For U.S. Airlines, The Fourth Quarter is Fine
As carriers update guidance, it's largely been a drama-free quarter. Also in today's issue: How Gol will work with Avianca.
After roughly three weeks of illnesses (including flu, a sinus infection and pneumonia — anyone else having a particularly rough fall?), I awoke on Monday morning filled with antibiotics and ready to tackle airline news I missed. And frankly, as I delved into the news about U.S. carriers, I was surprised. No, not by the U.S. Department of Transportation's $140 million fine and consent order regarding Southwest's late 2022 operational meltdown. I think we all knew that Pete Buttigieg, whom I generally like, would get his big headlines for holding a major airline accountable. Insiders have warned me to expect more of that as we head into the 2024 presidential campaign, because hitting airlines is always good politics.
No, what surprised me is the recent guidance shared by four large U.S. airlines — Alaska, Delta, Southwest and JetBlue. All reported holiday travel is strong, and all either reiterated or improved prior guidance.
That’s the way this is supposed to work. Investor relations 101 calls for an airline — or any company, really — to underpromise and over-perform. But that’s not how it worked in summer 2023. You’ll recall how some U.S. airlines — namely Frontier, Spirit and JetBlue — shocked investors by reporting that demand had dissipated in key markets, forcing them to discount during what should have been the most profitable time of the year. It appears to be a different climate now, with many airlines reporting steady business with solid close-in bookings.1
A skeptic might argue airlines just got more sophisticated with guidance. Maybe, after the summer debacle, some decided to be super conservative, ensuring they would not disappoint investors again. I’ll take the more optimistic view though. My gut tells me that the fourth quarter is shaping up to be decent by historical standards, even if robust business travel still has not returned — and may not for a long time, if ever.
In today's post, I'll summarize the guidance I missed during my convalescence. I'll also share a brief recap of Gol's investor day from last week. The Brazilian airline is an enigma, as it racks up giant EBITDA margins, but its balance sheet is a mess, and it owes a lot of money to a lot of companies. I was amazed to see that Gol, which has only 136 airplanes, works with more than 25 lessors. First, though, let’s look at the U.S. market and how a few key airlines expect to perform in the fourth quarter.