Skift Take
No other country or region has an airline industry as strong as that of the U.S. What's the secret? Have U.S. airlines cracked the perennially difficult code to airline profitability, and will it last? Skift Airline Weekly dove deep and zeroed in on trends that explain the U.S. airlines' success.
For U.S. airlines, the fourth earnings season is now complete. And as is customary these days, all players produced solid profits. Collectively, Delta, American, United, Southwest, Alaska, JetBlue, Hawaiian, Spirit, and Allegiant reached a double-digit operating margin, topping 10 percent on nearly $46 billion in revenues. For all of 2019, they earned 11 percent on $184 billion. The year before: 10 percent on $175 billion. No other country has an airline industry so stable and profitable.
What were the highlights of the final quarter of the final year of the decade? Here’s a review:
Boosted by Economy
Perhaps most importantly for U.S. airlines, the domestic economy was strong, driving robust corporate and household spending on air travel. U.S. gross domestic product grew a healthy 2.1 percent in the fourth quarter and 2.3 percent for all of 2019. Though business spending was weak, consumer spending and especially government spending was up significantly. Both fiscal and monetary policy remain expansionary.
Less Capacity
Complementing strong demand conditions were tight supply conditions. Seat capacity, indeed, was depressed by the absence of grounded Boeing 737 Maxs, and to a lesser extent the late arrivals of Airbus A321 NEOs. To be clear, the carriers affected wish it weren’t so — disrupted fleet plans are driving up costs, complicating operations, and delaying strategic initiatives. But there’s no denying the significant lift to industry unit revenues from the loss of so much capacity.
Fuel Prices Drop
Fuel prices dropped sharply. This was another big highlight of the fourth quarter: The industry’s fuel bill sank 8 percent year-over-year despite a 3 percent increase in seat capacity, not to mention the unrealized fuel efficiency that all those grounded Maxs and tardy NEOs were supposed to provide. Most carriers paid just a bit more than $2.00 per gallon, compared to a simple average of about $2.30 in the same quarter a year ago. This quarter by the way (January to March) looks even better. After an initial
