Phased Out: U.S. Airlines Look to the Past, Future

Pushing Back: Inside This Issue

Airlines are not happy with their governments. Air Canada complains of overzealous border restrictions. Asia’s airline association complains of inconsistent policies. Allegiant criticized Washington for inadequate testing and information. Ryanair is livid about government bailouts. Fair enough. But the true enemy is an extremely infectious virus which keeps on spreading. It’s creeping back into places where it was once well controlled. It’s spreading at alarming rates in some of the most populous countries, including India, the U.S., and Brazil. With some modest exceptions like the Chinese domestic market, there’s really no airline recovery to speak of. And there might not be for the rest of 2020.

Europe is seeing some shorthaul leisure recovery. But for global giants like Air France/KLM and IAG, that’s just a sideshow. The recovering Japanese domestic market is more significant to All Nippon. But Japan is backsliding in its fight to contain Covid. And forget about all that important premium traffic ANA typically carries to cities like New York and London and Sydney. Air Canada can’t do very much at all revenue-wise, with its borders sealed tight. Cargo helps a bit, but Asian carriers like Singapore Airlines are bigger cargo players, big enough to meaningfully alleviate losses. Back in Europe, the shorthaul leisure recovery, still choppy to be sure, will help Ryanair and Wizz Air prepare for what’s hopefully a more normal 2021. More U.S. airlines expressed their discouragement with current trends. Airlines in India, Brazil, and Mexico presented Q2 results as well, likewise in a cloud of great uncertainty.

More airlines report this week, including Europe’s largest airline, Lufthansa. 

Verbulence

“The Covid crisis will pass. Whether it’s in 6 months or 10 months or 12 months or 18 months, we don’t know. But we will be one of the survivors, and we will be, by far and away, the most flexible lowest-cost survivor coming out of this.”

Ryanair CEO Michael O’Leary

Mondays With Skift Airline Weekly

Airline Weekly got cranky. Brett “The Cranky Flier” Snyder joined host Madhu Unnikrishnan on a livestream to look back at the second quarter and talk through what might happen in the fall. Listen to the replay.

Earnings

April-June (3 Months)

• Air France/KLM: -$2.9b/-$1.9b*; -131%
• IAG: -$2.4b/-$1.6b*; -184%
• All Nippon: -$1b; -131%
• Air Canada: -$1.3b; -$251m
• Singapore Airlines: -$802m/-$71m*; -67%
• Ryanair: -$206m; -125%
• Wizz Air: -$120m/-$63m*; -117%
• JetBlue: -$320m/-$548m*; -332%
• Hawaiian: -$107m/-$175m*; -366%
• Allegiant: -$93m/-$95m*; -80%
• IndiGo: -$377m; 344%
• Gol: -$370m/-$235m*; -251%
• Aeromexico: -$1.2b/-$323m*; -253%
• Volaris: -$71m; -154%
• Icelandair: -$91m/-$124m*;
• SkyWest: -$26m/-$178m*; -45%

January-March (3 Months)

• AirAsia X: -$132m/-$38m*; -11%
• SpiceJet: -$111m; -30%

*Net result in USD/*Net result excluding special items/ Operating margin

Weekly Skies

• For many years now, Air France/KLM — the Air France part in particular — has underperformed its rivals IAG and Lufthansa, not to mention many of the world’s other global airline giants. Labor strife, high unit costs, heavy shorthaul losses, onerous taxation, sub-optimal aircraft configurations… these were some of the reasons for its chronic earnings ineptitude, despite what’s arguably the strongest global network in the business, buttressed by strong joint ventures.
  
  In 2019, Air France/KLM’s operating margin was a low 4%, and Air France’s alone less than half that. Lufthansa at least topped 5%, and IAG approached 13%. Naturally, there was danger in entering the mother of all industry shocks with such an unenviable history.
  
  Unsurprisingly, like Lufthansa, Air France/KLM needed government help to keep it from running out of cash before long. What it got was a massive $11.6b in public aid: $7.8b from Paris and $3.8b from Amsterdam. Unlike Lufthansa’s case, the French and Dutch governments did not demand an ownership stake; they each already have one, after all. But the money must be paid back, which implies a near-certain need for Air France/KLM to raise additional equity at some point.
  
  The aid also comes with emissions conditions. The governments, for example, demand measures to curb carbon and noise, like exiting some French domestic markets, reducing some Dutch night flying, and accelerating biofuel development. They also demand the carriers become more cost efficient, in Air France’s case freezing salary increases through 2022 and achieving unit costs comparable to Lufthansa and British Airways. KLM, already rather efficient, has to reduce controllable costs by 15%.
  
  Tough conditions? Yes, but also a golden opportunity to achieve a competitive cost structure, something Air France has always lacked. Major reforms, to be clear, began even before the crisis. Last year, the group signed no fewer than 40 new contracts with French unions, and another three with Dutch unions. The new agreements opened many new avenues of both unit revenue growth and unit cost reduction, including greater flexibility with respect to longhaul aircraft configurations. Cabin optimization remains an important strategic initiative longterm.
  
  More importantly right now, Air France, with the blessing of its pilots, can expand its LCC Transavia France. This means it can replace its less efficient Hop unit on most domestic routes, addressing a market that incurred a massive $222m loss last year. Hop will stick to handling just domestic flights to Paris De Gaulle, and operations from Lyon. In addition, Air France also aims to address low narrowbody utilization rates. KLM, with much better narrowbody utilization, will look to upgauge from Amsterdam, an airport with strict capacity limits before the crisis.
  
  Coping with the crisis, unfortunately, also involves heavy job cuts throughout the company. The goal is a 17% workforce reduction, with 7,500 positions gone in France, and up to 5,000 in the Netherlands. The hope is that all can be voluntary though early out packages. KLM will announce more reforms in October. Air France is still discussing further productivity improvements with its unions. Both carriers though, still intend to invest in new planes, partly for their environmental benefits, and also for their cost efficiency. Air France’s A380s and A340s are gone. So are KLM’s B747s. Transavia will expand by leasing more B737-800s. Air France will still get A220s and A350-900s. KLM will still get B787-9s, B787-10s, and eventually a replacement for its B737-NGs.
  
  Older planes were indeed one of Air France’s pre-crisis shortcomings. Another was its inability to dominate busy leisure and family-visit heavy routes to overseas French territories in the Caribbean. These take on a new importance with leisure and family-visit demand expected to recover before business traffic. Helpfully, 32 of its B777s can be quickly changed to a leisure-optimized configuration, with fewer premium seats. Just as helpfully, rivals like Aigle Azur and XL Airways are no longer around, while Norwegian and IAG’s Level have retreated from Paris.
  
  As for global business markets, Air France/KLM is still bullish longterm. In fact, even now, some of its corporate clients say they intend to fly in 2021. This summer, domestic French markets are leading the recovery. Other shorthaul markets like Algeria would probably be doing fine if not for travel restrictions. Groupwide capacity will be about 45% of 2019 levels this quarter, and 65% next quarter. Transavia is flying about half its capacity this summer. A full restoration of the group’s 2019 capacity levels probably won’t happen until 2024. But that’s just a guess. Visibility is extremely low, with customers booking extremely late.
  
  Financially, the airline downplayed the details of its Q2 loss margins, which for the record was negative 131% at the operating level. KLM as usual did better than Air France, but this time for the simple reason that it flew more cargo, the group’s only saving grace. The longterm financial goal remains: 7% to 8% annual operating margins, on average, by mid-decade. Positive operating cash flow, it thinks, is still possible by 2023.

• In the pre-crisis world, IAG was the clear profit leader among Europe’s Big Three airlines, just like Delta was among America’s Big Three. With the world now in chaos, the Anglo-Spanish-Irish airline group has its collective brain weighing the necessary measures to stay on top. One reason for IAG’s outstanding performance during the 2010s was its success with consolidation. In 2011, British Airways CEO Willie Walsh formed the group while merging with Iberia, then a sickly and unreformed Spanish airline. BA itself had a swollen cost base, with labor costs too high to compete in many markets.
  
  To a far greater extent than its rivals Air France/KLM and Lufthansa, IAG addressed these dysfunctions, partly with brutal job cuts that triggered multiple strikes. But it took the medicine early, and in sufficient doses, enabling the outsized profit margins it would record in later years. The BA-Iberia merger itself, meanwhile, worked so well that Walsh bought rival British Midland in 2012, inheriting its precious London Heathrow slots. He then bought Barcelona-based Vueling the following year, giving IAG a profitable low-cost platform. In 2015, Walsh bought the airline he previously ran, Aer Lingus, which turned out to be the most profitable carrier in the group — attribute that to success on transatlantic routes. Not stopping there, IAG next purchased London airport slots made available when rival Monarch disappeared. Norwegian became a target in 2018, enticing because of its London Gatwick slots and attractive Boeing fleet. Walsh refused to overpay though, eventually walking away from a small investment in the Nordic LCC. 0
  
  But he wasn’t done. Last year, he proposed to spend $1.1b to buy Spain’s Air Europa, to eliminate Iberia’s top competitor on Latin America routes from Madrid. The deal was under regulatory review when Covid-19 became a thing, turning even IAG into a money-losing entity. Last quarter, it suffered a $1.6b net loss excluding special items, along with a dreadful negative 184% operating margin. None of its constituent airlines were spared, with BA, Iberia, Aer Lingus, and Vueling showing negative operating margins of 197%, 99%, 280%, and 137%, respectively. IAG’s other airline is Level, which was all but grounded during the quarter. The only thing providing at least some cushion was cargo, which accounted for a full half of IAG’s Q2 total revenues.
  
  Q3 is at least delivering some measure of recovery, particularly in the Spanish domestic market, where demand is back to about 50% of last year’s levels. That’s the strongest area of recovery so far. U.K. demand to Spanish resort destinations like the Canary and Balearic islands began showing signs of life early this summer, before a newly imposed U.K. quarantine on arrivals from Spain late last month. But U.K. bookings to other destinations like Greece are encouraging. In general, though, shorthaul booking growth overall has flattened in recent weeks as parts of Europe see an increase in Covid infections.
  
  In any case, IAG — unlike its U.S. counterparts — only gets a minimal portion of its revenues from shorthaul routes. It lives and dies by longhaul markets, especially to the Americas. And transatlantic travel remains highly restricted. BA still expects London-U.S. traffic, for example, to flourish over the longterm. But it will take a while. Recovery on Latin routes, IAG believes, will take even longer. For groupwide traffic levels to reach 2019 levels, it could take three or four years.
  
  With that bleak prospect in mind, IAG is looking to once again move more boldly and forcefully than its rivals on cost cutting. That means tens of thousands of job cuts, including as many as 9k jobs at BA alone, with the goal of reducing labor costs almost a quarter by 2022. Already, labor fights are brewing, made clear by Walsh’s criticism of the Unite union last week: “I think they’ve been completely out of touch with the reality of the situation.” Other airlines in the group will see big cuts as well. The group is also grounding planes, including BA’s premium-heavy B747s and Iberia’s A340s. It will reduce its new-plane deliveries by 68 units in the next two years. It’s adding extra cargo flights. While keeping Level’s Barcelona operations, the LCC will close bases in Amsterdam, Paris, and Vienna.
  
  BA just renewed its co-branded credit relationship with American Express, in a deal worth more than $900m to the airline. IAG’s Avios loyalty plan, importantly, is still contributing profits this year. There are lots of other initiatives, from outsourcing catering at Aer Lingus to cutting spend in areas like IT and marketing. And yes, IAG remains interested in consummating the Air Europa deal, but only at a much lower price.
  
  It’s also keen on its joint ventures with American, Finnair, Japan Airlines, Qatar Airways, and most recently China Southern. Walsh even encouraged American to do its new tie-up with JetBlue, which builds on long-held JetBlue ties to Aer Lingus. BA, for its part, works with American’s partner Alaska.
  
  IAG will once again need to cut costs and introduce reforms more aggressively than rivals, if for no other reason than its lack of government aid. While Lufthansa and Air France/KLM receive billions, IAG is mostly getting just temporary wage subsidies and some modest credit support. It even got a word of sympathy from Ryanair’s Michael O’Leary of all people. This does mean IAG is less restricted and can pursue takeovers and pay dividends unlike its bailed-out peers. But it also means it needs more capital from the private sector, which it’s getting through a sale of new shares, supported by its top shareholder Qatar Airways.
  
  Yes, it’s going to be a long, hard slog back to normality, even for an airline so strong pre-crisis. But IAG, as Walsh prepares to retire, does expect to breakeven on operating cash flows as early as Q4. It sees evidence that demand quickly bounces back when travel restrictions are lifted. Next year, ASK capacity will likely be down about 35%. Vueling could be well-placed to take advantage of an earlier shorthaul recovery. But the fortunes of BA, Aer Lingus, and Iberia will ultimately depend on demand across the Atlantic Ocean.

• In Japan, All Nippon is lucky in one respect: It’s always been more of a domestic airline than an international airline. That should prove helpful with prospects for reopening international markets still highly uncertain. It didn’t help too much in calendar Q2 though, when ANA lost more than $1b, with an operating margin of negative 131%. Its revenues declined only 76% y/y despite an 80% drop in ASK capacity. That’s partly thanks to the gradual restart of domestic flights, as well charter flights, and a huge increase in cargo yields. But operating costs declined only 42%. Cargo actually generated almost one-third of ANA’s revenues in the quarter, compared to just 8% in normal times.
  
  Peach, the group’s LCC, is seeing a faster domestic traffic recovery, and in fact restored all of its pre-crisis routes. It even added two new domestic routes from Tokyo Narita. For mainline ANA too, demand started recovering in May. And this month, it plans to have about 70% of domestic capacity restored. It was of course, supposed to be very different.
  
  This was supposed to be Japan’s year to host the summer Olympics, which had to be postponed until next year. Instead of full planeloads of foreign visitors, ANA is instead adjusting to a new reality of much smaller global airline demand. It’s cutting pay, offering temporary leave, deferring aircraft deliveries, and postponing product upgrades.
  
  Big bank loans will protect it from a liquidity crisis. But it didn’t get too much government help beyond wage subsidies and some relief on airport costs and the like. Looking beyond the crisis, ANA will have Peach try to drum up more demand from areas outside of Tokyo and Osaka. Brisk mainline international growth, supported by partners like United, Lufthansa, Vietnam Airlines, and Philippine Airlines, remains a longterm goal. This is an airline heavy on premium business traffic, however, which likely won’t come back anytime soon.

• Canada might have the most severe travel restrictions of any major country worldwide. And at the same time, it’s providing less financial support to its airlines than almost any other rich-world country. No wonder why Air Canada sounds frustrated with Ottawa, saying it’s rare among the world’s 20 largest airlines to have not received a big relief package. As for the travel restrictions, borders are pretty much closed to all foreigners, and even Canadian citizens must quarantine upon entering the country. What’s more, individual provinces within Canada have in some cases established their own border controls.
  
  Air Canada says it welcomed Ottawa’s early moves to refuse entry from high-risk countries. But it can’t understand why it won’t even relax restrictions for low-risk countries, especially in light of how important air service is to Canada’s highly internationalized economy.
  
  Fortunately, with a strong pre-crisis balance sheet and plenty of available sources of new capital, Air Canada will be just fine in terms of bankruptcy risk (it filed once in 2003 and came close to a second filing in 2009). The good news is that Air Canada has a decent-sized cargo market which flourished last quarter. Also, because of the onerous travel restrictions, rivals like WestJet, Air Transat, Porter, and TUI’s Sunwing barely operated at all, even domestically. Air Canada itself had to reduce Q2 passenger ASKs 92%, more than any U.S. airline except Hawaiian (see below). Thanks to cargo and special charters for purposes like repatriation, revenues fell a bit less, by 89%. Operating costs though, fell only 57%, leading to a negative 251% operating margin. Its total revenue by the way, even with cargo, was less than what Alaska Airlines generated last quarter.
  
  Like all other airlines nowadays, Canada’s largest airline is downsizing its fleet, its network, and its cost base. Some government wage help through December notwithstanding, it’s cutting 2k jobs, some voluntary, some not. It’s ending service to eight regional airports. It’s reviewing capacity with its regional partner Chorus. It’s retiring all B767s, A319s, and E190s, 79 planes in all. Q3 capacity will be down 80% y/y, with service to 91 destinations this summer — that’s roughly double May’s number but half last summer’s number.
  
  Are there any positive signs? Some. Unlike the rise and fall pattern of U.S. domestic bookings, Canadian domestic books have been better in the past three or four weeks than in the three or four preceding weeks. Management thinks the typical summer vacation period will be extended this year, and bookings to the Caribbean in particular is starting to see some activity. Domestically, transcontinental routes, and routes within western Canada, have been first to show green shoots.
  
  Canada, encouragingly, is among the countries on the E.U.’s low-risk list. Air Canada is focusing its European flying on leisure routes like Rome and Athens, and on Star Alliance hub markets like Frankfurt. New A220s are a good fit for many North American markets. The airline still plans to unveil a revamped loyalty plan in Q4, after buying back control of its plan last year. A newly installed reservation system offers additional revenue potential. Air Canada-branded credit card spending on items other than travel is back to 2019 levels.
  
  It sees airline partnerships as key to generating enough traffic during tough times, hence an interest in doing more interline deals. Japan, where ANA is a Star partner, is one market it’s eyeing for more cooperation. Rivals without domestic markets, meanwhile, like the Gulf carriers and Singapore Airlines, will face a difficult time in the post-Covid age, Air Canada says.
  
  Not that its own path back to profits will be easy. It expects to burn about $12m a day this quarter. Corporate travel could take even longer to rebound with companies like Google extending their work-from-home policies. The vital U.S. border, all the while, remains essentially closed. Al lright, but what about Air Canada’s deal to buy Transat, subject to regulatory review? It refuses to comment, but in light of IAG’s intent to the cut the purchase price of Air Europa, there’s surely a desire to renegotiate.

• Air Canada is right. Singapore Airlines doesn’t have a domestic market. And it’s extremely dependent on premium intercontinental demand. As such, it seems terribly positioned for the next few years. But hang on. Singapore Airlines last quarter had one of the least bad results of any carrier worldwide. It lost just $471m net excluding items, with a negative 67% operating margin. Bad for sure, but any margin in the negative double digits seems downright heroic in these times.
  
  What’s the answer to the Singapore riddle? It’s cargo, which provided nearly 80% of calendar Q2 revenue, and which held the company’s total y/y revenue decline to 79%, even though it barely flew any passenger flights. Most of its other revenue in fact, came from its maintenance division. With a highly variable cost base, meanwhile, the group was able to reduce operating costs by 64%. Singapore has seven freighter jets carrying just cargo. And it now has more than 30 passenger planes carrying just cargo. Another 119 planes, sadly, are sitting idle at Changi airport, and still another 29 are idled in the Australian desert.
  
  Much of the carrier’s pre-crisis strategy is up in smoke, including its ownership positions in bankrupt Virgin Australia and the recently shuttered NokScoot in Thailand. A380s are a drag. Same, potentially, for the large B777-9s it ordered. It’s now looking to defer aircraft deliveries, while undertaking a broader review of its fleet and network.
  
  There’s no liquidity crisis for sure — Singapore was quick to provide its national airline a giant aid package. But that doesn’t ease anxiety about future demand, which is returning more slowly than expected. Some recent easing of travel restrictions will help in select markets. Travel is now permitted between Singapore and some Chinese cities, for example. There’s movement on relaxing restrictions with Malaysia and Europe. Singapore Airlines can now carry one-way connecting traffic via Changi — originating in East Asia, Europe, or Australasia — to any point in its network worldwide.
  
  Yet, capacity this quarter will still be just 7% of pre-crisis levels. By the end of the quarter, it expects to be serving just 24 cities, up from 14 today. Scoot, as a low-cost carrier with shorthaul planes, might fare better in the difficult period between now and vaccine salvation. Silk Air, a full-service narrowbody operator, will still get phased out and integrated with mainline, in line with pre-crisis plans. Armed with new B787s, Singapore’s Vistara joint venture in India seems well positioned to become India’s leading intercontinental airline, for when such a distinction is coveted.
  
  Just prior to the crisis, Singapore Airlines forged deeper commercial ties to Malaysia Airlines and All Nippon. It might yet retain a joint venture with the revamped Virgin Australia. It’s definitely true: Being so highly exposed to the intercontinental corporate segment promises trouble in the next one to three years. But on a brighter note, it’s also well-placed to take advantage of China’s first-mover economic rebound, and tourism demand to places like Vietnam, Thailand, and Australia, where Covid cases have been low.
  
  Getting any mileage out of that, however, still requires an easing of border restrictions, which can’t come too soon for Singapore’s flag carrier.

• Back in Europe, Ryanair finds itself in the unfamiliar position of losing large sums of money. But simultaneously, it’s in the familiar position of being among the best capable of dealing with those losses. Believe it or not, the Irish airline is more or less breaking even on cash this summer, which is really the most meaningful metric to watch right now. Unlike carriers in the U.S., Ryanair essentially grounded its entire fleet for almost four months, from mid-March through June. That left it with calendar Q2 revenues of just $139m, mostly from tickets purchased but unused after 12 months. This represented a 95% y/y decrease in revenues. By not flying, costs fell sharply too. Its costs are highly variable. It cut pay in the quarter by 50%. But still, total operating costs dropped by only 85%, with depreciation its largest line item, followed by labor. Net loss amounted to $206m, while operating margin was negative 125%.
  
  Operations restarted on July 1, with about 40% of normal capacity levels for this month. Next month, that will rise to 60% of normal. Then 70% in September assuming Europe avoids a second wave of Covid infections. The risk of that is substantial though, based on a current spike including one in Spain that caused U.K. officials to abruptly halt flights to the nation. Ryanair mentioned Barcelona as one market where a Covid outbreak has affected demand this summer. It’s watching now to see if its British customers with tickets to Spain change their reservations to Portugal, Italy, Greece, or some other alternative holiday spot.
  
  Like other airlines, Ryanair is temporarily allowing ticket holders to change their itinerary for no additional fees. All of its tickets remain nonrefundable though, unless of course Ryanair itself cancels your flight, and last quarter it cancelled nearly all flights. The airline says it will have 90% of cash refund requests handled by the end of this month.
  
  Aside from a second virus wave, Ryanair worries about the lingering uncertainties tied to Brexit, including the still-unresolved issue of airline flying rights between the U.K. and E.U. after this year. At the same time, the carrier is frustrated at the uncoordinated and in its opinion ineffective border restrictions that still exist within Europe, with Ireland among the most restrictive. Looking ahead to the next few years, one of Ryanair’s biggest concerns involve all the state aid its rivals are receiving.
  
  In his always-colorful way of describing things, CEO Michael O’Leary called it “giving monkeys machine guns,” in other words, handing failing carriers ammunition to dump low fares. He names Lufthansa, Air France/KLM, Alitalia, TUI, TAP Air Portugal, Finnair, Condor, SAS, and Norwegian, ordered by the amounts they received. Ryanair insists the aid is illegal, distorting competition. In some cases, governments are also imposing new taxes that disproportionately hurt LCCs. On the other hand, the same carriers getting bailouts — along with other rivals like easyJet — are slashing capacity and cancelling aircraft orders. easyJet is in fact closing its base at London Stansted, Ryanair’s busiest airport.
  
  Retreats like this, some at airports where slots were previously hard to get, will make Europe’s airports keener than ever on offering Ryanair incentives to launch flights. That heralds lower airport costs in the future, to go along with other key drivers of future cost reduction. One is the B737 MAX, which Ryanair hopes to finally have by Christmas, which could have it flying about 40 for next summer. The plane, it believes, will result in a “seismic” reduction in unit costs, never mind that it’s also renegotiating the price of the planes with Boeing (separate from compensation for delivery delays that it expects to receive). The airline would also consider adding more A320-family jets at its Lauda Air unit if the price were attractive enough.
  
  Ryanair separately thinks fuel will stay rather cheap for the next few years. Lower traffic volumes across Europe should greatly reduce air traffic control delays that plagued the industry pre-crisis. Also contributing to future cost savings: The company’s use of subsidiaries in Poland (Buzz), Austria (Lauda Air), and Malta (Malta Air).
  
  Then there’s the aggressive pay cutting Ryanair is forcing crews to swallow, in exchange for preserving jobs. It has new pay deals with about three-quarters of its crews across Europe, including those based in the U.K. and Ireland. It’s having a tougher time getting to yes in Germany, where it’s threatening to close three bases this fall. It might close bases in Italy too. At Lauda Air in Austria, it used the threat of closing its Vienna base as a cudgel to secure support from reluctant unions. The deals do promise to restore pre-crisis pay rates in the future. But they also feature productivity improvements for the carrier, like the right to schedule crews for five days on and two days off, providing flexibility to ground planes on offpeak Tuesdays and Wednesdays if deemed appropriate on certain routes. And although it’s avoiding layoffs for now, it makes no promises about the future.
  
  Is Ryanair receiving state aid itself? It did avail itself of about $770m in U.K. government loans, which it aims to repay relatively quickly. It’s also benefitting from some government wage support programs in various countries. It sees no need to borrow any additional money or sell any additional shares. It is after all, as mentioned, a rare airline that’s not burning through cash this summer. Which isn’t the same thing as earning profits — Ryanair actually expects to lose more money in calendar Q3 than it did in calendar Q2. Keep in mind that it’s still operating subscale, with lowish load factors and yields. It expects to fill about 70% of its seats this month, which is better than the 60% it was expecting. It sees something similar for August.
  
  Bottom line: Ryanair is losing money like everyone else during the worst crisis to ever hit the global airline industry. But it’s managing just fine without a giant government bailout, and without excessive borrowing. If a successful vaccine arrives by the first half of 2021, Ryanair even sees the possibility of a good summer. Its balance sheet is strong. And its fares and costs are Europe’s lowest.
  
  For the record, Ryanair’s shares are widely distributed, but its two largest shareholders currently are banking giant HSBC and the Scottish investment firm Baillie Gifford, each with 6% stakes. Michael O’Leary owns 4% of the company.

• Wizz Air is like Ryanair’s clone to the east, with a similar business model and just as successful. It too faces short-time pain from the coronavirus like everyone else, manifesting itself in a negative 117% operating margin for calendar Q2. Wizz like Ryanair entered the crisis with an investment-grade balance sheet, which it still retains. And it likewise has enough cash to operate well into 2021 even in a worst-case revenue situation. Last quarter, revenues declined 87% y/y on 88% less ASK capacity, while operating costs dropped 67%. They would have dropped more were it not for bad fuel hedges, a curse plaguing most European airlines.
  
  After flying just 3% of its capacity in April, Wizz flew about 70% in July, which compares to about 40% on average for other European airlines. Cash burn isn’t as severe as anticipated and might even hit zero this quarter — management emphasizes that a lot is still uncertain. It’s seeing some normalization of its booking curves, generating about half of forward revenues within three weeks of departure, compared to earlier in the crisis, when half of revenue was booked within seven days. The airline, owned by the U.S. investment firm Indigo Partners, is updating all commercial contracts with more favorable cost and payment terms. It’s “obsessed” with further variablizing its cost structure.
  
  But more than just scrambling to survive like most airlines this summer, Wizz Air is spending at least as much time making moves designed for longterm benefits. It’s not just playing defense, in other words, but an aggressive offense as well. For example, it’s launching a new joint venture airline in Abu Dhabi this fall, starting with two A321 NEOs.
  
  Speaking of the NEOs, it’s one of the plane’s biggest customers. And it’s a rare airline not delaying deliveries. It’s in fact getting some earlier than its pre-crisis plan, with Airbus no longer plagued by production delays. This will allow Wizz to have a bigger fleet by next year’s summer peak, when it hopes demand will be much stronger. The airline is also spending a lot of time rebuilding its network to meet the times, reallocating 22 of its planes for example, from areas of slow recovery (i.e. places with the strictest border closures like the U.K.) to relatively more buoyant markets.
  
  It’s opening eight new bases, including Milan Malpensa, Albania’s capital Tirana, and even Russia’s second city, St. Petersburg. It’s announced more than 200 new routes since the crisis, never mind that capacity is still down about 30% y/y overall. It seems to see all the state aid rivals are getting as more of a nuisance than a threat, especially since most recipients are simultaneously slashing capacity. Wizz itself expects to grow some 40% to 50% in the next three years and even contemplates ordering more planes before its current NEO order is done delivering. It’s about as bullish as an airline can sound these days.
  
  Said CEO Jozsef Varadi: “We have been waiting for this moment for 10 years.” He’s excited, in other words, about the enormous opportunities the crisis presents as rivals downsize or disappear, and as industry costs drop sharply. During the financial crisis a decade ago, Wizz he said didn’t yet have the scale, the balance sheet, and the aircraft capacity to really take advantage. Now it does. “This is the time that sorts winners and losers.”

• Our number one focus is cash, cash, cash.” So said JetBlue’s CFO Steven Priest, echoing the new golden rule of airline economics in the Age of Covid. The New York-based airline, like its peers, has plenty of cash thanks to healthy capital markets, a strong pre-crisis balance sheet, and sustained appetite among leasing companies for buying modern narrowbody  jets. Specifically, JetBlue began Q2 with $1.8b in liquidity, burnt through $691m running the airline, spent another $67m on aircraft and other capital purchases, and still another $78m repaying old debt. But it also borrowed $1.3b from banks. It got $936m in federal payroll support. It sold $150m worth of TrueBlue miles to its credit card partner Barclays. It raised $118m through sale-leaseback deals. So it ended the quarter with $3.4b in liquidity, with plenty more available if needed through a variety of sources, including federal government loans.
  
  As for the currently less meaningful loss metric, JetBlue’s Q2 net result was $548m in the red. Operating margin was negative 332%, worst except Hawaiian among all U.S. carriers that have reported thus far. Revenues were down 90% y/y, on 85% fewer ASMs. Operating costs were down 50%. Somewhat like Wizz Air, JetBlue is playing network offense even while in cash preservation mode. It made a big splash with a major expansion plan for Los Angeles LAX, while closing its longtime Long Beach operation. It’s also creeping onto United’s turf at Newark, with new transcon flights for example. It grabbed two additional gates in Fort Lauderdale and eyes more connections through the airport, to and from the Caribbean/Latin region.
  
  A revived alliance with American in the northeast gives it more heft in selling international destinations via New York JFK and Boston. All the same, it still intends to fly its own A321LRs to London next year. But first it has to get through this year, with reducing cash burn its most immediate priority.
  
  Encouragingly, it thinks it can make it through the end of 2020 without many involuntary layoffs, thanks to a large number of workers willing to accept temporary or permanent leave. With pilots, it promised no layoffs through March 2021 in exchange for scope clause relief, including the right to partner with American. As Congress debates a next round of stimulus by the way, further relief for airline workers is under discussion — one idea is to extend payroll support for another six months. JetBlue isn’t counting on that. It’s instead busy cutting costs where it can, and variablizing its cost base; one way it’s doing that is by changing supplier contracts to tie its obligations to how profitable it is.
  
  As for cash burn, it dropped to $8m a day by the end of Q2, after hitting $18 a day in April. Unfortunately, with the recent Sunbelt Covid spike that derailed the nascent demand recovery, JetBlue is now seeing cash burn inch back up, with daily burn of between $7m and $9m forecasted for all of Q3. The fate of northeast-to Florida demand is clearly important to the airline, as is transcon demand and family-visit demand to Puerto Rico and the Dominican Republic. All three were showing signs of life before the Covid spike, unlike for example, shorthaul routes within the northeast. Bookings currently, it said, are “choppy.”
  
  Executives are planning for a variety of different scenarios, good and bad, with cash preservation its immediate focus, followed by rebuilding profit margins, and then working to restore its balance sheet to pre-crisis health. How long will that take? It’s as much a question for vaccine producers as it is for airlines. But JetBlue’s best guess is an L-shaped recovery for now.
  
  Interestingly, in the past week or so, it has seen bookings for its Vacations product reach similar levels as last year. Most of its traffic is family visit or leisure related, which everyone expects to recover more quickly than business traffic. A220s will soon arrive, alongside additional A321 NEOs. It’s pushed back some deliveries though and might accelerate retirements of older A320s and E190s. Caribbean countries are starting to relax border restrictions. Middle seats are still blocked though Labor Day at least. But the costs are modest, with less than 10% of flights actually booking to the maximum.
  
  In any case, the summer quarter won’t be pretty, with July-to-September capacity expected to be down 45% y/y, but revenue down 80%.   

• Since the start of the crisis in mid-March, Hawaiian has flown the least of any U.S. airline, due to the strict 14-day quarantine its home state has required for all visitors. Late in Q2 (June 16), Hawaii lifted restrictions on inter-island travel, allowing Hawaiian to restart some shorthaul routes, which are running about 40% full. But the quarantine for outsiders remains. It was thus a very bloody second quarter, even by the standards of the crisis, with operating margin at negative 366%. More importantly, cash burn was about $4m a day, and should drop to $3m this quarter. Cash won’t break even, management said, until demand shows some measure of improvement.
  
  Like other U.S. airlines though, it’s been able to raise cash from capital markets, to obviate any near-term bankruptcy concerns. Hawaiian too, has seen the “velocity” of bookings slow in the past few weeks. And it sounds like involuntary job cuts are unavoidable. The airline is however working with unions to increase take-up of voluntary leave options. It’s separately taking to Boeing about pushing back B787 deliveries. It will take the government CARES Act loan on offer. It’s doing sale-leaseback deals. It’s gradually adding back U.S. West Coast routes, if not yet international routes to key markets like Japan.
  
  This quarter, it will likely operate just 15% of its originally planned ASM capacity. By next summer, it still expects capacity to be down 15% to 25% from 2019 levels. It’s currently capping load factors at 70% to ease traveler health concerns. It’s of course, removing as much cost from its business as possible, understanding that big capacity reductions create diseconomies of scale and unit cost inefficiencies.
  
  A hurricane created an added headache last week, avoiding a direct hit on Hawaii but forcing the airline to move its fleet to the West Coast to avoid damage. Hawaiian, to be sure, has confident in the longterm attractiveness of Hawaii as a premier tourist spot. But it also expressed concern about the longterm damage the Covid crisis is inflicting on Hawaii’s tourism-centric economy. Almost everything depends on it, including even the state’s agricultural sector, whose biggest customers are tourist hotels.

• Allegiant calls itself the “best of the worst,” with a Q2 operating margin of negative 80%, a lot better (or should we say less worse) than all of its rivals. In fact, of all the airlines that reported so far, only Singapore Airlines and SkyWest did better. Allegiant cut its flying a lot less than most airlines, with ASMs down y/y by only half during the quarter. Revenues declined a lot more, by 73%, but this was still a milder drop than seen elsewhere. It’s also burning less cash (less than $1m daily last quarter). It has the most variable cost structure of any U.S. airline. And it hasn’t had to hurt investors with any new stock or convertible bond issuance. Instead, it fortified liquidity with measures like executing sale-leaseback deals and suspending work on its Sunseeker hotel project.
  
  Importantly, the LCC made money in June, when markets like Florida and Arizona were showing vibrancy. Disappointment followed though, as the Sunbelt Covid spike crushed the momentum. The much-anticipated reopening of Disneyworld in Orlando wound up providing hardly any demand boost. Las Vegas is now seeing a bit more action but not much. Hopes are now pinned on the winter holidays, meaning Thanksgiving in November and Christmas in December. And if not that, then heaven forbid if demand remains depressed into Florida’s peak season next spring — it’s not atypical for Allegiant to earn 20% to 25% of its entire year’s profits just in the super-peak month of March.
  
  Fall is typically the worst part of the year, and Allegiant will undertake its usual schedule reductions in Q3, relative to Q2. One dilemma it’s having is an inability to extract contract concessions from pilots, forcing it to consider layoffs. It already eliminated some non-union management and administration jobs. It’s making progress in talks with other unions. But the balance at play here is the need to cut pilot costs without sacrificing the ability to take advantage of sudden upturns in demand. As success in June showed, it doesn’t need demand to bounce much for it to make money. There’s certainly no doubt that costs will need to decline for the carrier to hit its goal of breaking even on cash flows by year end.
  
  Separately, Allegiant identified some new trends it’s seeing with respect to leisure travelers. Its own customers are typically price-sensitive and use their own money to purchase tickets. That’s different from a typical leisure traveler on say, United or Delta, who buys their seats with miles earned while traveling for businesses. Now that there is no business travel, where will these people turn? To airlines like Allegiant? Internal surveys say Allegiant customers are willing to travel and have stable incomes. The carrier also sees more people working remotely at a vacation rental property. And it sees a reverse travel pattern of people in leisure destinations like Orlando, Phoenix, and Los Angeles traveling outbound to nature destinations like Yellowstone National Park and the Smokey mountains.
  
  Make no mistake: Allegiant CEO Maury Gallagher isn’t happy with Washington’s handling of the Covid crisis, citing inadequate testing and information. When the crisis does end, the airline might have another headache: New startups like Breeze adopting Allegiant-like business practices.

• A large jump in Covid cases in India has airlines like IndiGo wondering if the worst is yet to come. It’s hard to get too much worse than Q2, when India’s largest domestic airline spilled $377m in red ink. Operating margin was negative 344%. A 92% y/y reduction in revenues was consistent with a 91% y/y reduction in ASK capacity. Only on May 25 were Indian carriers allowed to restart domestic flights, and only just a quarter of their normal capacity.
  
  As for IndiGo’s operating costs, they dropped just 60%, because labor costs dropped just 18%. IndiGo sees no alternative to steep pay and job cuts. While taking new NEO deliveries, they’ll be offset by lease returns. For cash, it’s doing more sale-leaseback deals. Charter flights for repatriation and other purposes are providing a bit of relief. Same for cargo, where executives see potential even in the longterm. Passenger volumes are low, but yields are decent.  It hopes to ramp up to about 60% or 70% of normal capacity soon but that depends on government travel policies.
  
  Right now, travel restrictions exist even between various Indian states. The government is also capping fares. Unfortunately, July was a terrible month for infections and fatalities, with Mumbai seeing the worst of it (IndiGo is headquartered near Delhi). Sure enough, the carrier said last week that bookings started to weaken in late July after strengthening through most of the month. Seasonality, though, might be part of the explanation. In any case, the trend is highly volatile and unpredictable, meriting a very short-term planning horizon.
  
  Longterm, IndiGo’s optimism remains “undiminished.” With 274 planes, it already has scale. It might yet jump into the intercontinental market, with cheap fuel making the prospect more attractive. It also sees Gulf carriers in retreat, relying too much on connecting traffic.
  
  Said CEO Rono Dutta: “There are almost 20 different ways you could book from Delhi to London, through Oman Air and Saudi Air and God knows who else is there. So as this one-stop becomes less competitive to nonstop, I think that’s an advantage.” Dutta adds when asked about India’s national airline: “At this point, we’re not interested in Air India.”
  
  At home, it sees lots of potential in train-to-airline substitution. The immediate concern is getting costs down, noting that low aircraft utilization is currently one of its biggest problems. Right now, Dutta said, IndiGo’s unit costs are “obnoxious.” 

• Also in India, IndiGo’s fellow LCC SpiceJet reported results, but for the January-to-March quarter, not yet the April-to-June quarter. No wonder why it wasn’t in a rush. Net loss was $111m. Operating margin was negative 30%. India isn’t providing much fiscal support to its airlines, leaving carriers like SpiceJet — with less balance sheet strength than IndiGo — struggling to survive. B737 MAX delays are no longer its biggest problem.
  
  Entering the cargo market pre-crisis proved a godsend. Now it’s looking to fly widebody charters overseas, perhaps as a way to test the waters of more permanent intercontinental offerings.

• On July 9, the Brazilian airline Gol told investors to expect an operating profit during the second quarter, excluding special items. As Q2 results published last week show, however, it took a very generous definition of special items, ignoring all the costs (notably depreciation and crews) associated with its 130 grounded planes.
  
  In reality, Gol was just as badly wounded by the Covid virus as the rest of the industry, incurring a stated operating margin of negative 251%. Its accounting net loss was $370m, though this included some widely recognized special items like forex losses.  Gol cut its Q2 ASK capacity 91% y/y, leading to an 89% decline in revenue. Operating costs declined 56%, even though fuel outlays dropped 86% and labor costs 71%. Gol indeed has a highly-variable cost structure and quickly secured new labor agreements to help it avoid the fate of its rival Latam, which filed for bankruptcy.
  
  It hopes to soon strike further cost-saving and liquidity-enhancing deals with its aircraft lessors — Gol leases 100% of its fleet. Ensuring adequate liquidity is no doubt a challenge, especially with many international investors shunning Brazilian companies, deterred by the country’s macroeconomic challenges. Weighing on the country’s airlines last quarter was a sharp depreciation of the Brazilian real, though this is less of a problem with fuel prices so low.
  
  Gol does qualify for a loan backed by Brazil’s development bank. But that could take a few months to finalize. In the meantime, it’s scrambling to preserve and raise cash, executing a forward sale of frequent flier miles, for example, and stopping pre-delivery payments to Boeing for its B737 MAXs on order. At the same time, restoring flights to capture recovering demand requires up-front cash — it’s a tricky balancing act. Demand did start coming back in late May, and bookings recently have shown growth of about 18% week on week.
  
  Management contrasted the impact of Covid-19 on different social classes in Brazil, with wealthier people — typically the only Brazilians who fly — less affected than the poor. Cities like São Paulo are reopening businesses, and Gol expects businesses to start flying again as early as next month, which coincides with the start of South America’s spring season. About half of Gol’s pre-crisis customers were flying for business, and half of those flying on corporate contracts. Right now, aside from small numbers traveling with health and infrastructure companies, most traffic is leisure or for family visits.
  
  This month, it’s adding service from Salvador to northeastern cities to capture more of this non-business demand. More of its passengers, furthermore, are currently connecting through one of Gol’s hubs. With the expected pickup in business travel, the LCC will next restore more capacity at São Paulo’s Congonhas airport. By the end of December, during the country’s summer peak, Gol hopes to have about 80% of its normal capacity flying again. It’s also watching as rivals Latam and Azul cut capacity, but also cooperate with each other.   

• Aeromexico, which filed for bankruptcy on June 30, posted a massive $1.2b Q2 net loss, though the figure was more like $323m excluding special items. Revenues declined 85% y/y on 78% less ASK capacity. Operating costs declined 45%. Mexico’s largest airline has no doubt that it can emerge from its court-supervised restructuring, as a stronger airline with lower costs. It will retain close ties to Delta, with which it operates a transborder joint venture.
  
  But before it thinks about strategy, more immediate tasks include securing debtor-in-possession (DIP) financing and restructuring contracts with suppliers, lenders and unions. DIP loans are unique to the U.S. bankruptcy process, allowing new lenders to come in and provide capital, while moving to the front of the line when it comes to claims on the company’s assets, ahead of previous lenders.
  
  Aeromexico is already using its bankruptcy rights to return some unwanted aircraft to lessors. As a major B787 and B737 MAX customer, its most important supplier is Boeing. One tiny bright spot last quarter was a 36% y/y increase in cargo revenues. Much less helpful was a sharp y/y depreciation of Mexico’s currency against the U.S. dollar.
  
  In June, domestic load factor was 68%, down from 83% a year ago. Now that it’s in bankruptcy, Aeromexico did not hold its usual quarterly investor call.

• Aeromexico’s ultra-low-cost rival Volaris finds itself in the relatively privileged position of carrying mostly shorthaul family-visit and leisure traffic. Like Wizz Air (and Frontier and Jetsmart), Volaris is owned by Indigo Partners, which three years ago placed a massive Airbus NEO order for all four carriers. Volaris still intends to take its share, eyeing to have NEOs account for 60% of its fleet by 2023, double the current ratio. That said, it did defer about 20 orders into the late 2020s.
  
  As strange as it sounds, if your operating margin was better than negative 200% last quarter, you were among the better performing airlines. And the figure for Volaris? Negative 154%. Revenues, ASM capacity, and operating costs declined by 82%, 77%, and 50%, respectively. This quarter, it expects to burn between $40m to $45m per month, which is less than $1m a day. Like others, it’s further variablizing its cost structure, in part by negotiating concessions with some 360 suppliers. It flew 60% of its June capacity and expects to ramp that up to 70% this month. To help generate extra cash, it’s selling tickets as far out as next fall. It sees domestic demand reaching 65% to 75% of last year’s levels by year end, in volume terms anyway (fares will remain depressed). Bookings look pretty good for the first half of 2021. More recently, bookings have softened but this was offset somewhat by lower no-show rates.
  
  Which markets are outperforming right now? Tijuana, which sits across the border with San Diego, is already back to last year’s levels of traffic, driven by family-visit demand. Guadalajara is a similar story. The second-best group of markets are beach places like Cancun, Los Cabos, and Puerto Vallarta, driven by domestic leisure demand. Volaris is allocating less capacity to transborder markets, given travel restrictions. But already by the end of this month, it plans to be operating most of its U.S. routes, albeit with significantly fewer frequencies per week. That’s consistent with a broader network approach right now of emphasizing breadth over depth; in other words maintaining most routes but with slimmer schedules.
  
  One longtime cornerstone of the Volaris business model is its aggressive courtship of long-distance bus travelers. And it wasn’t beneath management to warn that poor ventilation on busses could be hazardous to your health. About half of the carrier’s customers are visiting friends and family, many of whom would consider bus travel an alternative. Aeromexico’s bankruptcy of course presents opportunities for Volaris, not least the chance to grab scarce Mexico City slots, which it’s indeed doing. (As an aside, cancelling construction of Mexico City’s new mega-airport no longer looks so damaging for the country in retrospect). There’s also scope to benefit from Avianca’s bankruptcy, specifically in Central America.
  
  Volaris more generally sees the crisis as a “once in a lifetime opportunity” to improve the fundamentals of its business not least its already-low cost structure. It claims to have the strongest balance sheet among Mexico’s four biggest airlines (the others are Aeromexico, Interjet, and fellow ultra-LCC VivaAerobus). Its co-branded credit card is performing relatively well. Worker remittances from the U.S. to Mexico, which typically correlates with family-visit and migrant traffic, is near all-time highs. The airline has an upgraded website and reservation system. During Q2, it took 1.1m bookings for future travel.
  
  And no, video calls won’t replace air travel. To quote the carrier’s number-two executive, Holger Blankenstein: “A trip to the beach cannot be replaced by a conference call.”

• Icelandair was a broken airline even before the Covid crisis. It did after all lose almost $60m last year. All right, so B737 MAX delays were a big reason for that. But anyway, there’s no argument about Icelandair’s broken balance sheet right now, after incurring a $124m net loss excluding special items last quarter. Only thanks to its sizable cargo business did total revenues only drop 85% y/y, despite a 97% cut in passenger ASK capacity.
  
  Like its Nordic rivals Norwegian and SAS, Icelandair is attempting to achieve a bankruptcy-like restructuring of its costs without actually resorting to bankruptcy. Also like Norwegian and SAS, it’s only hope of riding out the crisis is raising additional cash with government support. Indeed, Iceland’s government is guaranteeing a loan, on the condition that the airline undertakes a successful share sale next month. Investors who take the plunge will own an airline well-placed to take advantage of any future recovery in price-sensitive transatlantic travel.
  
  Icelandair will also have much cheaper and more flexible labor agreements after securing multi-year concessions from pilots, flight attendants, and mechanics. To complete its restructuring, it also needs concessions from lenders, aircraft lessors, credit card processors, fuel hedge counter-parties, and Boeing.

• AirAsia X, like SpiceJet, belatedly reported results for the first quarter. The longhaul LCC, with a long record of losses, this time recorded a $38m net loss and a negative 11% operating margin. The airline said it was making money in January before the world started falling apart, starting with the Covid outbreak in China. It ultimately saw a 25% y/y reduction in passenger volumes. It suspended all operations on March 28. It’s already said that certain routes like Tianjin, Lanzhou, Jaipur, Ahmedabad, Gold Coast, Tokyo Narita and Okinawa won’t be coming back.
  
  For now, it’s mostly running cargo and charter flights. It’s hopeful of seeing some return of regular passenger traffic late this year. Malaysia’s borders remain mostly closed though at least until the end of this month. But the survival of AirAsia X is hardly guaranteed, with management warning of “severe liquidity constraints.” It’s doing what it can to reschedule payments to creditors and renegotiate contracts including bad fuel hedges.
  
  Its joint venture Thai AirAsia X, by the way, lost 427m last quarter.

• SkyWest, the U.S. regional giant, posted a $26m Q2 net loss, but that would have been $178m without the CARES Act payroll support it received from Washington. While most of its revenue is contracted, rather than dependent on ticket sales, it nonetheless saw a 53% y/y drop in revenues as it flew 33% fewer block hours.
  
  So SkyWest too is burning through cash, though just about $500k per day on average currently. With a strong balance sheet going into the crisis, with access to federal loans if needed, and with $1b worth of unencumbered assets available to use as collateral, SkyWest is well-placed to ride out the storm and be ready for the upturn. When that will come is anyone’s guess, and management is reluctant to undertake major layoffs or base closures before having a better sense of what its partners — United, Delta, American, and Alaska — want it to fly next spring and summer peak. It stressed the flexibility it has in working with partners as they try to rightsize their fleets.
  
  Fortunately, E175s are proving a useful tool in that endeavor. In fact, E175 block hours should be down only around 10% this quarter. On the other hand, carriers like Delta are eagerly getting rid of 50-seat jets like CRJ-200s. As more E175s arrive, and as more CRJ-200s depart, dual-class aircraft (i.e. those with premium cabins) will soon represent 70% of its entire fleet.
  
  To cope with the near-term reduction in flying, some 4k of the airline’s workers have accepted voluntary time off or retirement. Naturally, SkyWest is watching labor negotiations at the Big Three to see if unions grant scope concessions to outsource more regional flying. It has the balance sheet strength to finance planes like the E175s, at a time when the big boys are sharply reducing capital expenditure. Says the airline’s CEO: “We’re in this for the long game.”