Airlines Break Records in 2015

Buoyed by low fuel prices, the major U.S. airlines reported record earnings for 2015.

At least one airline expects the trend to continue this year.

“Our 2015 performance was a record for Delta on all fronts,” Richard Anderson, chief executive officer of Delta Air Lines, said, with a $5.9 billion adjusted pre-tax profit. 

But, he added, “Our first quarter 2016 performance will break all records.”

Not only did Delta shine on the financial front, it achieved a full-year completion factor of 99.6%, with 161 days of 100% main line completion.

Delta plans to have all four of its fare products in all domestic markets by 2018. They include Comfort +, which began as an upsell product but is now being converted to a distinct cabin class, and Basic Economy, a bare-bones fare designed to compete with ultra-low-cost carriers like Spirit and Allegiant.

Unlike most “basic” fares, Delta allows no à la carte additions, such as advance seat selection or priority boarding, to Basic Economy.

Meanwhile, Delta is seeing “continued strength in corporate demand,” according to president Ed Bastian. Corporate demand in the fourth quarter was up 3% overall, although the Paris attacks depressed things a bit in Europe.

“But broadly speaking, our corporates continue to tell us that they expect growth in 2016 over 2015 levels” Bastian said.

Delta is eying a new addition to its fleet, according to Bastian: Bombardier’s C-Series, designed for 100 to 150 passengers.

“It’s a pretty impressive airplane,” he said. “The geared turbofan is the really the first big innovation since the Boeing 787 revolutionized the composite structure for the body the fuselage of the airplane. So we actually think that at the right price it’s quite a competitive airplane, particular given the engine technology. We’re taking a very serious look at it.”

One of the most surprising features of United’s earnings call was who showed up for it: Oscar Munoz, who suffered a heart attack a month after he was appointed chief executive officer in the fall and subsequently received a heart transplant. “I am certainly darned glad to be here,” he said.

Munoz replaced Jeff Smisek, who never managed to realize the potential of the 2010 merger of United and Continental. Customer service and operational performance suffered.

Although Munoz’s tenure has been brief and interrupted, both United’s employees and airline analysts believe he is “set to unlock the potential in United,” as one financial blogger put it. His initial outreach to employees and apparent lack of arrogance has boosted morale.

Despite its woes, United reported 2015 pre-tax earnings of $4.5 billion, “our highest level of earnings in United’s history,” Brett Hart, acting CEO, said.

Operational improvements are under way, Hart said. “When compared to last year, our completion rate improved by more than 1 point, and on-time performance was 6 points better for the full year 2015,” he said. “This was particularly evident in the fourth quarter as our on-time performance and completion factor were the best since the merger.”

The carrier also achieved record baggage performance in seven months of the year.

Jim Compton, vice chairman and chief revenue officer, noted two items that have the potential to boost earnings.

The rollout of bundled fare offerings will begin this month, allowing customers to purchase the collection of products suited to their travel, “as opposed to a more manual process of selecting from an à la carte menu,” Compton said.

The second phase, expected to launch in the second half, will introduce an “entry-level fare” to appeal to the “purely price-sensitive” customer.

Turning things around at United will be a long, hard slog, but Munoz has provided some cause for hope.

American Airlines is looking forward to a “great” 2016, according to chief financial officer Derek Kerr.

The carrier reported record net income of $6.3 billion, breaking a record set last year.

“It’s hard to believe that just two years ago, we were just coming out of bankruptcy,” Doug Parker, chief executive officer, said.

American achieved several post-merger integration milestones during the year with the smoothness that has eluded United.

Chief among them was a migration to a single reservations system that was barely noticeable.

“Our team hit the ball out of the park,” Parker said.

American is facing difficult times in South America, particularly in Venezuela and Brazil.

President Scott Kirby said at the time of the merger, Brazil represented 6.1% of the combined airlines’ revenue. In November, it was down to 2%. Venezuela was at 2.5% at the time of the merger and has declined to 0.5%.

Kirby noted that although it’s too soon to gauge the effects of the Zika virus on traffic to and from Latin America and the Caribbean, the disease is not airborne, so it cannot be transmitted from one passenger to another.

In addition, the illness is usually mild, and some infected persons experience no symptoms.

It is generally believed to be dangerous only when a pregnant woman is infected and passes it on to her unborn child.

Kirby said American logged “sizeable increases” in corporate traffic in the fourth quarter and expects to see that continue. “Corporate demand seems strong from our perspective and growing has been all along,” he said.

Southwest Airlines experienced “by far our best year of earnings in our entire history,” chief executive officer Gary Kelly said, with net income of $2.2 billion.

Like other airlines, Southwest benefitted from lower fuel prices, but Kelly said other major factors were its record load factors and revenue growth of 5.6%. In addition, Southwest was liberated from the constraints of the Wright Amendment in October 2014. It also began flying to close-in international destinations from its new terminal at Houston Hobby.

Southwest is planning “nothing fancy” for 2016, “but clearly 2017 is shaping up to be a pretty big year,” Kelly said.

The carrier will migrate its huge domestic system to the Amadeus Altéa passenger services system; its much smaller international services have been on Altéa since July 2014.

Big renovation and infrastructure projects currently under way at Los Angeles, Fort Lauderdale, Chicago Midway and New Orleans will be completed, and the Fort Lauderdale project in particular will bring on new capacity.

Southwest also will begin taking delivery of the new 737 MAX aircraft in 2017, which promises double-digit fuel efficiencies.

Pic: Giorgio Montersino