Skift Airline Weekly Lounge

In the wake of Brexit, will the U.K. be able to remain in the European Common Aviation Area? We don’t know. But we do know that if the U.K. is relegated to some other status, it would obviously impact airlines inside and outside the U.K. In this episode we do a quick survey of airlines such as British Airways, Virgin Atlantic, Flybe, easyJet, Norwegian and Aer Lingus and attempt to size up each of their levels of exposure to Brexit fallout. Frontier Airlines had a terrific first quarter, but not as terrific as its peers—does that matter? Air Mauritius has returned to profitability, but is it sustainable in a region that’s likely to only become more competitive? In Canada, NewLeaf is looking to take flight in July, and WestJet appears to be well aware of it.

Wherever you go in the airline industry, you’re never too far from Singapore Airlines, a carrier that played a primary role in—count ‘em— four of the bigger storylines last week. Singapore is pulling out of Brazil. In India, Singapore will likely be a key beneficiary of the end of the 5/20 rule. Singapore and United oddly seem to be rumbling on a San Francisco route. And Virgin Australia is asking Singapore and other investors for more money. In non-Singaporean news, United Airlines unveiled a plan to generate $3 billion in value. The U.K. is voting on whether to leave the European Union and take its enormous aviation market along with it. We talk about whether Frontier’s day-of-week-specific flying signals a change in approach for the airline. And, lastly, is Alaska really considering keeping the Virgin America brand?

Scandinavia’s SAS posted a pretty rough quarter despite huge tailwinds from its healthy home economy and cheap fuel. Fierce competition, labor concerns and operational problems all share the blame. Is SAS’s long-haul strategy the answer? Or will it take a merger? Meanwhile in Africa, Fastjet is failing fast, posting an ugly 2015 full-year result. Clearly, it is tough to be a start-up airline on a continent rife with bureaucracy and protectionism. The turboprop carrier Flybe achieved a small annual profit, which was a big deal. Will the airline’s resurgence continue? And for U.S. carriers Delta, American, United and JetBlue, unit revenue declines haven’t stopped—there was hope they would’ve by now—and costs have stopped falling. That’s a recipe for margin pressure.

United last week revealed its new premium experience named Polaris, which includes its business class cabin. Ironically, the big design features in the cabin are all about missing the experience, because United wants its passengers to sleep right through it. But in addition to being optimized for sleep, the cabin is also optimized for something else: seat density. Does United have the right formula here? Also, how does Polaris compare to American’s and Delta’s business classes? Low oil prices are good for airlines in general, but are they good for airlines in oil markets? In this episode we do a quick survey of oil markets around the world and how their airlines are faring. Mexico’s Interjet posted a tepid profit in the first quarter. And American Airlines made a huge change to its loyalty program that was, well, yawn inducing.

Ryanair is like a runaway train, in that nothing seems to be able to stop it. Despite unfavorable hedges, terrorism, air traffic control strikes and plenty of economic weakness, the airline still managed to turn a profit during the historically weak first quarter. A 6% operating margin never looked so good. How did Ryanair’s performance compare to that of Wizz Air and easyJet—two airlines that also had solid off-peak quarters? Also, with all three of those airlines growing, when will they start stepping on each other’s toes? Outside Europe, China’s HNA Aviation is purchasing a piece of the struggling Virgin Australia. Is it a smart move? Plus we have an optimistic take on the important, even if not-so-interesting, TSA situation in the U.S.  

Why are we seeing such different results from the two big Korean airlines? Korean Air again overcame systemic challenges to deliver a standout performance in the first quarter. And although the fuel situation certainly helped, the story wasn’t only about fuel. If you don’t believe us, just ask Korean’s chief rival Asiana, who struggled mightily in the same quarter. And although there’s no sign of a joint venture happening between Korean Air and Delta, we discuss it anyway, because that’s how we are. Terrorism is—for good reason—on the minds of airlines around the world right now. It’s wreaking havoc on the balance sheet of Turkey’s Pegasus, which is losing a lot of money. But terrorism might be having the opposite effect for Thai Airways, which has made a brilliant return to profitability. We touch on SpiceJet, a comeback story in its own right. And, of course, we talk about what last week’s horrible crash means for Egyptair in the longer run.

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?

After hitting the floor in 2013, Qantas, has—like a boomerang—come all the way back and more. In fact, the Australian carrier set an annual profit record in 2015. Despite enjoying the same advantages inherent to the Land of Oz right now, Virgin Australia has not found the same level of fortune. But in terms of operating margin, at least, there’s one airline in that corner of the world outpacing both those carriers as Air New Zealand continues to defy gravity and surprise the editors of Airline Weekly. In Bogotá, Avianca appears to be weathering—in pretty good fashion—the economic storm that’s consuming Brazil right now. Aeroflot is doing its own bit of weathering, demonstrating its resiliency in a tough home economy. And lastly, United grapples with some shareholders who want changes to the airline’s board.

IAG, the airline group that includes British Airways, Iberia, Vueling and Aer Lingus, is continuing its run of success—a run that probably has peers such as Air France/KLM and Lufthansa feeling a bit envious. In fact, while those two companies struggle with labor pains and more, IAG just posted its most profitable fourth quarter since BA and Iberia merged in 2011. Speaking of combining airlines, the Aer Lingus acquisition is looking more and more like a smart move. Mexican flag carrier Aeroméxico has a peso problem, but it’s managing it fairly well. And like every other airline in the world (okay, not quite) it’s planning a joint venture with Delta, and history has shown that’s usually a good thing. Meanwhile, Aeroméxico’s competitor Volaris continues flexing its ultra-low-cost muscle. And, of course, we talk about Republic Airways’ unconventional bankruptcy.

What’s it gonna take to fix Air France/KLM? The airline group has a number of problems—from labor inflexibility to a soft French economy—all in a very competitive part of the world. But there are reasons for hope: Gulf carriers could one day slow their growth, Air France/KLM still has the gold standard in joint ventures and, heck, labor concessions are always a possibility. Air Canada improved its 2015 operating margin from 6% to 11%—no easy task in a country that’s seeing economic and currency headwinds. The bad news for Copa Airlines is that its operating margin dropped from 18% to 7%. The good news is that Copa still has a profit margin at all, as it’s an airline heavily exposed to troubled Brazil and Venezuela. And why doesn’t Virgin America want to offer a basic economy seat option?

Finnair, Norwegian and Icelandair all had rather forgettable off-peak fourth quarters, but not because of the chilly weather they are all enduring. Rather, each has a unique set of challenges and opportunities. Finnair’s challenges include exposure to Asia and transatlantic competition, but there’s hope in seat densification. Norwegian is painfully exposed to Norway’s struggling oil industry, but they have a grow-baby-grow strategy. And Icelandair is perhaps doing the most with less. After all, the airline has never had a profitable fourth quarter until 2015. Icelandair has managed to get a good portion of its revenues in strong-currency countries and keep its costs in a weak-currency country. Hint: That’s a good thing. We also consider Spirit’s ticket revenue pressures and how Hawaiian is handling an up-and-down Japanese yen.