Skift Airline Weekly Lounge

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.

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.

Earnings season is in full swing and really there’s too much to talk about within the average commute or treadmill run. So we’ll talk fast. And in this episode, our fast talk starts with American Airlines’ billion-dollar quarter and, naturally, how that compares to rivals Delta and United. Speaking of which, United posted a second-quarter operating margin that was competitive with Delta and AA (although it didn’t beat them.) Could United at last be truly closing in on its peers? Meanwhile, Southwest and Alaska Airlines posted margins that made the legacy carriers look like a bunch of pikers and underscored that it’s been a golden age for U.S. airlines. Ah, but have the U.S. airlines peaked? And lastly, we revisit our recent conversation about Azul, as the airline reached out to us with some interesting and valuable info.

Delta Airlines gets a lot of play in this episode, but it’s not because we’re obsessed with Delta. Rather, there are two practical reasons: First, Delta is the the earliest of the big airlines to report. Secondly, with Delta’s global reach, you can learn a lot about the whole industry from this airline. What did we learn? Revenues continue dropping, but so did costs. Delta remains bullish on its West Coast and transatlantic markets. And, its operational performance continues to dazzle. Less dazzling was Norwegian, which posted an 8% operating margin in Q2. But 8% doesn’t inspire much confidence that the low-cost longhaul carrier will have a great year. And Qatar Airways, for the first time, reported its full-year earnings. We try to unpack the Gulf carrier’s somewhat complicated report.

Brazil’s Azul is no doubt an innovative airline. But has it become too clever by half with its low-cost longhaul venture? A couple years into the experiment, we discuss it in this episode. Meanwhile, its competitor Gol is asking for relief from its bondholders. When the economy recovers, what are the prospects for both of these airlines? Further north, a rumor has been floated that Delta is interested in buying a piece of WestJet. Etihad might be wishing it never bought into Alitalia. But everybody among U.S. carriers wants a piece of Havana, and the U.S. DOT only had so much to dole out. Malaysia Airlines has a new CEO. And we take a look ahead at the U.S. earnings reports, which will start hitting the streets this week.

Turkish Airlines and its cross-town rival Pegasus were seeing trouble in their business before the attack on Istanbul’s Ataturk International Airport. In this episode we try to assess—or at least speculate—how the attack will further hurt the two airlines’ prospects. Also, could Turkish’s business model, which relies heavily on sixth-freedom traffic, be especially vulnerable here? But this episode isn’t all glum. In fact, we discuss new routes announced by Allegiant—currently the most profitable airline on Earth as measured by operating margin—that are a pretty big departure from its business model. Will they work? And lastly, as we’ve crossed the sixth-month mark for the year, we take a look back at the half-year-in-review. In this segment, we cover a lot of ground including the Big Three Gulf carriers, Transavia, Virgin Australia, Azul and Eurowings, to name a few.