Airline Weekly - Sept. 7, 2015
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Airline Weekly - Sept. 7, 2015

A Season to Believe: In Europe this fall, big changes are underway. Will they mean good things or bad for airlines?

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Cover Story

A Season to Believe: In Europe this fall, big changes are underway. Will they mean good things or bad for airlines?

The leaves are changing color. The weather’s getting cooler. And it now costs more to book a Lufthansa ticket through a global distribution system.

Welcome to autumn in Europe, where Lufthansa’s controversial new distribution strategy to charge €16 extra for indirect bookings—discussed and debated ferociously since announced in early June—took effect last week. If successful, the move could prompt other airlines to follow—indeed, several have praised the move. If not, it could spell more bad news for Lufthansa, which is ill-placed to stomach a major loss of high-yield corporate bookings.

Europe’s changing distribution scene, however, is just one of several big developments now coming to a boil as the peak summer season gives way to the slow season. Another, as it happens, is the growing competitiveness of North Atlantic markets, which carry added importance at the moment, given the current toxicity of emerging Asian, African, Latin and Middle Eastern markets.

The North Atlantic, to be clear, was a bulwark of profitability for most European carriers in the second quarter. It will likely be so for the third as well. Four big joint ventures (two involving Delta and one each with United and American) still dominate the market and provide ample pricing power. But success prompts growth, and carriers both within the JVs and without, from both sides of the ocean, are allocating more seats, flights and planes to the market. In the peak third quarter, according to Diio Mi schedule data, Delta grew its North Atlantic seat capacity a rather bullish 8% y/y. And its partner Virgin Atlantic? It grew no less than 20%, redirecting jets from money-losing markets to London’s east. Just last week, the two jointly announced more routes for next summer (see page eight).

Air Canada, including its low-cost Rouge unit, is another fast growing carrier across the Atlantic, with 13% seat growth this quarter—it told attendees at last week’s Boyd Group International Aviation Forecast Summit in Las Vegas that transatlantic flights were currently “very strong.” Other joint venture members aren’t growing quite... (361 of 1,443 words)

Also Inside this Issue:

Now deep into the second half of 2015—the fourth quarter is just weeks away—airlines around the world are navigating a landscape of collapsing fuel prices offset by falling revenues. Fortunately for most, the former is outweighing the latter, and profits are up y/y.

Profits are certainly up y/y for Qantas. In one of the great industry turnaround stories of 2015, the Australian giant flew from rags to riches with a cocktail of cheaper fuel, non-fuel cost cutting and competitor retreats.

Moving in the opposite direction are airlines in Latin America. LATAM did lift its operating margin slightly y/y, but it remains trapped in Brazilian quicksand. Avianca, never mind much cheaper fuel, saw its results plummet, in its case less because of Brazil than because of Venezuela.

Many things are plummeting in Russia: the economy, the ruble and the country’s oil sector, for example. But Aeroflot’s long-term prospects are rising, all the more so with the acquisition of its closest rival Transaero. The takeover brings debt. But it also brings greater scale to leverage at its well-positioned Moscow hub.

China’s position in the global economy is now in question as the country’s economy wobbles. But its airlines are for now holding strong. Cathay Pacific in Hong Kong did fairly well too amid a plethora of pressures.

In Europe, easyJet is certainly doing well. And across the Atlantic Ocean, airlines are certainly adding flights—Emirates, for one, launched Orlando last week.

Attention turns to U.S. carriers this week as they commemorate the anniversary of the 9/11 attacks and present at a Cowen investor conference in Boston.

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