Skift Take
U.S. airlines are still struggling to recoup their higher fuel and labor costs. But as their fourth quarter results showed, they’re making progress. How? With help from some strong revenue tailwinds.
A sharp drop in fuel prices midway through the fourth quarter of 2018 was welcome. But it didn’t prevent U.S. airlines from paying 24 percent more for their fuel this fourth quarter versus last. So once again, industry margins declined. But not much.
The country’s nine largest scheduled airlines that have reported (Frontier hasn’t yet done so) collectively earned a 9.7 percent fourth quarter operating margin, down just slightly from 10.4 percent a year earlier. Full-year margins fell more substantially, to 10.4 percent from 13.1 percent.
But by the second half of 2018, industry fares began firming, helping to offset much—but not all—of the steady fuel inflation that persisted through mid-October. Better pricing helped mitigate ongoing labor cost inflation too. In the second and third quarters, not one major U.S. airline managed to increase its margins year-over-year. But by the fourth quarter, a few—led by Spirit—did.
The big story last quarter was indeed stronger revenue trends, aided by firmer pricing. As airline executives often say, revenues eventually catch up to higher fuel prices—it just takes time. But maybe too much time. Because remember that 10.4 percent operating margin for all of 2018? Well, it was the worst industry figure since 2013.
That said, anyone with memories of last decade will feel supremely pleased with double-digit industry margins of any kind, even if just 10 percent. Sure, 2015’s 17 percent operating margin was nice. But replicating that every year is hardly the measure of success. Maybe a better measure of success is comparing U.S. airlines with their counterparts abroad. In that regard, they’re still big winners, still benefiting from the consolidation that European airlines now seem eager to mimic.
U.S. consolidation is done, albeit with some synergies from past mergers still left to harvest, most importantly at Alaska Airlines. United and American too are just now realizing benefits from fused flight attendant workforces. That’s not why revenues were so strong last quarter, though, rising 7 percent on just 5 percent more available seat miles capacity. Every U.S. airline except Hawaiian, in fact, grew revenues more than
