A Latam Turnaround Story

Not enough excitement in your life? Try following the airline business, which last week featured a frenzy of activity. The JetBlue-Spirit trial is now underway. Virgin Atlantic is exiting Austin, a possible signal of excessive post-pandemic expansion zeal. Air Canada, American, Icelandair and others nevertheless continue to announce new transatlantic routes. Also last week, many of the globe’s largest and most influential airlines reported their third quarter earnings.

It was in general a very good summer, more so for non-U.S. carriers who generally aren’t seeing as much labor cost inflation (yet), nor as much of a supply-demand imbalance on shorthaul leisure markets (i.e., Las Vegas and Florida). Lufthansa, though it fared well, is surely disappointed that its third-quarter operating margin was the worst among Europe’s Big Three. Heavier cargo exposure is one reason why. But more troublingly, the core Lufthansa-branded airline is lagging. Swiss as usual was ultra-profitable. What’s happening at Austrian, Brussels, and Eurowings is pretty encouraging too, though their test will be avoiding heavy offpeak losses. Next up on Lufthansa’s agenda: Securing approval for its investment in Italy’s ITA.

Turkish Airlines continues to stun the industry with both its growth and profitability. If you thought Bryan Adams was wistful for the Summer of ’69, imagine the song Turkish will one day write about the summer of ’23. The chorus: We earned a 25% operating margin. Believe it or not, so did Norwegian, whose post-bankruptcy turnaround is becoming more and more convincing. Perhaps it’s theme song should be Bonnie Tyler’s “Turn Around.”

Every now and then (and quite often this past quarter), America’s ultra-LCCs get a little bit nervous that the best of all the years have gone by. Allegiant though, despite a lackluster summer, insists that it’s not like all those other ULCCs (looking at you Spirit and Frontier). It’s got a different scheduling approach, a different competitive landscape, a different reliance on growth … and so on. Allegiant, remember, did have a great second quarter.

How about JetBlue, which is more of a premium LCC? The extra legroom and free snacks didn’t help in the third quarter — not with JetBlue’s exposure to Florida, to geared turbofan engine woes, to rising costs, to operational disorder, and numerous other maladies. All of this, as Bryan Adams might say, cuts like a knife. So, does JetBlue need Spirit more than ever? Or is it having buyer’s remorse?

Nothing remorseful about Air Canada’s impressive summertime profits. Same for profits at IndiGo, whose operating margin also topped 20% despite calendar third quarter being an offpeak period in India. IndiGo also suffers major geared turbofan engine headaches, with more than 40 of its A320neo-family jets currently out of service. That’s not curtailing its ultra-bullish growth, however, as it seeks to capitalize on India’s high-potential economy. Just as Air Canada made international flying a staple of its grand strategy, IndiGo has its eyes gazing firmly abroad (though just with narrowbodies for now).

Eyes are opening to Latam’s strong position, a year now removed from its bankruptcy exit. Japan’s Big Two are performing well, in part by carrying through traffic into and out of China. Chinese carriers themselves had a fantastic summer, especially the smaller domestic focused airlines. Shanghai’s Spring Airlines, an LCC, had the best third quarter of any airline in the world’s that’s reported so far: a 29% operating margin! How do you say “killer quarter” in Chinese?

Qatar Airways said in a press release that it earned a 9% net margin in the October-to-March half. Low-cost longhaul specialist Norse Atlantic earned just a 5% operating margin for the peak summer. That’s not a terribly large stockpile of profits to sustain it through the cold and dark winter. On a more cheerful note, the global travel distributor Sabre cited “reasons to be optimistic” about managed corporate travel activity, based on what it sees from bookings.

In Fort Worth, Texas, last week, the airline stars were big and bright. In a single-day event hosted by Skift, C-suite executives from American, United, Southwest, Sun Country, Viva Aerobus, Norse Atlantic, JetBlue Travel Products, Dallas-Fort Worth Airport, Air Lease, Airbus Americas, and ATPCO shared their thoughts on industry trends and developments. Others top execs came from Delta, Alaska, Boeing, IATA, and so on. Southwest, for one, made news by revealing its interest in serving DFW. Did you ever think you’d live to see the day?