Mixed Messages

As September approaches, the world’s airlines can’t help but wonder what lies ahead. More of the same demand strength that propelled the industry to strong springtime profit margins — margins that for most carriers exceeded those of both the second quarters of 2022 and 2019? Or is demand finally cooling off, as some carriers have recently suggested? Ominously, fuel prices are spiking again. More helpfully, supply-side barriers to capacity growth — while frustrating for individual airlines — are keeping yields elevated across the industry. And these barriers aren’t going away anytime soon.

Economic narratives are changing as the northern summer nears its end. America’s economy, the world’s largest, is performing much better than many expected, buttressed by a strong job market, stable household finances, financial sector stability, solid corporate earnings, robust consumer spending, a thriving travel sector, and so on. On the other hand, China’s economy, the world’s second largest, finds itself in deepening distress, hit by deflating property prices, plummeting exports, high youth unemployment, a dearth of overseas tourists, international trade restrictions, and weak consumer spending. Europe’s economy appears somewhere in the middle, growing but barely. Separately, the U.S. dollar continues its strength against most leading currencies, which isn’t good for most non-U.S. airlines. Note, however, that a steadily weakening yen is turbocharging Japan’s export-heavy economy, which should help Japan’s airlines on the revenue side. One area of the world where currencies have strengthened versus the dollar, by contrast, is Latin America (i.e., Mexico and Brazil).

In the latest second-quarter earnings updates, Air Arabia dazzled investors with a 27% operating margin, the highest of any airline worldwide so far. Turkey’s Pegasus Airlines did almost as well. Skymark in Japan, on the other hand, was a rare airline that lost money last quarter. Pardon the stroll down memory lane, but Skymark, recall, is the airline that once bankrupted itself by foolishly trying to fly Airbus A380s.

You’d be no less foolish to miss our next issue of Airline Weekly, scheduled for September 11 following our annual summer pause. We’ll have coverage of the airlines yet to report for second quarter, including those in mainland China. Qantas, Air New Zealand, AirAsia, SAS, Norwegian, Aegean, TAP Air Portugal, and Air Transat are others scheduled to announce soon.