Airline Weekly - July 22, 2013
Short URL:
Bookmark and Share
Recently Viewed
(none yet)

Airline Weekly - July 22, 2013

Sleeping Soundly in Seattle: Alaska Airlines faces a host of new pressures. But all signs point to continued success.

$50.00 - 12 pages
The document is delivered immediately, online, DRM-free, personalized, PDF format

Cover Story

Sleeping Soundly in Seattle: Alaska Airlines faces a host of new pressures. But all signs point to continued success.

When most U.S. airlines report their second-quarter earnings this week, Alaska Airlines will likely report numbers that were worse this year than last. But Alaska has higher standards than most. In the entire world, only three airlines—Allegiant, Spirit and Air Arabia—topped Alaska’s 15% operating margin for Q2 of 2012. Alaska was then on its way to a 12% margin for the full year, which likewise lagged only those same airlines plus a couple other perennial all-stars like Copa and Ryanair and the new all-star Japan Airlines. (Kuwait’s Jazeera too had higher margins for both periods but heavily influenced by its leasing business.) It wasn’t always this way for Alaska. As recently as 2007, it was actually a laggard even within the U.S., with profits a bit below industry average and significantly below those at the giant LCC Southwest. But by 2008, Alaska managed to break even as the fuel-shocked U.S. airline industry collectively lost money. By 2009 it was beating Southwest. It never looked back—2010 was the first in a string of years with double-digit operating margins. How did Alaska pull off the trick? And would a y/y drop in profits, if that’s indeed what it reports Thursday (as preliminary figures suggest), mean its best days could be behind it? The answer to the second question: probably not. More on why in a moment. But first, the answer to the first. Alaska’s profits are particularly impressive considering that it bears little resemblance to most other airlines that rank among the world’s most profitable, other than perhaps Copa. A February 2007 Airline Weekly cover story took note that Alaska had turned a corner and quietly become a consistently profitable airline, although not a wildly profitable one, with 2006 margins that “weren’t among the industry’s best.” But impressively: “Not many airlines in today’s world compete successfully without either the lowest costs or the biggest networks. Alaska Airlines has found a way.” That’s even truer today than it was back then. Now as in 2007, plenty of “hybrid” airlines around the world, from Air Berlin to Virgin America, tell a plausible story about how a mix of lowish costs and highish revenues should produce outsized profits. Yet six additional years of history have shown even more conclusively that in practice, that’s as dubious as ever: it rarely works. It’s simply easier to optimize for one thing, such as the lowest possible costs. The more Ryanair and Spirit squeeze their passengers, figuratively and literally alike, the more profitable they seem to become. By 2007, a lot of what makes Alaska profitable was already in place. It was already a leader in technology—the first airline to sell tickets online (way back in 1995) and to offer online check-in (in 1999) in a region, the U.S. Pacific Northwest, where a... (487 of 1,950 words)

Also Inside this Issue:

It’s official: American is no longer the sick man of the U.S. airline industry. After vastly underperforming its peers during the past few years, the country’s third largest airline is now strongly profitable, thanks especially to steep labor cuts made during its bankruptcy restructuring. Now it’s on the way to regaining the title of world’s largest airline, thanks to an impending merger with US Airways.

How will American’s 8% Q2 operating margin stand up to rivals? This week, most other U.S. airlines will report. (JetBlue is the one notable exception—it will report the following week). Will United have its third straight lousy quarter? Will Southwest again underwhelm? Will Delta and US Airways, like last quarter, outperform? The answers are just days away.

Copa doesn’t need any answers. Perhaps more than any other carrier in the world, it has the airline business figured out. So why not add another city in the U.S.? Starting this winter, it will fly to Tampa on Florida’s Gulf coast.

If Gol had a magic lantern, its one wish might be to re-create in Santo Domingo what Copa has in Panama—even if on a much smaller scale. Its Florida flights from the Dominican city, originating in Brazil, seem to be doing well so far—it might add another U.S. destination. Of course, Gol’s chief business is domestic business, and troubling trends there are improving. With industry capacity down and cooperation with Delta deepening, Gol’s unit revenue momentum is building.

Will London ever start building new runways? The endless debate drones on, as the city’s aviation relevance slowly erodes.

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.

Sample Issue

Here's a sample issue of Airline Weekly.


If not completely satisfied, let us know and we will refund the purchase price.