January 23, 2017
Issue No. 607
Lone Star Fading?
These are not the best of times for airlines serving Texas
Weekly News Review 2-3
In the summer of 2009, during
the thick of Americas Great
Media 3
Recession, The Economist com-
Finance & Fleet 4 pared the divergent economic
fortunes of the countrys two
Marketing & Sales 5 largest states: California was
hurting, and Texas was thriving.
Labor & Airports 7 to the latest gross state product
Today, as even a quick glance at
current airline trends will reveal,
Environment 7
that trajectory has reversed.
Routes & Networks 8-9 Texas, to be clear, did endure a
mild rough patch during the
Environment 9
recession, when energy prices
briefly dipped. But it didnt have
Around the World 10-11
anywhere near Californias sub-
prime housing exposure. As oil
and gas prices quickly rebound-
ed in late 2009, the Lone Star
State was again on its way to
outperforming California and
Oct.-Dec. 2016 (3 months) much of America too. The boom
would last well into the current
United: $397m/$562m*; 11%
decade, providing airlines as far
away as Singapore a rare oasis of
*excluding special items
profits in an era of financially
crippling fuel prices.
Pushing Back: Inside This Issue
Like Barack Obama, Scott
Kirby is a former American pres-
ident. And like Donald Trump,
he wants to make United, if not
quite the entire United States,
great again.
Actually, United (like the coun-
try, some would say) is already
pretty good. In 2016, the airline
earned strong profits for the sec-
ond straight year, moving further
away from its dark days of poor
reliability and management stum-
bles (a brief suspension of do-
Copyright Notice: No par t of this publi-
mestic operations Sunday night
cation may be copied, photocopied or
duplicated in any form or by any means notwithstanding). Its goal now is
without Airline Weekly Corps prior
written consent. Copying of this publica- to be best among the Big Three,
tion is in violation of the Federal Copy- relying on new planes, partner-
right Law (17 USC 101 et seq.). Violators ships, products and pricing to get
may be subject to criminal penalties as
well as liability for substantial monetary there.
damages, including statutory damages up
American was best among the
to $100,000 per infringement, costs and
attorneys fees. Copyright 2016 Airline Big Three in 2015, helped by a
Weekly Corp. All rights reserved. ISSN
1942-2059. no-hedge policy that left it pay-
ing much less for fuel than its
The end of the Lone Star
boom, naturally, coincided with
the collapse in oil prices that
began in late 2014. Economic
expansion did remain strong
even well into 2015, but the pain
is now unmistakable. According
figures from Americas Bureau
of Economic Analysis, the Texas
economy contract-
ed nearly 1% y/y See also:
in the first half of Top airlines in Texas, p. 12. the Texas airline
2016. In the states latest com-
pleted fiscal year that ended in
August, the economy grew just
fractionally. California, mean-
while, with its thriving tech sec-
tor, has seen its economy and
average incomes grow well
above the national average.
Its no surprise, therefore, to
see California becoming perhaps
the U.S. airline industrys hottest
battleground, while carriers in
many cases retreat from Texas.
In the 12 months to January,
peers. Well know how it ranked
in 2016 after it reports this week.
American used last week to
detail its version of basic econo-
my fares, which will look a lot
like Uniteds, including incentives
against large carry-on bags.
U.K. carriers are trying to keep
calm and carry on in the face of a
likely hard break with the E.U.
Ryanair might exit the U.K. do-
mestic market, while others worry
about what Brexit might mean for
their international flight rights.
Verbulence
Weve begun to change the conversation about United from the
question whats wrong to an optimistic whats next.
United Airlines CEO Oscar Munoz
according to Diio Mi, the num-
ber of flights scheduled from all
Texas airports declined 3% y/y,
at a time when departures were
up 1% nationwide. The disparity
is similar with respect to seat
counts: Texas down fractionally
and the U.S. as a whole up 4%.
California, meanwhile, saw
flights and seats rise 5% and 8%,
respectively.
Ground zero for
freeze is Houston, which repre-
sents for the energy sector what
New York is for finance or San
Francisco is for information
technology. Traffic at Houstons
largest airportBush Interconti-
nentalmaintained a modest 2%
growth pace in the 12 months
that ended in June, which corre-
sponds to the airports fiscal
year. This was lifted by the un-
timely introduction of several
new routes from non-U.S. air-
CONTINUED ON p. 5
No ones quite reading the last
rites for Cathay Pacific. But the
carrier is clearly worried about its
health, so much so that its swal-
lowing some bitter medicine,
although exactly what type and in
what doses are still uncertain.
A Saudi Arabian LCC called
Flynas certainly isnt shy about
buying planes. Nor is Etihad shy
about defending its strategy of
junkyard investing. It quelled
rumors, however, about merging
with Lufthansa.
Jan. 23, 2017

Guess who beat Delta by operating margin last
quarter? Thats right, United, long the sick man
of the U.S. airline industry but one thats now
right there with its rivals. A few disclaimers: Its
10.8% operating margin was just a tenth of a
point better than Deltas 10.7%. And more im-
portantly, Deltas Q4 was depressed by $380m
in retroactive pilot pay for three prior quar-
tersexclude that, and Deltas numbers were
better. Still, the general thesis holds: United is
performing well, no longer dogged by questions
about operational messiness, IT meltdowns,
management vacancies, lack of innovation,
botched revenue management, federal investi-
gations, toxic labor relations and the loss to
oneworld of important Star Alliance partners
like US Airways, TAM and British Midland.
Instead, its able to trumpet a nearly $2.9b net
profit excluding special items for all of 2016
alongside a 14% operating margin, just a bit
behind Deltas 16%, although also a bit behind
its own 15% figure in 2015. In 2014, when
Uniteds problems were festering, its operating
margin was a lowly 7%, far worse than its
peers. Taking a closer look at just the final
quarter of 2016, Uniteds 11% operating margin
was down from 13% in the same period a year
earlier, with revenues flat y/y but operating
costs up 3%. Fuel costs were again down, this
time by 4%, but labor costs rose 6% following a
new contract with mechanicsit now has all
major labor groups signed to long-term deals.
Uniteds ASK capacity, meanwhile, was up
just 2%, driven in part by several new interna-
tional routes from its booming San Francisco
hub along with above-average growth rates in
Newark, Washington Dulles and (this actually
its most profitable hub) Denver. United also
fortified many of its domestic hub-to-hub
routesSan Francisco-Denver, for example
with more frequencies to correct some of the
excessive cutting it undertook during past re-
structurings. Another initiative involves beef-
ing up schedules in smaller markets from key
hubs like Chicago, in that case to better com-
pete against American. These growth areas, in
turn, were offset by downsizing in Houston,
where the oil bust is still taking its toll, and on
shorthaul Asian routes from Tokyo Narita,
which JV partner All Nippon is better equipped
to handle. United also exited New York JFK,
shrank capacity to Europe and Asia, continued
to downsize in Cleveland (where it closed a
hub in 2014) and axed oil routes like those to
Dubai, Kuwait, Bahrain and Lagos. The fourth
quarter presented plenty of challenges, includ-
ing a burst of new competition from JetBlue,
Spirit, Allegiant and Alaska at Newar k,
where the DOT made new slots available. In-
ternationally, Aer Lingus, Ethiopian Airlines
2
and Wow Air also entered Newark last year. In
California, Delta and American are growing in
Los Angeles while Southwest and the newly-
merged Alaska-Virgin America entity fight a
west coast turf war. Overcapacity and weak
currencies are hurting performance in Europe
and Asia. And uncomfortably, JV partner Air
Canada is hyper actively lur ing away U.S.
overseas traffic through its own hubs. Will this
prompt some sort of falling out with Air Cana-
da, or perhaps a re-working of their JV terms?
Thats one question to ponder at the onset of
2017, which for all the new challenges, starts
with excellent news on the revenue front. Like
Delta and others, United saw stronger pricing
and a welcome burst of demand following
Novembers presidential election, both at home
and even in Europe and Latin Americaunit
revenues in Brazil, for one, spiked more than
40% thanks to massive industry capacity cuts
and some modest economic recovery. Even in
China, where carriers are wildly expanding
abroad, things should improve with U.S. flight
rights now nearly exhausted, along with a bur-
geoning partnership United has with Air China.
Other partners in addition to the aforemen-
tioned Air China, All Nippon and Air Canada
include Lufthansa, Air New Zealand, Copa
and Azul, with eyes on some more Latin Amer-
ican heftUnited is said to be among the suit-
Jan. 23, 2017
3
ors for Avianca, and it is reported to be interested in Mexicos Interjet
too. Partnerships abroad will be one important lever of revenue growth AirWaves
to offset higher labor costs, which jumped again when Delta signed its Noteworthy Airline Coverage
pilot contract, because Uniteds pilot contract promises to match any From Other Media
Delta raises. And in addition to partnerships, United, led by its new
executive team (minus its still-rather-new chief commercial officer, Norwegians transatlantic offensive is attracting more and more atten-
who abruptly departed last week), has other tricks up its sleeve. As tion from news organizations like The New Y ork Times. The paper pro-
mentioned, its rebuilding domestic schedules. Its altering hub sched- files the LCCs growing array of U.S. routes including its upcoming
ules to improve connectivity. Its introducing basic economy fares (see service from Barcelona. Secondary Irish cities like Cork and Shannon
page five). Its refining its revenue management system. And it has a will be next to get U.S. routes, with Dsseldorf, Rome and Berlin all on
new business class product called Polaris, with indications but no con- its radar screen. Surprisingly, Norwegian tells the Times that almost a
firmation yet that it will match American and Delta in launching a new third of its transatlantic bookings made in Europe are by corporate trav-
international premium economy class. United is also continuing with elers, although the figure is lower among U.S. point-of-sale bookings.
earlier efforts to densify airplanes, up-gauge regional flying, build ancil- Taking note of Norwegians growing transatlantic presence, and watch-
lary revenues and improve operations. Better ops, to be sure, helped ing warily as others like Wow Air and possibly JetBlue follow its lead,
keep unit costs excluding fuel and labor mostly flat last quarter. And established rivals are now fighting back. British Airways started over-
executives see more opportunity to cut costs in areas like distribution, lapping flights on Norwegians London Gatwick to Oakland and Fort
airport facilities, station operations and maintenance. New president Lauderdale routes. BAs parent company IAG will start low-cost long-
Scott Kirby openly aired his frustrations with global distribution sys- haul operations from Barcelona. Lufthansa has Eurowings, and Air
tems, lamenting what he called an unbalanced relationship and an un- France wants to boost its defenses with a lower-cost operation of its
willingness to prioritize investments in the critical area of making prod- own. On the other side of the pond, meanwhile, Delta is fighting back by
ucts like Polaris and basic economy clear and presentable on travel extending its basic economy fares to intercontinental markets, with Unit-
agent booking screens. On the other hand, United expressed satisfaction ed and American per haps following eventually (see page five). Delta
with its HP Shares reservation system (i.e., its unlikely to soon be re- and American also have new premium economy cabins. When talking
placed) and hinted it might provide some more disclosure on the financ- about Norwegian, however, its important to keep its thus-far under-
es of Mileage Plus, its cash-cow loyalty plan. As for its fleet, the airline whelming financial results and rocky balance sheet in mindthis is not
is still reviewing its widebody, narrowbody and regional plans, contem- a case of Southwest or Ryanair eating the industrys lunch thanks to far
plating more used planes while preparing to take new B777-300ERs (its higher profit margins and fortress balance sheets.
first, the New Spirit of United, will enter the fleet next month) and
more new B787s while retiring its last 20 B747-400s by the end of this The worst is over, says Malaysia Airlines CEO Peter Bellew in his
year, which should simplify and enhance operations. More Airbus, Boe- latest interview, this one with Bloomberg Television. As he told the
ing and Embraer narrowbodies are on the way too, and perhaps A350- New Straits Times a week earlier, a big domestic price war looms as
1000 and B787-10 widebodies, though theres been some chatter about AirAsia and Lion Air-backed Malindo duke it out. But Malaysia Air-
United perhaps no longer wanting the A350s, in particular. In any case, lines plans to stay out of the fray, relying on its all-inclusive fares that
United moves into 2017 much healthier and stronger than it was two resonate with business travelers. For now, as Bellew explains, corporate
years agoand has a goal of beating Deltas margins unequivocally by bookings are up strongly for the coming six months, with flights on
2020. Its Q1, be aware, wont be terribly pretty, with expected pretax routes like Kuala Lumpur-London Heathrow extraordinarily full.
margins of just 1% to 3% as pilot wage hikes kick in and fuel costs Hong Kong is another example where y/y demand is way up. By utiliz-
escalate. But also remember that United typically has harsher first quar- ing its narrowbody planes more intensively, Malaysia Airlines is able to
ters than its peers given its lower exposure to north-south markets like launch nine new routes to China, and advance bookings for these routes
Florida and Latin America. look superb. In October, the airline will get its first A350-900, and
management is looking for a few more widebodies to add in the near
American, Southwest, JetBlue and Hawaiian will all r epor t Q4 term. A sharply depreciating ringgit is a concern, but fortunately, Malay-
earnings this week, followed by Allegiant a week later and Spirit and sia Airlines gets a lot of revenue from stronger foreign currencies. Last
Alaska at the star t of Febr uar y. In Alaskas case, it did say last week week, by the way, the nearly three-year search for Malaysia Airlines
that it incurred about $82m in one-off merger costs during the fourth Flight 370 was called off, the causes of its disappearance still unknown.
quarter. It also said Q4 unit revenue was flattish to up a bit y/y, with That incident, and the Flight 17 disaster in Ukraine months later, essen-
non-fuel unit costs also mostly unchanged. As for Spirit, its Q4 saw a tially left Malaysia Airlines drained of cash, kept alive only by nationali-
15% increase in ASM capacity and a 4% decrease in unit revenues zation. Having spent the past few years restructuring, Bellews airline
(including ancillaries). Looking ahead at the full-year 2017, the ultra- once again looks to be a publicly-owned company by early 2019.
LCC expects ASMs to expand another 19%.
Allegiant saw a significant near -term accelera-
Who We Are and How to Reach Us Editorial inquiries tion in bookings after the heated U.S. presiden-
Airline Weekly is a product of Airline Weekly Jay Shabat, Publisher tial election, reports Reuters, quoting the carri-
Corp., an independent company of journalists and jayshabat@airlineweekly.com ers chief operating officer. Thats consistent
former industry professionals with a shared interest Media inquiries with what other U.S. carriers have said and with
in commercial passenger aviation worldwide. Seth Kaplan, Managing Partner a more general improvement in business confi-
Airline Weekly is a subscriber-based publication skaplan@airlineweekly.com
and does not accept advertising from airlines. dence and employment data as 2016 came to a
Subscriptions and advertising close. As the new administration gets to work,
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owning stock or any other stake in airlines. some American firms are enticed by talk of tax
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Jan. 23, 2017

 4

SkyMoney Fleet Sheet

Airline Finance Aircraft Markets
The week began with great anticipation about Cathay Pacific and what seemed an imminent West Asia, covering India and the Middle East,
declaration of war on its problems. Instead, the airline was mostly silent, dripping a few is suddenly a hot market for narrowbody orders.
acknowledgements of job cuts but not a whole lot more. Last year, Cathay promised a com- On the heels of big buys from SpiceJet and Go
prehensive review of its business. And reports leading up to last week hinted at moves like Air, Saudi Ar abias Flynas put itself down for
moving more capacity to its Cathay Dragon uniton that front, the carrier tells A irline up to 120 A320-NEOs. Eighty of these are firm
Weekly, no firm decision has been taken. There was also talk of perhaps selling more of orders; the rest are purchase rights. Today, the
itself to JV partner Air China, which already owns 30%. Some of this might yet come to pass. LCCwhich turns 10 this yearflies a mere 26
But for now, investors are still waiting, in the meantime dumping the carriers shares in a A320-CEOs, operating in an economy synony-
week when most other Asian airline stocks rose (see page 11). Cathays problems include mous with oil dependency. Saudia, the state-
Hong Kongs softening economy, higher airport costs, heavy fuel hedge losses, a drop in owned carrier, has its own LCC called Flyadeal
mainland tourists andmost damaginglya torrent of new mainland longhaul capacity over- currently in the works. And others like Saudi
flying Hong Kong. Cathay did report trends for December last week, which on the positive Gulf Air and Al Maha Airlinesthe latter
side included robust outbound holiday demand, a rebound in European traffic, strong leisure owned by Qatar Airwaysare preparing to
demand to Japan and even some encouraging signs in the cargo market. But it also spoke launch. Importantly, deliveries from the new
again of yield pressures due to overcapacity. Flynas mega-order will be spread out over an
Singapore Airlines, which actually did wor se than Cathay Pacific in 2015, had a better eight-year period starting in 2018. But this still
implies rapid growth. And it implies big financ-
first half of 2016 than its Hong Kong rival, with its traffic flows less exposed (though certain-
ing obligations that Flynas hopes to address with
ly not unexposed) to Chinese longhaul expansion. Still, it faces some of the same yield pres-
a planned IPO in the near future. The carrier, by
sures, noting for example that capacity growth outstripped demand growth on Australasia
the way, recently experimented with A330 long-
routes last month. In addition, Indian, Middle Eastern and African routes saw softer de-
haul flying to Manchester, Jakarta and Kuala
mand. But holiday demand was strong within East Asia and on routes to Europe and the
Lumpur but soon reversed course.
Americas. SilkAirs traffic outgrew capacity. Same for Scoot despite 43% capacity growth
it now has 12 planes. Tigerair saw encouraging holiday period demand. And cargo markets Until 2013 a wholly-owned subsidiary of SAS,
are improving. Norways now-independent Widere will leap
The airline world was abuzz with rumors of Lufthansa potentially merging with Etihad, but into the jet age next year. It flies just Bom-
bardier turboprops today. But its buying three
both airlines brushed aside any such notion. In the meantime, the Gulf carriers CEO James
E190-E2 series planes, with purchase rights for
Hoganstill on the job despite earlier reports of his imminent ousterdefended his strategy
12 more E2s of an undetermined variant. It can
of investing in seven other airlines, pointing to millions of additional connecting passengers
choose later whether it wants more 190s,
and hundreds of millions of dollars in new revenue and cost synergies. He acknowledged
smaller 175s or larger 195s. The E2 family is
tough times at Alitalia and Air Berlin but expressed hope in their new business plans, which
Embraers updated E-Jet product featuring
like all of Etihads equity partners, he stressed, manage their own affairs locally.
Pratt & Whitneys geared turbofan engines, the
Ryanair thr eatened to exit all of its U.K. domestic r outes, r ecognizing the pr ospect that same that power CSeries jets and some A320-
flying within the country might require a separate U.K. operating certificate after the U.K. NEOs.
leaves the European Union. Although Ryanairs largest market is the U.K., and London more
This will be a year of new aircraft introductions
specifically, the airline is based in Ireland. To be clear, its U.K. domestic network is pretty
in Korea. The countrys largest carrier, Korean
small, mostly covering a few routes from London to Scotland and Northern Ireland. One
Air, will soon star t flying its fir st B787-9s,
Brexit option for the U.K. was following a Norway-like arrangement that provides most of
followed shortly thereafter by its first CS300s.
the economic benefits of Europes common market (including its open skies regime) in ex-
And Asiana will be busy inducting its first
change for acceptance of most E.U. rules and regulations, including those permitting free
A350-900.
movement of people. Prime minister Theresa May rejected this Norwegian model, however,
in favor of a sharper break. Her government will negotiate the details of the withdrawal in the Recently grounded for safety inspections, all of
months and years ahead, with airlines awaiting the status of their flight rights. Interjets 19 Sukhoi SSJ-100s are back in the
At a Morgan Stanley event in Miami earlier this month, LATAM reviewed its top priorities air after 11 of them were grounded for air-
worthiness restoration work. The Mexican
for 2017. They include the advancement of its proposed joint ventures with American and
carrier is one of just a handful of SSJ operators
IAG, the adoption of a new lower -cost business model for its multiple domestic markets
outside the former Soviet Union. Another is
and efforts to improve labor productivity. Quietly, LATAM is building up its international
the European regional carrier CityJet.
network, launching 18 new cross-border routes in the past 18 months. These include intercon-
tinental journeys like So Paulo-Johannesburg, So Paulo-Milan, Lima-Barcelona, Lima- The Avianca brand is spreading throughout
Washington IAD, Santiago-Los Angeles and Santiago-Orlando. Interesting developments are Latin America. Theres now an Avianca Ar-
underway in Argentina, meanwhile, with new policies regarding competition and support for gentina, which last week r eceived its fir st
Aerolineas Argentinas. In 2015, LATAM managed an under whelming 5% oper ating ATR 72-600. The plane will enter service later
margin, followed last year by a margin that was likely short of 7%. But management is hope- this quarter, handling regional routes from
ful of bringing that to as high as 8% this year. larger cities like Buenos Aires and Cordoba.
LATAMs Brazilian rival Gol discussed some of its own, well, goals for the new year, which Like Avianca Brazil, Avianca Argentina isnt
owned by Colombias Avianca, but all count
in its case include achieving an operating margin of between 5% and 7%. This would be in
the Synergy Group as their top shareholder.
line with 2016s likely figure of 6%, which is at the higher range of the companys original
Synergy recently bought a small Argentine
guidance of 4% to 6%. The Brazilian market is clearly recovering, based on Gols reports of
carrier that was already flying, adopting the
improving demand trends, coupled with the helpful appreciation of Brazils currency. In
new name and buying it new ATRs.
2017, Gol will again cut capacity, or at the very most keep ASKs flat y/y.

Jan. 23, 2017

5

AirBuzz The Backend

Marketing, Price, Promotions & Alliances Sales, Distribution, Tourism & Corporate Travel
Delta was fir st. Then United followed. And now American will begin offer - Emirates has a new wor ldwide distr ibution agr eement
ing its own version of basic economy fares, essentially the Big Threes answer to with Sabre, one of the Big Three global distribution systems.
ultra-LCC expansion. Americans product will initially roll out in 10 not-yet- Their latest deal also covers tools to help the giant Gulf carri-
named domestic markets, available for sale starting next month. As expected, the er brand and personalize its products and services to travel
new fares entitle passengers to the same inflight entertainment, the same inflight agencies, which are the main users of GDSs.
snack and drink service and the same frequent flier accrual rules as anyone else
U.S. travel agencies sold $86b worth of airline tickets in
(although these days, a cheaper fare of any sort always means fewer miles).
2016, according to Airlines Reporting Corp. (ARC). That
But you cant upgrade, no matter your loyalty status. You cant pick your seats
was down from $88b the year before, not because fewer tick-
when you book. You cant stand by for a different flight on the day of departure.
ets were soldticket sales volume actually increased 6%
The fares are completely non-refundable and non-changeableuse it or lose it.
but because fares were lower.
You board the plane after everyone else (unless you hold an American co-
branded credit card). And you have to help clean the lavatories after the flight lands (just kidding on that one). But the big question was whether
American would forbid carry-on bags too large to fit under ones seatDelta allows full-size carry-ons, whereas United does not. The answer?
American will in fact take Uniteds approach and permit just a small personal item with (like United) exceptions for elite customers and American-
branded credit card holders. So the next big question is whether Delta will match United and American and stop allowing full-size carry-ons. More
minor differences for American compared to United: Unlike United, American will grant some elite status-qualifying miles (half, to be precise) for
basic economy travel, and unlike United, American will permit basic economy travelers to (for a fee) select a specific seat 48 hours before their
flights. The practical impact of these differences is probably small, because not too many elites are likely to travel on a non-upgradable fare, and
most people who value advance seat assignments will probably just purchase standard (rather than basic) economy tickets.
In its earnings call last week, United spoke a bit more about its own basic economy plans. At first, the fares will be available in only one market:
Minneapolis, a Delta hub where the small LCC Sun Country is based and where Southwest and the ultra-LCC Spirit, among other airlines, also
have a sizeable presence. Thats just a prelude to a wider nationwide rollout of the new fares, followed by their implementation on shorthaul inter-
national routes. Only then will United assess the wisdom of bringing them to longhaul international routes, something Delta is now doing. Two
unrelated comments about these new fares: United said earlier that it chose to use the same basic economy branding Delta created to avoid cus-
tomer confusion. And it adds that flight attendants welcome carry-on bans and charges, which speed up the boarding process and lead to fewer
injuries and fights over bin spacethe AFA union, which represents United flight attendants, indeed applauded the launch of basic economy.
Ryanair and Norwegian ar e r epor tedly closing on an inter line deal, which would be a fir st for both car r ier s. The idea is that Ryanair
would feed shorthaul traffic to Norwegians longhaul flights at airports like London Gatwick and Barcelona. According to the Norwegian news
source Dagbladat, Ryanair is also nearing a similar deal with Aer Lingus.
A regional joint venture between Finnair and Flybe didnt work out. But the two still codeshare, and will in fact expand that codeshare to include
more U.K. itineraries.
Theres more consolidation among aerospace suppliers. Frances Safran will acquire fellow French company Zodiac Aerospace, a major supplier of
seats and other cabin features to airlines. Zodiacs U.S. rival B/E Aerospace will itself soon be owned by Rockwell Collins, pending final approv-
als. In an earnings presentation last week, Rockwell discussed the takeover as well as other deals to buy ARINC, an aviation communications com-
pany and Pulse, which offers self-service bag drop functionally and other passenger services at airports. Rockwell is also involved the booming
area of inflight connectivity.

Lone Star Fading: These are not the best of times for airlines serving Texas
CONTINUED FROM p. 1
lines, including All Nippon from Tokyo, Air
New Zealand from Auckland, China Airlines
from Taipei and some new flights from Mexican
and Canadian carriers. Spirit, too, launched a
number of new shorthaul international routes
during the year.
More recently, however, the exodus from
Houston has accelerated. Uniteds Lagos flights
are gone. So are SAS flights to Stavanger. Spirit
reversed course and pulled much of its Houston
cross-border flying. And Singapore Airlines
suspended Houston-Moscow, although its now
flying Houston-Manchester. Just as importantly,
United began shifting capacity from Houston
Bush, still its busiest hub by some measures, to
perkier markets like Denver and, indeed, Cali-
fornia. Its Houston domestic traffic, sure
enough, is shrinking. Overall, the airports pas-
senger volumes shrank 3% y/y in the first 10
months of 2016, with domestic declines, at 4%,
slightly outpacing international ones. The fig-
ures got worse, moreover, as the year pro-
gressed. And looking at published schedules for
the early months of 2017, Houston Bush contin-
ues to see fewer flights and seats, so much so
that among the worlds 50 busiest airports, it
ranks near dead last for growth alongside Istan-
buls main airportflights between Houston
and Istanbul are, for that matter, down a lot too,
with Turkish Airlines gutting several of its
weekly frequencies. Emirates has cut its Hou-
ston capacity too. All that first class oil sector
traffic, sadly for airlines, is now but a memory.
And oh yeah, Houston Bush also happens to be
a gateway to Latin America, where develop-
ments have been no more cheerful.
The news was better but hardly great at
Houstons Hobby Airport, a major base of oper-
ations for Southwest. Traffic was up a solid 7%
through October, although by October itself, the
rise was less than 2%. Whatever increases there
were, furthermore, stemmed entirely from
Southwests higher load factors and larger
B737sthe number of flight departures at Hob-
by is now shrinking, just as it is at Bush. Thats
despite Southwests new international terminal
at Hobby, which opened in late 2015. The fact
is, although it does offer some new international
service, Southwest is cutting capacity on many
domestic routes. The airline did say during its
Q1 earnings call (i.e., about nine months ago)
that Houston looks fantastic, refuting analyst
suspicions to the contrary. But based on the
airports traffic trends, and the states economic
trends, business likely worsened after the first
quarterit didnt discuss the market in later
CONTINUED ON p. 12

Jan. 23, 2017

 6

State of the States

50 states plus Puerto Rico and the District of Colombia minus Delaware, which doesnt currently have any air service, ranked by departing
seats in 2016 and separately by the growth (or lack thereof) in 2016 compared to one, three, five and 10 years ago (source: Diio Mi)
Note that this ranking is based on where an airport is officially considered (by U.S. DOT) to be. For most, thats the state where the airport actu-
ally residesNewark is in New Jersey, not New York. But Reagan National, although in Virginia on a map, is officially considered to be within
Washington, D.C. (whereas Dulles, in the more distant Washington suburbs, is not).
Washington state is clearly a leader however far you look back in the past decade, driven by strong economic growth and the Delta vs. Alaska
Battle of Seattle. Alaskas Portland hub likewise makes Oregon a top growth market. Idahos presence near the top suggests a broader economic
and population increase in the Pacific Northwest more broadly and alsoyesDelta and Alaska both adding lots of seats from Boise to Seattle.
Note how more than half the states have less air service now than they did 10 years ago, partly resulting from the Big Threes aggressive retire-
ment of small regional jets. Some are victims of developments at specific airportsKentucky is down, for example, due to Deltas downsizing
of Cincinnati, whose airport is indeed on the Kentucky side of the Kentucky-Ohio border.
Louisianas 10-year jump largely reflects the bounceback after Hurricane Katrina in 2005; the state is down 5% compared to 2004.
Full-year 2016 Compared to 1 year earlier Compared to 3 years earlier Compared to 5 years earlier Compared to 10 years earlier
Rank State Seats Rank State Change Rank State Change Rank State Change Rank State Change
1 California 132,010,215 1 Oregon 11% 1 Washington 29% 1 Washington 33% 1 Louisiana 41%
2 Texas 100,483,137 2 Idaho 10% 2 Idaho 21% 2 Oregon 27% 2 Washington 35%
3 Florida 98,652,717 3 Tennessee 9% 3 Oregon 21% 3 South Carolina 24% 3 North Dakota 29%
4 New York 65,550,266 4 Colorado 9% 4 Indiana 20% 4 California 23% 4 North Carolina 25%
5 Georgia 62,127,349 5 Washington 9% 5 California 17% 5 Massachusetts 21% 5 South Carolina 18%
6 Illinois 61,154,025 6 Missouri 9% 6 Massachusetts 16% 6 Hawaii 21% 6 Oregon 17%
7 North Carolina 37,105,859 7 Nebraska 8% 7 Florida 15% 7 Iowa 19% 7 Massachusetts 16%
8 Colorado 36,019,923 8 California 8% 8 Utah 13% 8 Florida 18% 8 Florida 13%
9 Nevada 29,962,636 9 Puerto Rico 8% 9 Puerto Rico 11% 9 Louisiana 16% 9 California 12%
10 Washington 29,851,824 10 Indiana 8% 10 Montana 11% 10 Dist. of Columbia 16% 10 Colorado 11%
11 Arizona 29,272,574 11 Massachusetts 7% 11 Nevada 11% 11 Indiana 14% 11 Dist. of Columbia 11%
12 Pennsylvania 25,879,972 12 Arkansas 7% 12 Iowa 10% 12 Nevada 13% 12 New York 11%
13 New Jersey 25,178,892 13 South Carolina 6% 13 New Jersey 10% 13 New York 13% 13 Georgia 9%
14 Michigan 24,133,899 14 Utah 6% 14 Illinois 10% 14 New Jersey 13% 14 New Jersey 5%
15 Minnesota 22,503,808 15 Iowa 6% 15 Dist. of Columbia 9% 15 North Carolina 12% 15 Maine 5%
16 Massachusetts 22,481,204 16 Rhode Island 6% 16 New York 9% 16 North Dakota 12% 16 Texas 5%
17 Hawaii 21,360,559 17 Kentucky 5% 17 South Carolina 9% 17 Illinois 11% 17 Maryland 4%
18 Virginia 18,789,915 18 Nevada 5% 18 Louisiana 9% 18 Georgia 11% 18 Wyoming 1%
19 Missouri 16,693,991 19 Maryland 5% 19 Colorado 9% 19 Texas 10% 19 Iowa 0%
20 Maryland 15,625,148 20 New Jersey 5% 20 Texas 8% 20 Minnesota 8% 20 South Dakota -1%
21 Dist. of Columbia 14,892,475 21 Florida 5% 21 Hawaii 8% 21 Maryland 7% 21 Utah -1%
22 Utah 13,600,455 22 Michigan 5% 22 Georgia 8% 22 Montana 7% 22 Alaska -2%
23 Tennessee 12,570,227 23 Connecticut 4% 23 Nebraska 7% 23 Utah 6% 23 Indiana -2%
24 Ohio 12,493,152 24 Minnesota 4% 24 Minnesota 7% 24 Alaska 6% 24 Minnesota -3%
25 Oregon 12,469,959 25 North Carolina 4% 25 Tennessee 6% 25 Missouri 4% 25 Illinois -4%
26 Alaska 9,147,512 26 Alaska 4% 26 Maryland 6% 26 Arizona 4% 26 Nebraska -4%
27 Louisiana 8,432,130 27 Wyoming 4% 27 Alaska 6% 27 Colorado 4% 27 Montana -5%
28 Kentucky 7,232,866 28 Maine 3% 28 Connecticut 6% 28 Puerto Rico 3% 28 Nevada -6%
29 Indiana 6,624,981 29 Georgia 3% 29 North Carolina 5% 29 Connecticut 2% 29 Hawaii -7%
30 Wisconsin 6,498,403 30 Wisconsin 3% 30 Arizona 5% 30 Michigan 2% 30 Kansas -7%
31 Puerto Rico 6,070,119 31 New York 3% 31 Michigan 5% 31 Idaho 1% 31 Arizona -8%
32 South Carolina 5,467,537 32 Montana 3% 32 Missouri 5% 32 Maine 0% 32 Oklahoma -11%
33 Oklahoma 4,262,804 33 Virginia 2% 33 Kentucky 4% 33 South Dakota -1% 33 Michigan -12%
34 Connecticut 3,637,598 34 Ohio 2% 34 Wisconsin 1% 34 Nebraska -3% 34 Missouri -13%
35 New Mexico 3,228,920 35 Illinois 2% 35 Maine 1% 35 Ohio -4% 35 Virginia -13%
36 Alabama 3,104,261 36 Vermont 2% 36 Vermont -1% 36 Kansas -6% 36 Idaho -15%
37 Nebraska 3,042,580 37 South Dakota 2% 37 Pennsylvania -2% 37 Oklahoma -6% 37 Wisconsin -17%
38 Idaho 2,580,243 38 New Hampshire 2% 38 Wyoming -2% 38 Pennsylvania -7% 38 Arkansas -18%
39 Arkansas 2,385,756 39 Hawaii 2% 39 Ohio -2% 39 Vermont -11% 39 Ohio -18%
40 Iowa 2,360,737 40 Louisiana 1% 40 Virginia -3% 40 Virginia -11% 40 West Virginia -19%
41 Montana 2,344,262 41 Arizona 1% 41 Kansas -4% 41 Wyoming -12% 41 Pennsylvania -20%
42 Rhode Island 2,199,412 42 Dist. of Columbia 1% 42 South Dakota -4% 42 Kentucky -13% 42 Alabama -21%
43 Maine 1,463,239 43 New Mexico 1% 43 Arkansas -5% 43 Arkansas -13% 43 Vermont -21%
44 North Dakota 1,403,378 44 Oklahoma 0% 44 Rhode Island -6% 44 Tennessee -16% 44 Puerto Rico -23%
45 New Hampshire 1,318,007 45 Alabama 0% 45 Oklahoma -6% 45 West Virginia -17% 45 Connecticut -24%
46 Kansas 1,180,528 46 Texas 0% 46 Alabama -8% 46 Rhode Island -20% 46 Tennessee -25%
47 Mississippi 1,096,357 47 Mississippi -1% 47 West Virginia -8% 47 Alabama -20% 47 New Mexico -35%
48 South Dakota 1,029,791 48 Kansas -1% 48 North Dakota -10% 48 Wisconsin -26% 48 Rhode Island -40%
49 Vermont 767,937 49 Pennsylvania -2% 49 New Hampshire -10% 49 New Mexico -27% 49 Mississippi -42%
50 Wyoming 767,359 50 West Virginia -5% 50 New Mexico -15% 50 New Hampshire -31% 50 Kentucky -49%
51 West Virginia 582,279 51 North Dakota -10% 51 Mississippi -24% 51 Mississippi -32% 51 New Hampshire -52%

Jan. 23, 2017

7
State of the Unions
Workforce Developments
British Airways endur ed another flight attendant str ike, this time for thr ee
days. Disruptions were minimal, with only a small percentage of shorthaul
flights from London Heathrow affected. The work action involves roughly 15%
of the airlines total flight attendant workforce, specifically those employed on
mixed-fleet contracts introduced during cost-cutting efforts early this decade.
Unite, the same union representing the BA mixed-fleet crews, successfully
struck a pay deal for flight attendants at Virgin Atlantic. Unite spoke of pay
hikes more than double the rate of inflation for most workers affected. The
contract runs through the middle of 2019.
If SAS does decide to follow through on its latest idea to cut costsopening
crew bases outside Scandinaviathen where exactly outside Scandinavia? The
leading contender appears to be Ireland, where rival Norwegian has a base.
SAS said last month that if it does base crews abroad, the plan would take
shape in the second half of this year.
WestJets flight attendant association, which wants to become a full-fledged
union, failed to obtain the necessary number of signatures to hold a vote
Canadian law requires 40% of a work group to sign their support in order to
trigger a unionization vote. Still hoping to reach the threshold, the association
extended the outreach until Feb. 1. WestJets management strongly opposes
unionization efforts, not just by flight attendants but by pilots too. The latter
group rejected an effort to transform their own association into a full-fledged
union, although some pilots have more recently reached out to ALPA.
JetGreen
Environment, Conservation & Fuel
Partnering with Boeing and Alaska Airlines, the Port of Seattle released a feasi-
bility study last week that considered sites for building the infrastructure that
would enable biofuels to be received, blended and stored to be a part of the fuel
supply at Seattle-Tacoma International (Sea-Tac). The goal is to power every
flight leaving the airport with biofuel in the not-too-distant future. More specif-
ically, the study considers infrastructure that could handle 50m gallons of bio-
jet in the short term, and then rise to 100m gallons after 2025. Such scale would
eclipse any bio-jet operation in existence today and would likely make Sea-Tac
the worlds leading bio-fuel airport even eight years from now. Where the tens
of millions of gallons of bio-jet fuel will come from, however, remains to be
seen.
The FAA has accepted WheelTugs plan for certification for the electric green
taxiing system to be used with the B737-NG. This means WheelTug could
enter service as soon as late 2018. A WheelTug spokesman told A irline W eekly
in October that the full certification process, once the plan was approved,
would take 20 to 24 months. Air Transat, according to Canadian media reports
last week, will test WheelTug and plans to be the first to deploy the system in
2018. WheelTug, which is an electric-drive system installed at the nose gear,
promises to cut fuel burn during taxiing to just a fraction of the fuel needed to
move a plane with jet engines. It would also cut down on noise around termi-
nals and could reduce the risk of damage from foreign object debris. But the
company says the real value is the operational flexibility that WheelTug would
provide, which could reduce turn times and ground handling expenses. Once
certified, WheelTug might see wide acceptance, as 22 airlines have signed
letters of intent to install it on nearly 1,000 aircraft.
The U.K. commercial aviation industry seems to have gotten the memo about
climate change. Consider this: Jet fuel deliveries to U.K. airports in 2015 were
10% lower than in 2006 despite transporting 20m more passengers. That im-
pressive statistic comes from a report issued by Airlines U.K., the trade associ-
ation that includes British Airways, easyJet, Virgin Atlantic, Flybe and other
commercial and cargo carriers registered in the U.K.
In its November report, Airports Council International (ACI)
shows worldwide traffic for the month up close to 6% y/y,
and up 5% for the first 11 months of 2016. For both periods,
international traffic grew a point or two faster than domestic
traffic. The Asia-Pacific and Middle East regions still show
the highest rates of growth, while African airports are collec-
tively getting less busy as security fears take their toll in the
north and low commodity prices hurt economies south of the
Sahara. Latin America grew just 2% in the year to Novem-
ber, hurt by airline capacity cuts in Brazil most notably. ACI
called out India, China and Spain as some of the biggest
growth markets in 2016. In terms of individual airports, ACI
mentioned Delhi, Seoul Incheon, Doha, Los Angeles, Shang-
hai Pudong and Dubai. Cargo traffic trends seem to be im-
proving too, which could reflect an acceleration of global
trade.
Led by bullish 9% growth in international traffic, Sydneys
total passenger volumes in 2016 jumped 6% to nearly 42m.
More Chinese nationals than New Zealand nationals now use
the airport, this after an 18% super-surge in Chinese passen-
gers last year. Arrivals from Japan are way up too, for the
same reason: lots of new nonstop flights.
Remember that new airport that was originally supposed to
open in Berlin as early as 2010? Its still sitting idle, unable
to handle air service because of faulty terminal construction
that doesnt comply with safety standards. Now, officials are
hinting it wont open this year either, targeting 2018 instead.
The new airport was built to replace Berlins two existing
airports.
Finnavia, which runs Finlands airports, reported record
nationwide traffic volumes for 2016, rising about 4% to al-
most 21m passengers. Domestic passengers, it said, account-
ed for 26% of the total, although this includes those connect-
ing to or from international flights. The busiest European
destinations from Finland were Stockholm, London, Copen-
hagen, Amsterdam, Frankfurt, Munich, Paris, Berlin, Oslo
and Riga, with the top longhaul destinations being Tokyo,
Bangkok, Hong Kong, Seoul, New York, Shanghai, Osaka,
Beijing, Singapore and Nagoya. Helsinki itself captured 83%
of the entire countrys air traffic, growing more like 5% to
17m. Naturally, Finlands airport trends are shaped most by
its national airline Finnair. But other developments last year
included the launch of Qatar Airways flights to Helsinki and
a notable rise in Chinese visitors to Scandinavia.
Australasias Busiest Airports
Ranked by seats scheduled for all of 2016 (source: Diio Mi)
Rank Airport 2016 seats vs. 2015
1 Sydney SYD 27,188,876 4%
2 Melbourne MEL 21,950,755 3%
3 Brisbane BNE 15,020,175 0%
4 Auckland AKL 11,659,821 14%
5 Perth PER 8,833,903 -1%
6 Adelaide ADL 5,318,863 3%
7 Christchurch CHC 4,100,083 7%
8 Gold Coast OOL 4,062,093 8%
9 Wellington WLG 3,830,313 5%
10 Cairns CNS 3,385,228 10%
Jan. 23, 2017
 8
Whos Flying Where
All Nippon went fir st, connecting New Yor k J FK with Tokyo Haneda last fall. Now Japan Airlines will do the same star ting on Apr il
Fools Day. But no joke: The New York market is one of the busiest and most important for both Japanese carriers. Like ANA, JAL is not adding
service in the market; rather, its shifting one of its two daily flights from Narita to Haneda and (also like ANA) actually reducing the total number
of seats its offering between JFK and Tokyo, according to an A irline W eekly analysis of Diio Mi data. The market is surely becoming more lucra-
tive for ANA and JAL alike thanks to 1) the switch of one daily flight to better-liked Haneda, 2) the yield-juicing capacity cuts by both airlines
and especially 3) Deltas exit from the marketby April, seats between New York and Tokyo will be down 35% y/y, or 29% including service
from Newark (by ANAs joint venture partner United). With JFK, JAL will fly to three U.S. cities from Haneda, the others being San Francisco
and Honolulu. From Narita, it offers New York, Los Angeles, San Francisco, Chicago, Boston, San Diego, Dallas-Fort Worth, Honolulu and
Guam. It connects Los Angeles and Honolulu nonstop to Osaka Kansai too, as well as Honolulu to Nagoya.
Last week, anyway, All Nippons international network moves were less ambitious than those of its archrival. It merely announced a doubling of
frequencies on its Haneda-Jakarta route, advancing a key goal of positioning both Tokyo airports as gateways to the ASEAN region
international-to-domestic connections through Haneda and international-to-international (i.e., sixth-freedom) connections through Narita. ANA
also noted some new capacity to Chengdu and Hong Kong, not to mention the rollout of A320-NEOs on some Chinese routes. Thats a rather
modest expansion for 2017, even if you count previously announced service to Mexico City that begins next month. To be clear though, ANA has
greatly expanded international flying this decade, adding 10 new destinations in the past three years alone, with non-domestic seat capacity 32%
greater last year than in 2013, according to Diio Mi schedule data. Japan Airlines, by contrast, while introducing some new routes like Dallas-Fort
Worth, offered 3% fewer seats abroad last year vs. 2013. Always the larger domestic airline, ANA is now larger than JAL internationally too. So
far, however, being bigger hasnt translated to being betterJAL is still the far more profitable airline, a distinction it earned after emerging from
bankruptcy at the start of the decade.
In neighboring Korea, Aeromxico began selling its first-ever flights from Seoul, which begin in May to Mexico City. Flights in the other direc-
tion, from Mexico City to Seoul, will stop in Monterrey. Like the two Japanese carriers, Aeromxico is armed with B787s. And like Japan, Korea
has a good number of manufacturing companies with facilities in Mexico. Seoul Incheon, dont forget, is also home to Aeromexicos SkyTeam
and codeshare partner Korean Air.
Donald Trump wasnt the only one going to Washington. So was Air India. Or it will in July, anyway, when it launches service to Washington
Dulles. Before that, in May, Indias state-owned airline will head for Copenhagen. Partly because of fat subsidies showered on Air India since the
Mughal empire, no other Indian airline has managed to build a significant intercontinental presenceJet Airways comes closest but has a gr and
total of just 18 widebody aircraft. As a result, Gulf carrier hubs have become Indias de facto gateways to the world. Air India, for what its worth,
isnt losing as much money as it once did, helped by new planes, cheap fuel, strong demand and less overstaffing after years of employee attrition.
It plans to grow its fleet now too. But it still has an enormous debt burden and still doesnt win many awards for service.
Hoping to rescue itself from oblivion, Air Berlin is doubling down on longhaul, aggressively growing capacity to North America most important-
ly. Well, now it seems to be turning eastward, with reported intentions to fly from its Berlin hub to Hong Kong this fall. In 2008, just as the global
financial crisis was laying waste to many an airlines network plans, Air Berlin tried and failed flying to Beijing and Shanghai from its Dsseldorf
hub.
Ethiopian Airlines summar ized plans for whats shaping up to be a busy 2017. As announced earlier, it plans to open seven new destinations in
the span of just five months, namely Victoria Falls,
Antananarivo, Conakry, Oslo, Chengdu, Jakarta and
Singapore. The first three of those are in Africa. Oslo, of Sub-Saharan Africas Top Longhaul Airlines
course, is in Europe, and the latter three are in East Asia. Ranked by intercontinental seats scheduled for calendar year 2016 (source: Diio Mi)
This comes on top of the many new destinations it add- All are either Gulf carriers (in red), European/Turkish carriers (blue) or African carriers (green)
ed in 2016, including Newark, Moroni, Windhoek, Ha-
wassa, Kebridahar and Dembidolo, the last three cities
within Ethiopia. As the graph to the right shows, Ethio-
pian is the third largest provider of intercontinental seat
capacity from sub-Saharan, trailing only Emirates and
Air France/KLM.
Jetstar has its eyes on Vietnam, a tour ist mar ket for
Australians that it thinks might one day grow as large as
Bali or Thailand. The Qantas-owned LCC will thus take
a chance on B787 service to Ho Chi Minh City, also
known as Saigon, from both Sydney (four days each
week) and Melbourne (the other three). Flights begin in
May.
As it happens, Vietnam Airlines sees the same thing
Jetstar seesthe two are partners, after all, jointly
owning the Vietnamese LCC Jetstar Pacific. But its
Vietnam Airlines itself that plans new B787 flights to
Australia, in its case to Sydney from Hanoi starting in

CONTINUED ON p. 9

Jan. 23, 2017

9
Whos Flying Where
CONTINUED FROM p. 8
March. It already offers both Sydney and Melbourne from Ho Chi Minh City.
Jetstar Pacific is keeping busy with newly-launched flights to Guangzhou from both Ho Chi Minh City and Hanoi. China and Vietnam are both
fast-growing airline markets.
Certainly attune to Chinas potential, AirAsia X will connect Kuala Lumpur with Wuhan in March, supplementing AirAsias Wuhan flights from
Kota Kinabalu. Thai AirAsia flies there from Bangkok DMK and Phuket.
AirAsia India, for its par t, named Sr inagar and Bagdogr a its next two destinations, both with planned nonstops fr om Delhi. That will give
the carrier 13 cities on its route map.
For about four months this winter, Finnair will fly once or twice per weekwith A350s or A330sto Puerto Vallarta, Puerto Plata and Havana in
the Caribbean. It will fly to Goa in India twice weekly too. And if sunshines not your thing, the airline is also beefing up service to Finlands
Lapland region this winter, with new nonstops from London LGW, Paris CDG, Frankfurt and Zurich. The area features ski resorts and the chance
for astronomy connoisseurs to see the Northern Lights.
It was almost lights out for LOT Polish, until it was saved by a final government assistance program approved by the European Union. The airline
is now back on its feet and growing again, both to Asia and North America. In line with its 2020 business plan, Tokyo and Seoul will get addition-
al frequencies, in advance of new Warsaw routes to Los Angeles and Newark later this year. Its also starting Krakow to Chicago, long home to
many Polish immigrants. This summer LOT will receive another two B787s.
The LCC HK Express is broadening its horizons with a link to Saipan in the Northern Mariana Islands. The route from Hong Kong is geared to
tourists from throughout East Asia. HK Express is one of many airlines partly owned by Chinas HNA Group.
Wizz Airs latest network additions involve Latvia and Ukraine. In the former, skiers will get new Saturday-only flights from Vilnius to Grenoble
in the heart of the French Alps. Thats in addition to new Warsaw and Gothenburg flights from Vilnius, also starting later this year. In Ukraine,
meanwhile, Wizz is reopening service from Lviv, which gets twice-weekly flights to Wroclaw, Poland.
British Midland is no mor e, folded into the IAG empir e when British Airways bought the car r ier for its Heathr ow slots in 2012. But a
small part lives on as an independent carrier called BMI Regional, which happens to have some new routes starting this spring. From Birmingham,
it will fly to Graz, Gothenburg and Nuremberg.

The U.S. Big Three: A Capacity Comparison

For full-year 2016 (source: company reports)
American produced more ASM capacity than either Delta or United in 2016
American is also the most domestic oriented of the three, which is a benefit given current market conditions; United wants to become more do-
mestic, concluding that it gutted too much intra-U.S. flying during prior restructurings
All three have essentially the same percentage of capacity outsourced to regional operations, i.e. slightly greater than a tenth of all ASM capaci-
ty. This includes both in-house and outsourced flying of planes with fewer than 100 seats.
Delta is the most exposed to Europe, with United not far behind
United the clear leader to Asia and American the clear leader to Latin America

Jan. 23, 2017

 10
Around the World
A Look at the Worlds Airlines, Including End-of-Week Equity Prices
Share Change Change
Airline from last from last Comment
Price week year
American 48.00 1% 20% United again declares it wont close Los Angeles LAX, Washington IAD or any other hubs
Delta 50.39 -2% 8% Expects its oil refinery, which lost money last year, to earn a $100m profit this year

United 75.25 1% 61% Still has $4.3b worth of income tax offsets from its historical net operating losses (NOLs)

Southwest 51.09 0% 31% Among its many upcoming new international routes is San Diego-Los Cabos; starts in April

Alaska 94.41 0% 30% United says, unsurprisingly, that it would like to have more gates at San Francisco

JetBlue 21.41 -2% 0% Offering triple TrueBlue points on flights to Cuba, a sign the market is not doing very well

Hawaiian 55.75 -3% 77% Japanese rival All Nippon to introduce premium econ. product on Honolulu flights in Sept.

Spirit 56.68 0% 31% Note that Easter falls in April this year (in other words Q2), compared to March last year (Q1)

Frontier (not publicly traded) ASK capacity up 21% y/y this quarter, according to Diio Mi, but departures up just 7%

Allegiant 177.50 0% 11% Plans to add fewer new cities as it moves to an all-Airbus fleet; 2017 ASMs to rise 8% to 12%

SkyWest 36.85 0% 148% Although it does fly for American and Alaska, its largest partners by far are United and Delta

Republic 0.46 119% -76% One of many airlines restructured with the help of Seabury, now being bought by Accenture

Air Canada 13.58 -2% 72% Stopped providing monthly traffic updates last year; thinks they distort its share price

WestJet 22.99 -1% 20% New network and alliances VP, hired last fall, previously ran Uniteds network

Aeromxico 38.26 -1% -1% American, United each carry about 13% of Mexicos intl traffic; AM/Delta 26% combined

Volaris 28.21 -5% -6% Mexico Citys congested airport managed to increase pax counts 9% y/y to 42m

LATAM 8.60 -1% 101% Brazils stock market rose 69% last year, best among all financial assets (MarketW atch)
Gol 17.88 2% 588% Codeshare partner Emirates to deploy A380s to So Paulo in March; upgrade from B777s

Copa 97.91 4% 98% Low-cost Wingo unit to launch Cartagena-Panama City, but exited San Jos-Guatemala City

Avianca 9.43 -4% 153% All of its routes to Europe now operate with its new B787s; configures them with 250 seats

Emirates (not publicly traded) Currently has 92 A380s; next largest A380 operator is Singapore Airlines with 19

Air Arabia 1.40 -1% 24% Sharjahs airport topped 11m passengers in 2016, up 10% y/y; aircraft movements up 6%

Turkish Airlines 5.19 4% -27% Rival Pegasus accelerating A320-NEO deliveries while phasing out B737s (Bloomberg)

Kenya Airways 5.15 -7% 11% Emirates starting a third daily frequency to Nairobi from Dubai; all run with B777-300ERs
South African Air. (not publicly traded) Airlink, an independent South African regional carrier, acquiring some E170s and E190s
Jet Airways 403 3% -35% One problem with Indian geography: no viable hub cities in the center of the country

IndiGo 928 6% -22% SpiceJets newest route is from Delhi to Surat, the so-called diamond capital of India
Crude oil futures
(WTI, for delivery next month; President Trumps new energy plan calls for fewer regulations on energy companies and
source New York Mercantile $52 0% 63%
exchange)
more drilling on federal land

Some stocks traded on multiple exchanges; not intended for trading purposes

Jan. 23, 2017

11
A
Around
ROUND E WORLD
theT HWorld
A LOOK AT THE WORLDS AIRLINES, INCLUDING ENDWEEK EQUITY PRICES
A Look at the Worlds Airlines, Including End-of-Week Equity Prices
Share Change Change
Airline from last from last Comment
Price week year
Lufthansa 12.11 5% -15% Will begin some limited codesharing with Iran Air; might deepen cooperation later
Air France/KLM 4.96 -1% -36% TAP Portugal reports strong pickup in Brazilian routes during second half of 2016

IAG 493 1% -12% Airlines seeing rapid growth in traffic between Spain and Asia (ForwardKeys)

SAS 13.90 0% -44% Proposed airline tax in Sweden becoming a political issue; national elections coming next year

Alitalia (not publicly traded) Formally announces end of investment talks with Air Malta; the two will still codeshare

Finnair 4.23 1% -22% Adjusting flight times to Phuket and Krabi in Thailand to get more Scand./Baltic connections

Virgin Atlantic (not publicly traded) Appoints new chief for its important (and strongly profitable) Virgin Holidays division

easyJet 1044 1% -36% U.K. airports urging May govt to ensure new intl air bilaterals in place post-Brexit

Ryanair 14.87 0% 3% Loudly promotes rescue fares for pax affected by Air Berlins exit from some Berlin routes

Air Berlin 0.59 -2% -36% Adding more New York JFK and Miami frequencies from Berlin this summer

Norwegian 275.0 0% 5% Announces new route to Spain: Oslo Torp to Palma, twice weekly starting in March

Wizz Air 1824 1% -2% U.K.s anti-immigration mood unhelpful for Wizz Airs large London Luton presence

Aegean 6.58 2% -4% Chinas Hainan Airlines applies to serve Athens from Beijing this fall with A330s

Aeroflot 160.50 2% 208% Rival S7 to link Moscow DME with Urumqi and Tehran this spring using A320-family jets

Japan Airlines 3677 2% -15% Japan Air Commuter, one of its regional airlines, took delivery of its first ATR turboprop

All Nippon 326.3 1% -3% Introducing another Star Wars-themed aircraft livery, this one a B777 featuring C-3PO

Korean Air 28000 3% 17% Court to decide whether to uphold presidential impeachment; if so, new election will follow

Cathay Pacific 10.48 -1% -15% Hong Kongs top political leader, in policy speech, emphasizes importance of aviation

Air China 5.45 5% 9% Hainan Airlines, which already serves Tel Aviv from Beijing, now wants to do Shanghai

China Eastern 3.96 6% 6% Signs codeshare agreement with Spains Air Europa, a SkyTeam partner

China Southern 4.46 3% -1% Subsidiary Xiamen Airlines adding more leisure routes to the Philippines

Singapore Airlines 6.63 4% -8% Houston (to Singapore via Manchester) its second A350 route in U.S. after San Francisco

Malaysia Airlines (not publicly traded) Rival Malindo Air the fastest growing part of the Lion Air empire based in Indonesia

AirAsia 2.58 6% 93% CEO Fernandes tells Bloomberg: ASEAN, China and India will be its key growth markets

Thai Airways 23.20 3% 165% Giving more of its shorthaul routes, including intl, to wholly-owned Thai Smile affiliate
Cebu Pacific 94.95 -3% 25% Singapore Airlines considering growth to secondary cities in Philippines (Philippine Star)

Qantas 3.47 -2% -13% Sydney Airports top foreign pax nationalities: China, New Zealand, U.K., U.S.
Virgin Australia 0.22 -4% -54% Brisbane, its home airport, welcomed 23m passengers in 2016, up just 2% y/y
Air New Zealand 2.08 -3% -32% N.Z. government controls 52% of its shares but doesnt have any board seats

Some stocks traded on multiple exchanges; not intended for trading purposes.

Jan. 23, 2017


Lone Star Fading: These are not the best of times for airlines serving Texas
CONTINUED FROM p. 5
calls.
Southwest clearly wasand might still be
doing extremely well in Dallas, where it won
the right to expand dramatically in late 2014.
But gate constraints prevent its Love Field pres-
ence from expanding much beyond the massive
buildup that it completed more than a year ago.
The end of the Wright Amendment also tempted
Virgin America into the Dallas market, hoping
to win passengers on some of the busiest routes
from Love Field, including New York, Wash-
ington, San Francisco and Los Angeles. But the
experiment didnt go well, prompting Virgin to
significantly scale back frequencies. The air-
lines new owner Alaska will have to decide
what to doperhaps scale back and move just
the San Francisco and Los Angeles flights to the
main airport, Dallas-Fort Worth (DFW), where
Alaska already serves Seattle and Portland. It
would, however, need to assess what to do with
the valuable Reagan National and New York
LaGuardia slots that Virgin currently uses from
Love Field.
Loves traffic was still up a healthy 8%
through the first 11 months of 2016. But No-
vember volumes alone rose less than 2%. Much
of this slowdown was expected once a year had
passed since the last of Southwests easy growth
thereunable to really add flights anymore, the
most it can do is upgauge. But some of the
slowdownand remember, these are just slow-
ing volumes, to speak nothing of yields that are
surely under pressure tooreflects the slowing
Texas economy. The Dallas-Fort Worth metro
area isnt quite the epicenter of oil wealth that
Houston is, but the sector certainly has a big
influence on its fortunes. That old television
drama about a wealthy oil family wasnt called
Houston.
Love Field, of course, represents just a small
part of the airline activity in the Dallas-Fort
Worth area. At DFW, traffic last year was stag-
nant, as it has been for some time. Thats a di-
rect consequence of all the new post-Wright
service at Love Field. But dont overlook the
Top Airlines in Texas
Ranked by seats scheduled for the 12 months from July 2016 through June 2017, with y/y change showed above went to DFW, plotting similar-minded coopera-
bars. Overall seat growth in Texas for the period is 0.3%, well below the national rate of 3.7% (Source: Diio Mi) tion with American.
more recent fact that Spirit, which rapidly built
a large DFW presence a few years ago, is now
shrinking there. American, meanwhile, DFWs
largest airline by far, isnt growing much any-
where these daysalthough it will soon add a
DFW-Amsterdam flight, reflecting some inter-
national momentum at the airport. DFWs Asia-
Pacific and Middle Eastern connections, specif-
ically, have increased sharply this decade, with
airlines adding new routes to Tokyo, Hong
Kong, Beijing, Shanghai, Seoul, Sydney, Du-
bai, Doha and Abu Dhabi.
For the record, thanks in part to its better
geography for many domestic connections, the
Dallas airline market is quite a bit bigger than
the Houston market, counting both airports in
each metro area. But these two mega-metros
arent the only markets of interest in Americas
second most populous state. Austin, with its
fast-growing population and tech-heavy econo-
my that in some ways looks more like Silicon
Valley than the Petroleum Plains, is getting
more attention from airlines. Also the Texas
state capital and home to the 50,000-student
University of Texas, Austin won its first non-
stops to Europe in 2014 courtesy of British
Airways, which began flying B787s to London
Heathrow and has since increased weekly fre-
quencies. That remains Austins only interconti-
nental route, but others including Aeromxico
have more recently added some shorthaul cross-
border flying.
Just as interestingly, Austin is becoming a big
growth market for Allegiant, which now offers
flights to eight cities. Several of these, further-
more, overlap with those flown by Southwest,
Austins busiest airline. Frontier is getting in on
the Austin act too, adding frequencies to cities
like Las Vegas, Philadelphia and Orlando.
Boosted by such developments, Austins airport
is bucking the statewide downturn and growing
traffic at a healthy pacevolumes rose 5%
through November of last year. Thats enough
to convince the city to plan a major airport ex-
pansion. Austins isolated prosperity was even
evident in the presidential election results: Hil-
12
lary Clinton, overwhelmingly victorious in
economically healthy parts of the country, beat
Donald Trump in Austins home county by
nearly 40 percentage points, in a state Trump
easily won overall (Clinton won Houston and
Dallas-Fort Worth too, but less resoundingly).
San Antonio, which is popular with tourists
and business conventions, had a decent 2016,
with Southwest cutting some flights to Mexico
but Frontier adding some flights. Midland-
Odessa, in the heart of the states eastern oil
region, predictably slumped. And then there are
the many markets along the Mexican border,
the largest of which is El Paso. These are most-
ly served by the Big Three, often with regional
jets, and in some cases Southwest. Sun Country
recently entered Harlingen. And Allegiant flies
from El Paso, Laredo and McAllen.
No, these arent the best of times for Texas
aviation. But then again, nor are they complete-
ly devoid of positive developments. Oil prices,
keep in mind, are on the upswing again, with
energy firms starting to ramp up spending. Ac-
cording to the Financial Times, citing the re-
search firm Wood Mackenzie, global capital
spending by leading energy exploration and
production companies will, after two years of
steep declines, total a massive $450b this
year, up 3% from last year and roughly equiva-
lent to the entire gross domestic economic pro-
duction of Poland. The increase surely means
more spending on business-class airline tickets
from cities like Houston.
Texas and its airlines are understandably
watching nervously as cross-border trade with
Mexico is threatened by a U.S. lurch toward
protectionism. But there is, after all, a new U.S.
open skies agreement with Mexico, which will
likely benefit cities like Houston. Allegiant, too,
is eying new Mexico service, perhaps from
Texas. Latin American markets as a whole are
starting to bounce back, boosting the hub status
of Dallas-Fort Worth and Houston. In fact,
when Star Alliance carriers like ANA, Air New
Zealand and China Airlines launched Houston
service even after the oil boom ended, one moti-
vation was access to Uniteds beyond markets
in Latin America. Japan Airlines and Qantas
The big metro areas of Texas, more im-
portantly, remain a magnet for population
growth, with much less dependence on the ener-
gy sector overall than during prior oil busts. The
state currently accounts for about 9% of the
entire countrys GDP, up from 7% in 2005 and
ahead of New Yorks 8%only Californias
14% is higher. Just five metro areas produce
almost a quarter of the entire nations goods and
services, and two of these fiveDallas-Fort
Worth and Houstonare in the Lone Star State.
So yes, the oil bust hurts for now. But the stars
at night are still bright for flight, deep in the
heart of Texas.
Jan. 23, 2017