Airline Weekly - June 8, 2015
Short URL:
 
Bookmark and Share
Recently Viewed
(none yet)

Airline Weekly - June 8, 2015

What Really Keeps Them Up at Night: Domestic weakness has caught U.S. airlines by surprise. But it’s not their biggest concern

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

Cover Story

What Really Keeps Them Up at Night: Domestic weakness has caught U.S. airlines by surprise. But it’s not their biggest concern

Yes, worries are mounting about U.S. airlines losing their domestic capacity discipline. Delta and United even raised fears last week of economic weakness denting domestic demand. But let’s not forget: International markets are where U.S. airlines face their deepest difficulties.

For the U.S. Big Three in particular, the domestic market was long a place of problems not profits, burdened, as the home front was, by too many airlines flying too many seats. Consolidation and capacity discipline changed that domestic reality for the better, while fragmentation and capacity indiscipline began doing the opposite abroad.

Today, almost midway through 2015, American, Delta and United are needled anew by low-cost carriers in certain domestic markets (American in Dallas-Fort Worth, for example) and embroiled in some nasty market share battles (i.e., Delta in Seattle). Unit revenues are indeed falling too, as Delta made clear in its May traffic report last week. But with fuel prices way down, the U.S. economy relatively strong, serious new-entrant startups nowhere to be found and nationwide capacity still more or less restrained, at least compared to the indiscipline of eras past, the U.S. Big Three aren’t losing much sleep about the domestic market per se. The problem is that they counted on domestic flying to be stellar, rather than merely good, because of what does keep them up at night: overseas markets.

To be clear, 2015 is not 2003, when intercontinental air markets were severely depressed by the aftermath of the 9/11 attacks, the SARS epidemic, the Iraq war and economic weakness just about everywhere, the U.S. included. Not only are market conditions far less gloomy now, but U.S. carriers have also spent the past decade building powerful defenses against market disruptions and competitive volatility. Their products are better, their longhaul fleets are more efficient, their labor costs are lower and—most transformatively—they’ve built powerful joint ventures and alliances, in essence making overseas markets less competitive. American, Delta and United, moreover, are likely still earning profits on their international flying—United insists it’s making money in Asia, for example, while Delta says the same about Europe... (370 of 1,479 words)

Also Inside this Issue:

Capacity indiscipline? A surprisingly weak economy? A natural reaction to falling fuel prices? Big airlines aggressively matching ultra-LCC pricing? The cause is uncertain, but the effect is clear: During May, U.S. airlines experienced their first bout of domestic yield weakness in a long time.

The evidence comes from Delta and United, presenting to investors last week. But both were at pains to remind everyone: profit margins are still plump.

Other big news emerged from the U.S. airline market, notably on the labor front. Delta cemented its reputation for industry-leading employee relations by reaching a new tentative agreement early in the process. Virgin America, by contrast, lost a campaign to keep its pilots non-union. They voted by a large majority to join ALPA.

Air Canada is feeling good about its future, which it’s betting on international expansion. It’s also one of the industry’s most enthusiastic adopters of seat densification and an ardent sixth-freedom fighter.

Lufthansa has a fight on its hands, having boldly announced big surcharges for all bookings through global distribution channels. Will its move lead to a new industry norm? Or will customer resistance force it to retreat?

Alitalia is no longer retreating—it’s actually now growing and polishing its long-tarnished image. But will it ever be a profitable airline? Or will it, like other airlines Etihad rescued, continue its money-losing ways?

With nearly all publicly-traded airlines having reported Q1 results, it’s time to crown the king of the margins: Allegiant.

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.

Guarantee

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

;