Europe’s Airlines Approaching U.S.-Like Levels of Profitability

Editor's Note: This article was first published in Skift Airline Weekly on August 6, 2018..  Most of Europe’s publicly-traded airlines have now reported their second-quarter results. A few like Aegean and SAS will report later this month. Others like Virgin Atlantic, Alitalia, TAP Air Portugal and LOT Polish—as non-public companies—generally keep their financial reports to themselves. Even without total transparency, however, there’s enough new information to delineate the key trends and forces shaping Europe’s airline sector midway through 2018. Here, in no particular order, are the most important: — The sector maintained healthy profit margins in the second quarter: There’s lots of variation by airline, but collectively, the eight carriers featured on our page nine earnings scoreboard—which represent the vast majority of European capacity—managed a 10 percent springtime operating margin, only a point less than the 11 percent they jointly earned last year. Taking the Easter shift into account, it’s fair to say that unlike its U.S. counterpart, Europe’s airline industry showed no meaningful year-over-year profit deterioration. — For Europe’s Big Three, the most powerful force in their favor was booming North Atlantic demand: Lufthansa, Air France-KLM and IAG had nothing but good things to say about their North American routes, enriched by bustling corporate demand for premium seats, the demise of Air Berlin, ongoing support from joint ventures, new long-haul planes, good economies on both sides of the ocean and robust tourism is both directions. Unit revenue trends were exceptionally strong even with the introduction of new basic economy fares and aggressive capacity growth by some—IAG’s second quarter North Atlantic ASKs were up 10 percent year-over-year. — But the transatlantic boom didn’t benefit everyone: Nordic low-cost carriers watched the party from outside. Despite its many North American routes, Norwegian lost money again this spring, deepening a growing existential crisis. Transatlantic-heavy Icelandair lost money too, agonizing about intense fare competitio