Issue Overview
Alaska-Hawaiian: A good combination? While the industry discussed and debated, Delta and JetBlue delivered some good news: Demand remains strong as the new year approaches. In Delta’s case, transatlantic markets continue to shine. In JetBlue’s case, close-in bookings — these typically produce highish yields — have “outperformed expectations.” And that’s true, the airline said, for both holiday and non-holiday periods. JetBlue of course awaits the judicial fate of its planned takeover of Spirit Airlines, which would create an airline even bigger than a combined Alaska-Hawaiian. JetBlue’s merger does appear riskier than Alaska’s but arguably promises greater revenue synergies.
All the while, declining fuel prices are also helping turn December into a very merry month for U.S. airlines. Well, maybe not that merry for some. JetBlue, despite its more optimistic revenue outlook, still expects a fourth quarter loss. Note also that jet fuel prices are averaging higher in the U.S. than they are elsewhere in the world, though airlines elsewhere are often paying in currencies that have lost value versus the U.S. dollar.
Domestically in the U.S., ASM capacity is up about 8% year-over-year across the industry this quarter, according to Cirium Diio schedule data. But the year-over-year increase will ease to just 4% next quarter. JetBlue, incidentally, is cutting most aggressively, with scheduled domestic ASM capacity showing an 11% decline. It is, however, growing internationally. Note separately that U.S. airline operations have been exceptionally good so far this fall, which in JetBlue’s case resulted in more flown ASM capacity than expected. Put another way, it surprised even itself at how few of its scheduled ASMs were canceled.
For the industry globally, IATA estimates a $23 billion net profit this year. The industry’s collective operating margin will be just 5% though, hardly worthy of celebration. Some airlines and regions are naturally doing better than others. But everywhere, fuel prices are still much higher than they were in, say, 2016 and 2017, when the industry’s operating margins were more like 8% to 9%. During the final week of November, according to IATA’s latest figures, jet fuel averaged the equivalent of $114 a barrel.
Demand in Europe still appears healthy. TUI, the leisure travel conglomerate, sees strong tourism bookings this winter. “Typically, what happens is if things do slow down … it manifests itself in two ways. People will either trade down from a higher star to a lower star property, or they will shorten their length of stay. We’re not seeing that in any of our markets.” Maybe what airlines say is true, that households across the world really are prioritizing travel over other spending categories, blunting the impact (on airlines) of a slowing economy. Separately, TUI said bookings for Egypt, which dropped immediately after the onset of the Israel-Gaza war, have been normalizing. The company also said destinations like Spain were benefiting from lower prices as inflation cools.
