United and Emirates: Enemies No Longer
Emirates and United Airlines let bygones be bygones and unveiled a new partnership that will join their two global networks. The limited pact will see Chicago-based United return to Dubai with a nonstop flight from Newark from March, the airlines unveiled September 14. In addition, both airlines will place their codes on select flights operated by the other between the U.S. and Dubai, and on certain flights in the U.S. and beyond Dubai, beginning in November.
“Can you imagine this?” Emirates President Tim Clark said gesturing to an Emirates and United aircraft behind him at an event at Washington Dulles International Airport. “There was a time — and we all know this — that it was difficult.”
Clark referred to the long fraught relationship between the two airlines. In 2015, United joined American Airlines and Delta Air Lines alleging that the three big Gulf carriers — Emirates, Etihad Airways, and Qatar Airways — were essentially dumping capacity in the U.S. market under the auspices of open skies. The dispute was settled in 2018 but not before the three U.S. and three Gulf carriers had essentially severed ties. United, for one, was forced to cancel its nonstop between Washington Dulles and Dubai in 2016 after the U.S. government awarded its travel contract to Emirates via a partnership with JetBlue Airways.
Fast forward four years and the landscape has shifted significantly. American was the first to move with a Qatar Airways codeshare in 2020. The U.S. airline launched its first-ever nonstop flight to Doha from New York JFK in June. The United-Emirates deal is the second such move.
Emirates was the first to reach out two years ago, said United Senior Vice President of Global Network Planning and Alliance Patrick Quayle. What followed was a slow rebuilding of the tarnished relationship between the airlines that culminated in the partnership unveiled Wednesday.
As part of the new tie up, Emirates will sever ties with JetBlue, with which it has partnered since 2012. But the rationale is clear: Emirates will swap feed from the sixth largest U.S. airline for feed from the fourth largest, United, which also offers a national U.S. network that JetBlue lacks.
The pact also aligns Emirates closer to another Star Alliance carrier. In July, the airline and Air Canada — a United partner and Star member — unveiled a strategic partnership that will include a codeshare that also aims to extend both carriers’ networks. It will expand Emirates’ access to Canada, and Air Canada’s access to “certain markets that we don’t want to fly to,” as Air Canada CEO Michael Rousseau put it last week. Asked if the Air Canada and United deals with Emirates were somehow related, Rousseau said their pact was done “completely independent” of United’s.
For United, the carrier will gain new connectivity to India and Africa that it currently lacks, CEO Scott Kirby said Wednesday. Both are growth markets for United, which has added new service to Accra, Johannesburg, and Lagos during the pandemic. The airline plans to begin delayed new service to Bangalore in March 2023.
Emirates serves nine destinations in India, including second tier cities like Ahmedabad, Hyderabad, and Thiruvananthapuram, according to Diio by Cirium schedules. This compares to just four destinations by United partner Lufthansa. In addition, the closure of Russian airspace to U.S. airlines has hamstrung United’s ability to grow to India; the closure forced the carrier to suspend two routes, Newark-Mumbai and San Francisco-Delhi, and indefinitely postpone planned new San Francisco-Bangalore service.
When asked about the limited nature of the new partnership, several United executives instead spoke of the long time it took to rebuild a relationship with Emirates and the significance of any deal at all. At its start, the partnership will only cover three of Emirates’ routes to the U.S. — Chicago O’Hare, Houston Bush, and San Francisco — and United’s new nonstop to Dubai. Flights between Washington Dulles and Dubai — the route that Emirates forced United off of in 2016 — are not part of the initial codeshare agreement.
“After the years, decades of fraught relations, [we found] a way that we could come together in a way that’s good for each of our respective employee groups, [and] our respective regions of the world,” Kirby said.
Delta Sees Little Autumn Demand Slowdown
A week ago, American and United both said leisure demand continues to remain strong into the fall, in defiance of the typical post-summer slowdown. It was Delta‘s turn to be bullish last week, at a Morgan Stanley investor conference, asserting essentially the same thing: “We are expecting a very, very robust demand for the holiday periods for Thanksgiving and Christmas,” Delta President Glen Hauenstein said. Business travel looks set to “have a very strong fall,” he added. Premium demand too, remains strong.
Hauenstein described an evolution of consumer buying habits, from a situation in which air tickets were viewed as a standardized commodity (just give me the low fare), to one in which travelers are presented with many options depending on what they’re looking for (i.e., just the low fare or additional amenities). He gave the example of new terminal and lounge facilities at New York’s LaGuardia airport, which makes traveling to New York on Delta an experience many people will pay extra for. Interestingly, the New York and Los Angeles markets — Delta is also building a new terminal at LAX — combined account for a fifth of Delta’s total revenue, said Hauenstein. But barriers remain in the distribution arena. Hauenstein mentioned both the Expedia and Concur as platforms where more work needs to be done in terms of selling tickets in a manner Delta feels is most effective.
Hauenstein and Delta Chief Financial Officer Dan Janki separately said that the strong U.S. dollar is helpful to the carrier since about 80 percent of its revenue is dollar denominated. With transatlantic demand strong and the autumn leisure drop-off seemingly nonexistent this year, the airline will be larger to Europe this October than it was three years earlier. They said operations are better this fall than they were this time just before the pandemic. On pilot negotiations, Delta, like American and United, hopes to reach a new deal by the end of this year.
Air Canada Chief Financial Officer Amos Kazzaz joined other airlines in highlighting ongoing demand strength, “through the end of [the third quarter] and into [the fourth quarter], and rolling actually also into [the first quarter] of 2023.” Some leisure markets, he added, are now booking ahead of 2019 levels. That said, Canada’s air traffic recovery has unfolded at a slower pace compared to the U.S. That’s because Canada was essentially locked down for two years during the pandemic, with much less freedom of movement both within the country and across borders. Kazzaz estimated that Canada is about six months behind the U.S. in terms of returning to 2019 traffic levels. As for the staffing shortages plaguing U.S. carriers, Kazzaz insisted: “We really don’t see any labor shortages whatsoever.”
JetBlue Chief Financial Officer Ursula Hurley naturally fielded questions about the Spirit Airlines takeover, reiterating the company’s key motivations, including being better able to compete with Southwest Airlines and the Big Three. Demand, she said, was “really strong,” surprisingly so for the fall. Latin America and transcontinental routes are the current standouts. In addition, people are taking longer weekend trips thanks to more work flexibility. JetBlue, separately, issued bullish financial guidance last week, citing “robust demand for travel in September and beyond.” Southwest, incidentally, in a filing of its own, essentially said the same.
Sun Country Airlines talked about its three-pronged business model featuring scheduled passenger flights, charter flights, and cargo flights. The key to making all three profitable, said Chief Marketing Officer Dave Davis, is cross-utilizing assets, using planes to move freight for Amazon, for example, when they would otherwise be idle due to low passenger demand. Sun Country is a “100 percent leisure” airline currently seeing sharp increases in unit revenues. Davis sees demand strength for the upcoming holidays and even into 2023. “I wish we had more capacity to fly right now,” he noted.
Boeing Chief Financial Officer Brian West made news at the Laguna event by disclosing the airframer’s decision to begin re-marketing some of the 737 Max aircraft built for Chinese airlines but never delivered. Chinese officials have yet to allow the Max back into revenue service following two fatal crashes in 2018 and 2019. “We have deferred decisions on those planes for a long time. We can’t defer that decision forever,” West said. However, he reassured attendees that “these customers are incredibly important.”
Raytheon, which owns Pratt & Whitney and Collins Aerospace, also spoke about China. The country represents about 19 percent of worldwide air traffic measured by revenue passenger miles. Chinese airlines, they explained, “continue to bring their engines in for overhauls [and] continue to keep their planes in serviceable condition, ready for the traffic when it comes back.” It sees Chinese air traffic normalizing very quickly once lockdowns and other restrictions are eased.
Frontier Prospects Improved
Frontier Airlines CEO Barry Biffle thinks his airline’s outlook is better than ever after JetBlue beat it in a bidding war for budget competitor Spirit.
“Ninety-five percent of U.S. capacity will be 30 to 80 percent higher cost than us,” Biffle said last week. One of his main foci at Frontier is using low costs as a competitive advantage and, by JetBlue buying Spirit and bringing it up to the former’s cost levels, many see the deal as an elimination of Frontier’s main low-cost competitor in the U.S.
In the second quarter, Frontier’s unit costs excluding fuel were 7.24 cents, Spirit’s were 6.96 cents, and JetBlue’s were 9.68 cents. Put another way, JetBlue’s costs are 33 percent higher than those at Frontier. The combination of JetBlue and Spirit will leave Frontier as one of the only airlines serving major markets with very low costs in the U.S. Allegiant Air and Sun Country, both of which also focus on low costs, are much smaller and have different strategies; for example, Allegiant targets limited-frequency flying between smaller airports.
Of course the JetBlue-Spirit deal is not done yet. Spirit shareholders will vote on the $3.8 billion merger on October 19, and then the U.S. Department of Justice must sign off on the combination before it can move forward.
Asked about potential cost pressure from new pilot pay deals at certain U.S. regional airlines, Biffle was unconcerned and said Frontier can offer cockpit crew members better pay over their career, as well as a better work-life balance than the regionals can. Frontier, he added, is in “good shape” when it comes to a supply of pilots.
With low costs in mind, Frontier is moving ahead with aggressive expansion plans. The airline intends to grow capacity by double digits annually through the end of the decade, Biffle said. Frontier aims to triple in size by 2030. The carrier has firm orders for 229 Airbus A320neo and A321neo aircraft.
Transat Returns to Black
Transat returned to profitability in July. It made the revelation during its latest quarterly earnings call that covered the May to July period. Still, Transat lost money for the entire quarter, resulting in a negative 11 percent operating margin, adjusted for special items.
Following a scuttled deal to sell itself to Air Canada, Transat remains independent, hoping for post-pandemic success with a new hub-and-spoke business plan. Central to the plan are long-range narrowbodies, specifically Airbus A321LRs and XLRs. These aircraft are especially useful for transatlantic routes from eastern Canada, of which Transat serves many. The XLRs, executives said, will open new route opportunities including Barcelona, Rome, and Venice, all of which are major tourist destinations for Canadians. The XLRs are currently expected to begin arriving in 2024. “It will also allow us to offer European destination all year long,” said CEO Annick Guerard, “while reducing the risk compared to [the] A330 operation, specifically during the winter season.” Transat operated 12 A330s this summer, along with 12 A321LRs, and seven older-generation A321s.
During the winter, Transat pivots to a schedule that’s more focused on sunshine destinations like Florida and the Caribbean. Another aspect of the airline’s new strategic plan is codeshare agreements with Porter Airlines and WestJet, which are designed to generate more domestic feeder traffic for Transat’s international flights and to better compete with Air Canada and its leisure subsidiary Rouge. Also on Transat’s radar are several new airlines prowling the Canadian skies, like Flair, Jetlines, and Lynx.
Looking ahead, Transat continues to battle with high fuel prices, made higher by the strong U.S. dollar. But winter bookings look strong, both for European and southern sunshine routes. Pricing, meanwhile — and note that Transat sells many of its seats as part of tour packages — remains above 2019 levels. “After two years of deprivation, we believe that travel has become for many a necessity rather than a discretionary expense,” said Guerard. “The need to get away and reconnect with the world has become essential.”
In Other News
- Lufthansa and its pilots union, Vereinigung Cockpit, finalized last week the tentative deal they reached the week before. Pilots will receive two €490 ($491) monthly raises, one retroactive to August 1 and the second from April 1, 2023, that equals a roughly 20 percent increase for new pilots and a 5.5 percent increase for senior captains. The accord also bars pilots from striking until June 30, 2023. A strike by Lufthansa pilots on September 2 resulted in the cancellation of roughly 800 flights and cost the airline millions of dollars.
And, in other Lufthansa news, the group reached a deal with Amadeus to include its so-called New Distribution Capability content. From the fourth quarter, travel agencies that use Amadeus will no longer need to use third-party tech providers, or Lufthansa’s own platform, to offer the fares. Similar deals with Travelport and Sabre are coming, Airline Weekly understands.
- Virgin Australia reported an A$387 million ($259 million) annual loss during the year ending in June on A$2.2 billion in revenues. CEO Jayne Hrdlicka, speaking at an industry conference last week, said the current fiscal year “looks pretty bright” and forecasted an annual profit. Separately, Air New Zealand denied rumors of a potential merger with the Australian airline, saying it had “not been approached, and [was] not in discussions with any parties” on a potential transaction.
- Aegean Airlines reported an €10.8 million ($11 million) net profit on €327 million in revenues during the second quarter. The airline was buoyed by the strong resurgence of Greece’s tourism industry, with the country one of just two in Europe — the other being Luxembourg — with airport traffic numbers above 2019 levels during the first six months of the year, according to Airports Council International-Europe data. Demand for the September quarter is also coming in strong, though Aegean Chairman Eftichios Vassilakis said the winter outlook was uncertain given high fuel prices, the strong U.S. dollar, and Europe’s energy crisis.
- El Al reached an agreement with the Israeli government to repay its state aid by the end of the year, or two years early. The move will lift conditions that the government placed on the airline as a condition of the support, and allow El Al to move forward with plans to expand. The carrier said it will begin evaluating a new widebody aircraft order early in the new year as part of CEO Dina Ben Tal Ganancia’s ambitions to expand the number of transit passengers over Tel Aviv.
- The U.S. International Trade Administration (ITA) said international air passenger volumes between the U.S. and the rest of the world (arrivals and departures) surpassed 20 million in August. That was still down 18 percent from August 2019, but up 80 percent from a year earlier. Mexico is the largest international market to and from the U.S. based on the August numbers. Next in the ranking are Canada, the UK, Germany, and the Dominican Republic. Asia was still down 61 percent from pre-pandemic levels, while Europe was down 19 percent, and Latin America and the Caribbean were just 7 percent. New York JFK, Miami, and Los Angeles handled the most U.S. international traffic. London Heathrow, Cancun, and Toronto, meanwhile, were the busiest international markets for passengers departing for or arriving from the U.S.
- As the EU moves towards a sustainable aviation fuel (SAF) usage mandate beginning in 2025, the Lufthansa Group and Ryanair have signed significant new offtake agreements with Austria’s OMV. The former will take 800,000 metric tonnes (211 million gallons) over seven years, and the latter 160,000 metric tonnes over eight years from OMV beginning next year. The EU plans to mandate that 2 percent of fuel in the bloc be SAF by 2025 and 6 percent by the end of the decade.
- Canadian startup Jetlines has applied for a U.S. Foreign Air Carrier permit. If granted, the airline plans to serve leisure destinations, potentially including the Melbourne Orlando and Sarasota-Bradenton airports in Florida. Jetlines plans to begin domestic Canada flights in September.