The Airline Weekly Halftime Show: Cheap fuel, revenue distress and a tumultuous macro environment mark the first half of 2016

July 4It’s Independence Day in America, and the beginning of the year’s second half for all the world’s airlines, which thus far have a lot to celebrate. Collectively, the airline industry enjoyed a profitable first quarter thanks chiefly to lowish fuel prices, something absent during most of the past two decades. The second quarter should produce even greater profits— airlines will start reporting their Q2 earnings soon. And IATA expects the industry to earn nearly $40b for the full year. The biggest fireworks show, appropriately enough this July 4, is in the U.S., where airlines are relishing cheap fuel largely unadulterated by hedges or forex, and a domestic economy that’s hardly growing at warp speed but is nevertheless benefiting from strong consumer demand tied to lower oil prices, low borrowing costs, a resilient stock market and low unemployment. Booming areas like San Francisco, meanwhile, are offsetting slumping areas like Houston. It’s not just the U.S. though. Elsewhere, carriers from Ryanair to Emirates to Air China are off to strong starts in 2016. Some airlines like Copa and WestJet are off their usual highs but are still flying strong by most other standards. Others like Thai Airways and AirAsia are bouncing back from earlier troubles. More generally, the first half of 2016 saw strong worldwide traffic growth and lots of new flights and routes. Does something not feel right here? Sure, all these things are true—airlines are indeed raking in big profits and in some cases doing better now than ever. Traffic is indeed booming. And the travel sector worldwide is indeed growing faster than the global economy as a whole. Still, looking back on the first half of 2016 might evoke more discomfort than satisfaction. Because along with the good news came a nerve -jangling array of developments. Oil prices rose sharply in the first half—not, for now, beyond levels that are comfortable for airlines, but a unsettling trajectory nonetheless. Just about everywhere, revenue trends were lousy. One reason: cheap fuel itself emboldened airlines to accelerate their growth, and the capacity growth put downward pressure on airfares. Another reason related to that cheap dollar-denominated oil: currency depreciation in most markets. Another was the…

Click Here or the button below to sign up for a Free Trial.

This issue is not currently online. To inquire about purchasing a copy, please email subscription@skift.com.