Airline Weekly - December 14, 2015
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Airline Weekly - December 14, 2015

Looking Back, Looking Ahead: The top 10 developments in 2015—and what to watch in 2016

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Looking Back, Looking Ahead: The top 10 developments in 2015—and what to watch in 2016

For the industry at large, 2015 was a year to celebrate, one likely to be its best financially, in fact, since 2010. The overwhelming force behind the good results, of course, was the dramatic decline in fuel prices that began in mid-2014 and accelerated throughout 2015. But although collective industry figures will impress, they also mask some deep distress at many airlines, including some that had enjoyed long strings of prosperity.

Airline Weekly’s 10 most noteworthy developments in 2015, in no particular order, as well as a quick glance at what to watch for in 2016:

  1. America was the place to be: For U.S. carriers, 2014 was delightfully profitable. But 2015 was pure ecstasy, highlighted by profit margins of once-unimaginable levels. A good economy and crashing fuel prices made it feel like the go-go late-1990s all over again, but this time with the added benefits of greater scale thanks to consolidation, ancillary revenue buffers thanks to innovation and less capacity growth thanks to moderation. America, however, wasn’t just good for the Americans. Foreign carriers from all corners of the earth saw the U.S. as a refuge from pressures at home, leading to a rash of new flights. In the peak third quarter, for example, non-U.S. carriers increased their U.S. seat capacity by about 11% y/y, according to an Airline Weekly analysis using Diio Mi data. America’s neighbors—i.e., Air Canada (although not WestJet) and Mexico’s top airlines—were especially bullish. But also at the forefront of the charge were carriers from the Arabian Gulf, China, Japan, Latin America plus some northern European carriers like Virgin Atlantic, Aer Lingus and Icelandair. Others like Europe’s Big Three, although not pursuing heavy U.S. growth, reaped their best results there as other regions burned.

  2. Gulf carriers start to sweat: Emirates and its smaller peers, perfectly aligned with the times when fuel prices were high and global trade was booming, ran into unprecedented discomfort in 2015. Cheaper fuel certainly lowered costs, as it lowers costs for all airlines. But it came with a far less agreeable corollary: It sucked wealth out of their home region. At the same time, many of the revenues Gulf carriers earned abroad were suddenly worth a lot less due to currency depreciation. Aircraft continued to stream in, escalating capacity at a double-digit clip. Market opportunities no longer looked so plentiful. Rivals outside... (411 of 1,644 words)

Also Inside this Issue:

As 2015 comes close to its end, the unmistakable theme of the year was cheap fuel, a term airlines hadn’t heard since 2009—and even then, only briefly and unhappily, for accompanying that year’s cheap fuel, unlike this year’s, was a battered world economy. This year wasn’t all fun and games for everyone though. Some airlines actually liked the era of expensive fuel, even if not expensive fuel per se, for expensive fuel accompanied a host of other favorable conditions, whether high demand in commodity-producing regions or a weak U.S. dollar that gave non-U.S. carriers big cost advantages.

U.S. carriers, meanwhile, which for the better part of two decades operated with product disadvantages, are now using their newfound wealth to invest heavily in product upgrades. American last week became the first U.S. carrier to announce a true premium economy section for longhaul flights, a decision aided by data gleaned from joint venture partners with similar offerings.

Back on the home front, yield pressures at American’s Dallas-Fort Worth hub continue to sting, while Southwest thrives in Dallas. Southwest, in fact, is thriving overall, with demand conditions strong, notwithstanding a rough patch during Thanksgiving.

Air France/KLM faced a rough patch in the aftermath of the Paris terror attacks, although bookings are now normalizing. And Gol faced a rough patch the entire year but listed numerous ways it plans to sail the stormy seas.

In general, though, with oil prices down, the seas should be relatively calm in 2016. But one overarching question: Will fare declines get ahead of fuel price declines?

About Airline Weekly

Airline Weekly is a subscriber-supported publication, paid for by readers who want a more interesting, more valuable read about the airline business. Each Monday, Airline Weekly reports who's flying where, new marketing approaches, fleet, finance and key airline and airport data. And, most importantly, Airline Weekly readers enjoy a critical context, insightful analysis and new ideas found nowhere else.

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