Issue No. 872
Delta Heads List of Buyers at the Farnborough Air Show
Pushing Back: Inside the Issue
There’s life in the airline industry again. For the first time since the onset of Covid, the aviation world gathered near London for the Farnborough Air Show. Delta grabbed the spotlight with a blockbuster order for Boeing’s 737-10, not to mention a few more Airbus A220s for good measure. Alaska, ANA, Latam, Canada’s Porter, and Qatar Airways also left the UK with new commitments.
Things are getting busy on the earnings front too. Neither United nor American fared quite as well as Delta last quarter. But both posted solid profits thanks to resurgent demand. Alaska did better than everyone, though exposure to corporate demand from the suddenly shaky tech sector makes the Seattle-based carrier a bit uneasy. All U.S. airlines, in any case, face a new set of headaches following their Covid nightmare, including labor shortages, operational stress, extreme fuel prices, non-fuel cost inflation, softening economies, and aircraft delivery delays. The Covid menace, meanwhile, hasn’t entirely disappeared.
Conditions are different south of the U.S. border. Mexico’s airlines are less concerned about non-fuel cost inflation, with Aeromexico having slashed expenses in bankruptcy and Volaris stating flatly “the labor shortage issues regarding pilots and ground staff have not been a major factor here.” Oddly enough, while Aeromexico returned to modest operating profitability, Volaris took an unexpected turn for the worse, posting losses this spring after extraordinary profits last year. You won’t find many airlines in that situation.
In other earnings news, Finnair spilled buckets of red ink — simply put, when Asia struggles, Finnair struggles. SAS finally settled its pilot strike. Lufthansa pilots, though, are threatening a strike of their own, which comes as their airline contemplates an investment in Alitalia’s successor ITA. The Spirit merger mania lingers on as JetBlue and Frontier continue their takeover battle. United and Air Canada can’t merge — foreign ownership rules won’t allow that. But the two long-time Star Alliance partners and transatlantic joint venture partners are trying to form a joint business for travel between the U.S. and Canada. It’s something they tried many years ago before encountering regulatory resistance. Here's to hoping the regulatory mood has changed.
It will be another busy earnings week ahead, with Southwest, Ryanair, and Wizz Air among the headliners. As more non-U.S. airlines report, note the pressures they’re feeling from the strong U.S. dollar. That’s inflating the airline industry’s cost base because fuel is priced in dollars, and so are aircraft and many other inputs. The strong dollar is also challenging the economies of many developing nations, all while North America grapples with inflation, Europe faces an energy crisis, and China encounters strains in its systemically critical property sector. Travel demand may be healthy again. But as airlines are discovering, the skies above are hardly clear.
Airline Weekly Lounge Podcast
Airlines globally will need more than 41,000 aircraft over the next 20 years, according to Boeing’s latest outlook. Edward Russell sat down with Boeing’s Vice President of Commercial Marketing Darren Hulst at the Farnborough Air Show to discuss the outlook. Also, what is Boeing’s response in the so-called middle-of-the-market that Airbus has run away with with its A321neo? Listen to this week’s episode to find out. A full archive of the 'Lounge is here.