This week we have an extra special treat for you. Recorded at the Skift Aviation Forum, held in Dallas, Texas on November 12th, we're in conversation with the IATA Director General Willie Walsh.

Walsh and host Gordon Smith discuss pivotal topics in the aviation industry, including challenges for low-cost carriers, geopolitical concerns, the pursuit of sustainability, and the evolving economic landscape of airlines. Walsh offers insights into the resilience of the industry, the transition to sustainable aviation fuel (SAF), and the implications of regulatory and geopolitical decisions.

Key Takeaways

Low-Cost Carrier Engagement with IATA: Despite the historical perception of IATA as primarily serving legacy carriers, low-cost airlines are showing increased interest in joining. Walsh highlights the advantages IATA offers, such as settlement systems and commercial services, which are increasingly relevant to these carriers.

Geopolitical Challenges and Aviation Safety: Walsh addresses ongoing issues like the suspension of flights to Haiti due to security concerns and the complexities of Russian airspace restrictions. He emphasizes the need for decisions based on risk assessments and advocates for open airspace to ensure operational efficiency.

Economic Pressures on Airlines: The financial viability of achieving Net Zero by 2050 remains a significant concern, with estimated costs reaching $4.7 trillion. Walsh stresses that the airline industry alone cannot shoulder this burden and calls for shared responsibility across the value chain.

Sustainable Aviation Fuel (SAF) Transition: SAF is central to the industry's sustainability goals, but its high cost poses challenges. Walsh highlights the necessity for collaborative efforts from governments, fuel producers, and manufacturers to scale SAF production and reduce costs.

Adaptability and Decision-Making in Aviation: Drawing from his background as a pilot, Walsh emphasizes the importance of swift and decisive action in the face of challenges. This skill has been critical in navigating the volatile and uncertain aviation landscape, particularly during crises like the pandemic and geopolitical tensions.

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In this week's episode, Gordon Smith and Jay Shabat preview the upcoming Skift Aviation Forum, being held in Dallas on November 12. From overcapacity to sustainability, the pair explore some of the most important themes that are likely to shape discussions at the event. For more information on the Forum visit live.skift.com.

This episode is presented by American Airlines.

Key Takeaways:

DFW Market Significance: The Dallas-Fort Worth market is a critical and rapidly growing hub for airlines. DFW’s metro area is close to surpassing Chicago as the third-largest in the United States, making it a key center for major players including American Airlines and Southwest.

Challenges for Airlines and Sustainability Costs: Looking ahead to the Skift Aviation Forum, we examine recent comments by Willie Walsh, IATA’s Director General. He argues that airlines should not bear the full cost of the transition to Sustainable Aviation Fuel (SAF) and suggests some expenses will likely be passed to passengers.

Abra Group and Latin American Aviation: We discuss Abra Group, a holding company for airlines like Avianca. Further growth and innovation is expected in the region, including potential mergers. Brazilian carrier Gol is considering a merger with domestic stablemate Azul while navigating bankruptcy restructuring.

JetBlue’s Financial Improvement & Strategy Adjustments: JetBlue reported a slight improvement in operating margin for Q3, moving from -7% last year to -0.5% this year. The LCC is cutting capacity in underperforming markets and reallocating resources to stronger locations such as New England.

Southwest’s Strategic Shifts Amidst Leadership Pressure: Southwest Airlines faced investor pressure to replace its CEO but reached a compromise with board changes instead. The airline also introduced new strategies, including premium seating and an overhaul of its vacation packages, aimed at boosting profitability.

Industry-Wide Trends: Falling fuel prices are providing relief to airlines globally, with crude oil hovering around $70-$75 a barrel. Demand is stabilizing as leisure travel cools and business travel rises, while premium service demand remains strong across regions.

https://live.skift.com/events/skift-aviation-forum/

Presented by American Airlines

In this special episode, Gordon Smith and Jay Shabat discuss the key takeaways from LATAM's investor day event in New York. The pair explore how the company's turbulent history has influenced its current success. We also learn about the continued challenges facing the group as it sets ambitious targets for 2025 and beyond.

Key Takeaways:

LATAM Airlines' Origins and Challenges: LATAM began as LAN in Chile, thriving in a difficult South American airline market due to Chile’s developed economy, particularly its copper wealth. Over time, LAN expanded by forming joint ventures across South America, but its 2010 merger with Brazil's Tam, aimed at increasing scale, led to operational challenges and weaker profit margins until 2018-2019.

Post-COVID Restructuring and Success: After filing for bankruptcy during COVID, LATAM underwent significant restructuring, which improved its financial performance. By 2023, the airline achieved an 11% operating margin, surpassing its pre-merger performance.

Key Strengths from Investor Day: LATAM's scale (80 million passengers, dominance in South America), cost advantages from renegotiated aircraft leases, favorable market conditions in Brazil, a joint venture with Delta, a large loyalty program, and a diversified business including cargo and maintenance, position the airline well for future growth.

Fleet Simplification and Future Outlook: LATAM Airlines has been simplifying its fleet, shedding aircraft like the A350s and potentially phasing out the A319s due to their high unit costs. They're focusing on growth, anticipating 15-16% capacity growth in 2024, aided by more efficient planes like the A321neo and Boeing 787. This growth should help maintain low unit costs and drive profitability.

Geographical and Economic Challenges: LATAM faces unique challenges due to South America's geography, with long distances between cities and limited intra-regional traffic. Additionally, the region's economies are highly sensitive to commodity prices, which can cause volatility. Despite these challenges, the airline's management remains optimistic about future growth and stability.

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Presented by American Airlines

In this week's episode Gordon Smith and Jay Shabat provide an early status update on Q3 earnings season. With Delta on the back foot after the CrowdStrike chaos and Olympic disruption, United is eyeing the top spot. The pair also discuss the latest financials from Virgin Australia and ask what could be next for the carrier.

Key Takeaways:

Upcoming Skift Aviation Forum 

Hosts Gordon and Jay discuss the upcoming Skift Aviation Forum on November 12th in Dallas. The event will feature a star-studded lineup of airline executives, including CEOs from major carriers like American Airlines and Southwest. Visit live.skift.com for tickets and further information.

Delta’s Q3 Earnings: Challenges and Setbacks 

The conversation shifts to Delta's Q3 earnings, which were slightly weaker than expected, with a 9% operating margin. The airline was negatively impacted by a software issue with CrowdStrike, costing them about 2 percentage points in margin. Additionally, they lost around $100 million in potential revenue due to reduced travel to Paris during the Olympics.

Domestic and International Trends for Delta 

Jay explains other factors affecting Delta’s Q3 performance, including domestic overcapacity and softer international demand in regions like Korea and Taiwan. However, domestic conditions improved toward the end of the quarter, thanks to capacity cuts by rivals such as Southwest and JetBlue. Delta expects a strong Q4, driven by these adjustments and lower fuel prices.

United Airlines and Q3 Competition 

We preview United Airlines' Q3 results. Jay notes that United typically performs better in Q3 due to its business-heavy hubs and strong domestic capacity growth. United has increased its domestic seat capacity by 9% in Q4, with routes like Newark-San Francisco enjoying growth.

Virgin Australia’s Latest Financials

The podcast ends with a brief discussion about Virgin Australia, which recently made headlines after Qatar Airways acquired a 25% stake in the airline. This move has sparked industry interest as it could strengthen Virgin Australia's international partnerships and expand its market presence.

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Presented by American Airlines

In this week's show, Gordon Smith and Jay Shabat explain the key elements to watch as third-quarter earnings season begins. The pair discuss all-important factors including aircraft supply shortages, oversupply in U.S. markets, and a possible resurgence in corporate travel.

Key Takeaways:

Q3 Earnings Preview:

Delta is set to kick off Q3 earnings season this week with valuable insights into operational efficiency and profitability. The company faces heightened expectations following a year of travel recovery, but there are concerns about overcapacity. Investors are watching closely to see if Delta can maintain its industry-leading margins and sustain revenue growth from both business and leisure travelers.

U.S. Airline Industry Trends:

The broader U.S. airline industry is facing moderate headwinds, with airlines grappling with excess domestic capacity. This is putting pressure on margins as carriers strive to remain profitable in a competitive environment. The industry's over-expansion during the post-pandemic travel surge has led to concerns about underutilized seats and reduced pricing power, creating uncertainty around future profitability despite high travel volumes.

Business Travel and Premium Demand:

Premium travel, particularly among business travelers, continues to be a key revenue driver for Delta and other U.S. network carriers. Despite a slower recovery compared to leisure travel, corporate demand is showing signs of a resurgence.

Leisure Travel as a Status Symbol:

Leisure travel is evolving, with more consumers viewing it as a status symbol, according to Skift Research. This trend is especially pronounced in the premium segment, where travelers are opting for upgraded experiences such as lie-flat seats and luxury accommodations. This shift in consumer behavior is reshaping the airline industry, making premium leisure a vital component of future growth strategies.

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Presented by American Airlines

In this week’s episode, Jay Shabat and Meghna Maharishi discuss Southwest's latest turnaround plan. They also look at the current state of the transatlantic market connecting the U.S. with Europe. 

Key Takeaways

Southwest Airlines' Strategic Changes: Southwest plans to implement premium seating, red-eye flights, and cut back services in some areas like Atlanta to improve profitability. The airline also plans to monetize aircraft delivery delays and expects a positive outcome despite pressure from activist investors like Elliott Management, which is advocating for leadership changes.

Execution of the Plan is Crucial: While Southwest's strategy received a positive reception from investors, the main challenge lies in how effectively the airline can execute these changes within the expected timeframe, with some analysts expressing skepticism.

Southwest’s Strong Historical Performance: Despite recent financial challenges, Southwest has had a solid historical track record, especially before the pandemic, when their profit margins were strong. In comparison, other budget carriers like Spirit and JetBlue have performed worse.

Investor Pressure and Management Defense: Elliott Management, a significant shareholder, has been pressuring for leadership changes. However, there is debate on whether these proposed changes would truly benefit the airline since Southwest has already initiated several strategies that align with investor expectations.

Transatlantic Market Overview: The transatlantic market, especially between the U.S. and Europe, has been performing strongly post-pandemic, largely driven by robust leisure demand. Despite some business travel decline, markets like Italy, Greece, and Portugal have seen significant capacity increases, reflecting changing travel patterns among American travelers.

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Presented by American Airlines

In this week's episode, Gordon Smith and Jay Shabat discuss the final results from Airline Weekly's Earnings Scoreboard for Q2 2024. From household names to niche regional players, we examine the carriers that had the strongest performance in the all-important second quarter.

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Presented by American Airlines

In this special episode, Gordon Smith and Jay Shabat are in New York City for the Skift Global Forum. Recorded just minutes after stepping off stage, the pair debrief following a wide-ranging discussion with United Airlines Chief Commercial Officer Andrew Nocella. From Boeing strikes to overtourism we explore the big takeaways.

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Presented by American Airlines

In part one, Gordon Smith and Jay Shabat examine the huge changes taking place across Southwest Airlines' network and reveal the big winners and losers as the LCC's route map evolves. In part two, we discuss the key trends to watch for the coming season in the U.S. airline sector. 

Episode Summary

Southwest Airlines Leadership

CEO Exit: Gary Kelly, former CEO and chairman, to step down amid pressure from Elliott Management, a hostile investor.

Current Leadership: CEO Bob Jordan retains the board’s confidence; no imminent changes announced.

Upcoming milestones:

Investor Day: September 26, 2024.

Board meeting: November 2024.

Southwest’s Network Cuts

Significant capacity reduction, including a 1% overall decrease in 2024.

Q4 2024 will see an 8% reduction in seat capacity.

Capacity cuts attributed to Boeing delays and internal decisions to improve financials.

Southwest’s Top Airports

Busiest Airports: Denver (up 87% in 10 years), Las Vegas, Baltimore, Chicago (Midway), and Dallas (Love Field).

Capacity reductions in major markets:

Fort Lauderdale (-34%), Atlanta (-27%), San Jose (-12%), Los Angeles (-12%).

Future of Southwest

Potential changes to in-flight products, boarding processes, and bag fees.

Growth in Phoenix (+7%) and Nashville (+2%).

Expanding corporate travel and adjusting ancillary revenue strategies.

Boeing Delays

Ongoing Boeing 737 MAX delivery delays have impacted Southwest’s operations and financial performance, contributing to network cuts. However, these delays are not the sole reason for capacity reductions.

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Presented by American Airlines

In part one, Gordon Smith and Jay Shabat take a closer look at Qantas and ask how major new projects could change its business. In part two, we turn our attention to Colombian national carrier Avianca and put its latest earnings in context.

Episode Summary:

Qantas performance: Qantas reported a 9% operating margin for the first half of 2023, stronger than 2019 levels. Domestic demand remains robust due to the vast distances in Australia and limited rail/road alternatives.

Domestic market competition: Qantas faces limited competition domestically, with Rex Airlines scaling back and Bonza collapsing. Koala Airlines is a potential new competitor, but Qantas largely dominates through its mainline, Jetstar, and Virgin Australia.

Qantas business breakdown: Qantas operates three core segments: domestic, international, and Jetstar (low-cost, domestic, and international). Their loyalty program is highly profitable, with a 19% operating margin in the first half of 2023.

International markets: Key markets for Qantas include New Zealand, Singapore/Southeast Asia, Japan, the US, and the UK. Their international operations are profitable but lag behind domestic performance, with a 5% operating margin in early 2023.

Project Sunrise: Qantas plans to launch nonstop flights from Sydney and Melbourne to London and New York by 2026 with Airbus A350-1000s, aiming to boost its international market.

Fleet investment: Qantas is heavily investing in new Airbus aircraft (A220s and A321XLRs) for domestic routes and retiring its older 737s. Boeing's Dreamliners (787-9s) remain important for international operations.

Virgin Australia speculation: There are unconfirmed reports that Qatar Airways may acquire a 20% stake in Virgin Australia, which could complicate oneworld alliance dynamics, as Qantas and Qatar Airways are both members.

Future outlook: Qantas is positioned for growth with strategic fleet upgrades and long-term plans, while maintaining dominance in the Australian market. Further insights will be featured in the Airline Weekly newsletter.

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Presented by American Airlines

In this week’s show, Gordon Smith and Jay Shabat examine the global airport capacity data for the coming quarter. Of the 100 busiest airports worldwide, we reveal the likely winners and losers for Q4 and ask what these capacity trends tell us about the industry’s broader direction of travel.

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