airline industry’s high standard in that department. In just a 30-minute episode we attempt to unpack the first half of 2017. Despite a lot of excitement, the most significant story of the year—low oil prices—is really rather mundane, but still a very big deal. For instance, it means the U.S. earnings bonanza might be more sustainable. Europe is enjoying one of its better years in recent memory. Gulf carriers are cutting capacity, which might (or might not) be the start of a seismic change in the industry. Kenya Airways is back on its feet, while South African Airways is on it back. New entrants are riding an economic resurgence in South America. Lion Air, VietJet and Air Asia are ensuring capacity remains high in the ASEAN region. And that’s all before we get to China, which continues to be the 800-pound panda in the room.

So this is happening: A major international airline faces a blockade. We admit it—this is a new one for us, with little to no history as a guide. Nonetheless, Qatar Airways faces a travel and trade embargo from four nearby countries, which overnight wiped 18 destinations off Qatar’s route map and essentially propped up a legal wall in the airspace to the south and west of Doha. This hardship—and it surely is one, despite management’s defiant swagger—comes at a time when all three major Gulf carriers are enduring a downtrend. Qatar’s newly released 2016 results certainly lacked luster. And how will the blockade affect Emirates and Etihad? Elsewhere, Southwest, while not facing a blockade, is stepping into what appears to be a multi-party knife fight in Fort Lauderdale with the likes of JetBlue, Delta and Spirit. Lastly, with the airshow in Paris underway, we discuss a few aircraft (both real and imagined) including the B797, the B737 MAX-10 and the “A380 Plus.”

Ryanair was one of just three individual airlines in Europe to post an operating profit in the first quarter. The success came not only by way of the airline’s juggernaut of a business model, but also because Ryanair was one of the few to see a year-over-year decline in fuel costs. One European airline had an even better Q1 than Ryanair. British Airways chalked up an 8% operating margin in the historically weak first quarter. Air France/KLM, by its own standards, had a good quarter, in part because of its operational performance. Wizz Air lost a little money, but that’s nothing to worry about as the LCC expects great success this summer. Other items discussed include the Alitalia death watch and whether terrorist attacks in the U.K. will nullify recent traffic gains.

Having just weathered a once-in-a-generation economic crisis, the airlines of South America just enjoyed a smooth first quarter. All the major South American airlines profited, and some even posted margins to brag about. But in Mexico, things were miserable. All four major carriers there lost money in the quarter, and some did so in a ghastly fashion. In fact, Volaris, who’s been a leader of the pack in recent years, is the country’s biggest loser so far in 2017. Meanwhile, Aeromexico managed well under the circumstances. Two culprits for the Mexican malaise were the pummeled peso and Easter hopping over to the second quarter this year. Plus, we talk about the effect new aircraft are having on airlines and how profit sharing is moving the industry from a fixed-cost business at least a few inches closer to a variable-cost industry.

The earnings picture for U.S. carriers in the first quarter was much worse than last year’s Q1—but that doesn’t mean it wasn’t good. It was indeed good—and good is good. Their success comes while wrestling with rising labor and fuel costs, and fickle demand. Allegiant continues to lead, and with confidence surely brimming, it’s buying new planes and slowing growth. American is benefiting from improving conditions in South American and at its Dallas-Fort Worth hub. Despite a big profit decline, Southwest posted a double-digit profit margin. JetBlue had a particularly bad fuel bill. Spirit is enduring an operational mess. And Alaska did just fine despite some bad weather.

Delta saw its operating profit margin slashed severely in the first quarter compared to last year’s Q1. Nonetheless there are plenty of reasons to smile—that’s how good things are at Delta right now—including beating rival United Airlines, which posted a much smaller profit. But the game isn’t over, and United has plenty of valuable cards to play, including improvements to its hub connections and operations. Also, what do the first few earnings reports tell us about the overall U.S. airline market in 2017? Canada's WestJet, meanwhile, has announced plans for its own ultra-low-cost carrier. Is this purely a defensive move? Is it smart? Will they even go through with it? And lastly, Alitalia workers rejected a restructuring plan. Could this mean the end for Italy’s long-time flag carrier? At the very least, it’s a reasonable question.

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?

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.