It was a good quarter for the airlines. Cool… but why?

Eight U.S. airlines have reported earnings, and so far, the attention has been on international versus domestic fares. Those airlines with deep international exposure have done extraordinarily well. Those without were still good but with disappointment from Wall Street regarding guidance.

Even so, profits and profit margins are significantly higher over last year. United’s operating margins doubled from 8% to nearly 17% (ex-special items). American also doubled its margin from 7.6% to over 15%. Delta? An industry high of over 17%, up from almost 12% last year.

Yet while international RASM bobbed and domestic RASM weaved, it was fuel that was the big differentiator over last year. In fact, at every airline that has reported Q2 earnings, the impact of lower fuel prices has been greater than the increase in profit. Put another way, the entirety* of the airline’s increased profits compared to the same quarter last year can be attributed to lower fuel prices… and then some*.

*(Well, that was true across the board until Allegiant announced yesterday. While enjoying the tailwinds of lower fuel prices, Allegiant also put in the hard work to make more money the good ‘ol fashioned way.)

How did we calculate this?

While it may seem simple to check the difference between last year’s fuel bill and this year’s, we calculated what the impact would have been with last year’s prices. Airlines report both the average price of fuel, as well as the number of gallons consumed. Price difference times fuel consumed. Not rocket science. (More turbine science.)

Looking closer at American, the airline saw an increase in operating profit of $1.1 billion. Pretty great. But, if fuel prices had remained at last year’s levels, the impact on the airline would have been $1.5 billion — eclipsing the profit growth.

Agreed, but let’s consider this another way. Based on the things the airlines do control, did they do better in Q2 2023 than a year ago? Not really.*

*(Sans Allegiant’s streak-ruining numbers)

Indeed, fuel prices were crazy high last year. For those airlines that rely on fuel from the East Coast, they were even higher. But setting those numbers aside, last year was a better Q2 than this year across the board.*

*(see above rant on Allegiant’s strong performance.)

What does this mean for the airlines? International revenue was solid and worthy of note, but this quarter's story is fuel. Put another way, if this quarter’s story isn’t fuel, then what’s left?

It’s higher costs, a completed recovery, and the reset of unlimited growth expectations. This is what a recovered industry looks like. Disappointingly normal.

Earnings in two words:

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Short Approach:

Delinquent payments and write-offs

In other news… not everybody pays their credit card bill on time. Or at all, apparently.

It’s a dreadful part of our job, but from time to time, we look at data from outside aviation. This time we found some interesting data in the American Express earnings presentation.

The bad news is the value of write-offs and delinquent payments are on the rise. Not good.

The good news is, they’re both still below pre-pandemic levels. Not bad.

We see this as yet another Rorschach test of economic sentiment. What do you want the data to say? Are things getting worse, or they’re not as bad as they were?

You should do a chart on…

If you could choose one topic you’d like us to dive deeper into, what would it be?

We like to create valuable charts. But, it’s not easy coming up with new ideas amid the endless hours delivering data-driven edge to our customers. In our quest to provide a valuable weekly newsletter we can keep guessing what you find most valuable, or you could just tell us.

In fact, next week, we will be featuring a subscriber request. It’s a good one. It’s taking us some time to complete, but we have thoroughly enjoyed ourselves looking into the history of some airline fleets.

We’ve said too much.

If you have an idea for data visualization, reply to this email and let us know what analysis you’d find most valuable. We’d love to hear from you and will happily name-drop.

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