Bedlam Beyond Borders: Trouble is brewing in international markets, but U.S. carriers are thriving all the same
Well, it was. And oh how sweet but distant it seems for the majority of carriers on the planet. But not for U.S. carriers. As good as 2010 was for them—nearly $9b in operating profits and $4b-plus in collective net profits (ex special items)—2014 is on track to be significantly better. Through the first three quarters of the year, the industry’s operating and net profits ex items have already reached $13b and $9b, respectively. And barring a sharp break with current trends, carriers won’t give any of it back in the year’s final quarter. On the contrary, with fuel prices down and domestic supply and demand still in blissful balance, Q4 should be highly profitable.
As it happens, this year was the first all decade in which U.S. airlines collectively profited during even the first quarter, their worst in terms of seasonal trends. And in the just-finished third quarter, they reported a 14% operating margin—that’s by far their best summer in the post-9/11 era, besting the 11% figure registered in both 2010 and 2013. Winters are better than ever, summers are better than ever—is there anything negative to say about the U.S. airline business as 2014 nears its end?
As a matter of fact, there is. As great as things are domestically, international markets are another story. Listen to U.S. carriers talk about business abroad and you’ll hear words and phrases like “overcapacity,” “political instability,” “irrational foreign competition” and “weak economies.” Airlines for America, the industry’s trade association, said domestic revenue grew about 6% y/y in the third quarter, while revenue from international routes lagged with just 1% growth (transatlantic up 3%, transpacific up 2% and Latin America actually down 2%).
This is not a trivial matter. United generates a full 43% of its RPM traffic on international routes. For Delta, the figure is 41%, American 33%, JetBlue about 32% (including Puerto Rico and the U.S. Virgin Islands, which it classifies as international) and Hawaiian about 30%. Others haven’t given figures, but looking at scheduled ASM capacity for the past 12 months (according to Diio Mi), Spirit (11%), Frontier (11%), Alaska (8%) and Virgin America (3%) have some international exposure too.
International flying, moreover, remains a faster growing segment than domestic flying for most U.S. carriers. American, for example, in the first nine months of the year, expanded international ASMs 6% y/y while growing at home by just…
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