DESTINATIONS North America AMERICAN
Following years of losses, lack of investment and the consolidation of carriers, US airlines are once again making money and better positioning themselves for when the next downturn comes WORDS GARY NOAKES
T
here might be a few clouds on the global economic horizon, but for the moment airlines in
the US are feeling pretty damn fine. After a decade of losses, consolidation and low investment, the corner has now been turned – there are fewer US carriers but they are generally very profitable, and with a product that once again rivals the best in the world. Airlines may have adopted a buy-what-you-want approach on domestic ticketing as a source of ancillary revenue but on international services the free wine and beverages are back and the flat bed in business class is almost guaranteed.
In 2005, US airlines lost $10.8 billion on
average oil prices of $56 a barrel. Ten years on, with average fuel rates not dissimilar, the four biggest carriers alone – American Airlines, Delta, United and Southwest – made almost $19 billion in 2015. “The figures speak for themselves,” said Bob Schumacher, United Airlines’ UK and Ireland managing director of sales. “Yes, the volume of profitability has come from oil but it has also come from consolidation and efficiencies. It’s been a dramatic
American merged with US Airways in December
change – US airlines are probably the most successful globally.”
Consolidation in the past decade has seen United/Continental and Delta/ Northwest Airlines become one; plus, as recently as December, American Airlines merged with US Airways. Consumers may have less choice but at least airlines are making money again. The industry also seems to be reining in capacity, with average fares holding up. “The business medicine, if you like, has been taken. There seems to be more discipline than in most markets,” Schumacher believes. Lest passengers start to think all the cash has been stashed away, airlines will point to investments in new aircraft and bringing premium cabins up to global standard. In Delta’s case, it has also reduced debt from $17 billion at the time of the Northwest merger to $6 billion now – meaning it is less vulnerable when the next downturn comes. “We know the industry is cyclical, we know fuel will go back up: the question is can we be sustainable in the down cycle? We have a lot of things going for us,” said Nat Pieper, Delta’s EMEA SVP. He adds that Delta’s debt target is $5 billion, a level he says at which it is better to start reinvesting again.
International expansion
All the big US carriers, even Southwest and JetBlue, have been looking internationally for their expansion, where yields are generally higher. Delta’s focus in 2016 is on Seattle and Los Angeles, to give it more of a presence on Pacific routes. The past few years have seen it build domestic feed into Seattle to make long-haul routes viable.
40 ISSUE 3 ROUTES NEWS 2016
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