Airshow Highs and Earnings Season Realities

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0:40I'm your host, Gordon Smith, and I'm joined, as usual, by co-host Jay Shabbat. In part one, we reflect on last week's Farnborough International Air Show, and in part two, we're running through the latest Q2 results with a special focus on American airlines.

1:09hey jay how's it going welcome back yeah welcome back it feels like a while since we last had a live podcast we are recording here on the 28th of july we appreciate it's been a couple of weeks since we've had a traditional episode so nice to be back in the saddle but we hope you enjoyed this gift playbook and the various other bits and pieces of the insight from Boeing and others. I've been on my travels, Jay. I'm not long back from the Farnborough Air Show, which we're going to have a quick chat through in part one. It wasn't the biggest show in terms of pure orders, but that's only one metric for defining the success of an air show, as we'll touch on a little later.

1:45And then in part two, we thought it was high time, given that we are in the thick of Q2 earnings season, to take a look at some of the numbers that our listeners, readers, and viewers may have missed over the past few weeks. Again, with the caveat that the numbers are still coming in. So Jay, Barnborough, what do you want to know? Yeah, wow. So we're in a situation where airlines have, over the past couple of years, ordered a ton of planes and have built up these big backlogs with Boeing and Airbus. Obviously, Boeing and Airbus has had difficulty delivering a lot of these planes as fast as some of the airlines would like.

2:20So you would think you're in a situation where airlines, there wouldn't be a whole ton of demand left out there to order additional new planes. But there was quite a bit of activity at the Farnborough Air Show this past, last week. So yeah, tell us, what were some of the highlights? Give us two or three of the biggest orders that came out of the show last week. Yeah. So I think it's important just to, for anyone that's new to the podcast, this is a biennial show. So it alternates with Le Bourget, the Paris air show. So it was a Farmer year this year. Farmer is just outside London. And it's not as big a deal as maybe it once was going back decades.

3:03This used to be the single place to see the latest and greatest in not just aviation, but aerospace. So it covers defense, military, space, eVTOLs, emerging technologies, and various other subsectors. So it's important to say from the very start, this is not just a commercial aviation show. And that becomes very, very apparent when you've got military jets soaring over your head in the middle of the afternoon when you're trying to get an interview or something on audio recorded and you can't even hear the person across the table from you. But still an important show and still pretty much a sort of set piece of the summer.

3:37And there was an element of maybe his best days have gone by, but actually there's also an element of, well, like I said at the very start, it depends how you interpret success. because like you say orders were there but they weren't you know in the in the very very high hundreds like some uh had been suggesting and hyping up but there was still a decent amount what you alluded to jay is absolutely spot on there's a bit of a capacity crunch which is well documented around production so even if airlines wanted these aircrafts and would be happy to order these aircraft they know that if they put the ink on the page today unless they've got a very special deal or were able to find some gap in the production schedule because someone else has pulled out or gone bankrupt or something like that.

4:21Short of those various circumstances, which are kind of few and far between, you're going to be looking early 2030s for delivery of a meaningful number of aircraft, both on the narrow body side and the wide body side. We are speaking here about Airbus and Boeing Embraer ATR. You might be able to get some earlier slots in there. But for the most part, the aircraft that most people care about, this was a situation which wasn't new, but it was just kind of extra clear at Farnborough. It was a kind of reminder that, yes, things are still incredibly tight on the production side. And it's kind of easy.

4:55You speak to people off the record and they say, selling the aircraft isn't the hard bit. It's making them, making them to standard, making them to time, making them at the price points that everyone agrees on. So there were some deals to be had. So let's not pretend there weren't. The biggest of those was actually from a lessor. And any regular readers and listeners of the show will know that lessors sort of fly under the radar quite often, but they are a very, very important part of the industry. The most sizable airliner deal came from SMBC, Aviation Capital, and they split a 200 aircraft narrowbody commitment between the two big manufacturers, Airbus and Boeing, placed a firm order for 100 737 MAX, made up of 60-10s and 40-8s.

5:40and then there was also a firm order for 18020neo family jets. Then you also had Aircap, who I just mentioned, the Dublin-based Lessor, adding 15 787-9 widebodies with options to move many of those up to the larger 10. And that will take its dreamliner portfolio to 140 aircraft and reinforces its position as the world's biggest 787-owner, suddenly at a Lessor level. and you know i speak to a number of different lessors at the show big and small and they said that the current situation around geopolitics fuel prices volatility just generally in the market is actually making what they offer more attractive because especially if you're a smaller airline who's got big growth ambitions or you simply need to renew your fleet you can tie up your money very very quickly in a big aircraft orders and going through the lessors you know it's not for everyone and it does come with some strings attached in many cases, but it can be a great option in order to get those commitments in or at least get some way to those commitments without tying up all of your liquidity.

6:47And a number of airlines were saying, up until this crisis, up until February time, a lot of airlines' balance sheets were looking really healthy just in terms of cash. And they were like, wow, this is almost like three COVID levels of free cash. What do we do? And share buybacks or buying aircraft might traditionally be something that you would consider. and obviously we all know what's happened since February 28th and the fuel price and everything else so there has been more caution and that has trickled down through some of the mood music in terms of what they're going to buy when they're going to buy but it goes without saying Jay that these decisions that are made are incredibly strategic so even if you put the ink on the paper at Farnborough you will have been speaking about this decision for months if not years with your board and you're also going to be thinking well I'm not going to get the aircraft until 2033 everything will have inevitably changed by then i'm going to be flying that aircraft for probably another 20 years through into the 2050s so you don't just let one fuel price shock determine what you do and don't do but again speaking speaking candidly to some executives there was just a little bit more a little more caution shall we say so it might not be the difference between a mega order and not having a mega order but it might be maybe dialing down a few commitments or maybe opting for the less oil route whereas previously they might have gone direct or or through another option.

8:06But in terms of the airlines, which I know a lot of our listeners, readers, and viewers sometimes care about more, rightly or wrongly. I'm very, very pro-lessor, and I think they do a great job for many airlines, but I appreciate they're not always quite as sexy a name underpinning the deals. Other airline deals from Farnborough, Ruyadair, Tony Douglas is in town with his characteristically bright blazer. I don't know who his tailor is, but some great suits always there, Mr. Douglas. I don't know if he gets to wear them much in Riyadh if it's too hot and then he comes across to Britain in the summertime.

8:41It was still very hot, but a good suit is always a sign that Tony Douglas is in the room. Anyway, enough about the sartorial elements there. He is buying, here we go here, exercising options for 28 Dreamliners. So that stems from its original 2023 order and converting 20 of those to the largest Dash 10. So a bit of bullishness there. Dash 10, obviously, the 787's largest variant. I was keeping an extra ear out because Tony Douglas joined Sean Doyle on a panel and a few other industry representatives there. I was going to listen out and just say, is he going to repeat the claim or the promise or the commitment that Riyadh Air was going to be flying to 100 international destinations by 2030, given all the various delays and everything else that Riyadh Air has had?

9:28And he did. He repeated it twice. I thought that was quite encouraging. I think they're up to six routes now, many more to come in the coming weeks and months. So these aircraft are coming in thick and fast. I think they took six in the past 30 days, with another two due in the next two weeks. So things are really gaining pace there. Real Air also firmed up six more A350-1000s, taking its commitment to the type to 31, drawn from that earlier deal of up to 50. A few other highlights for you, Jay. and we should say that you know if you're a subscriber to airline weekly and skift all these numbers are on the website appreciate it's not always the the easiest thing to follow on an audio podcast fly nas picked up some more a330 neos the 900 variant of those as well as 20 a321 neos philippine airlines was definitely one of the most dynamic carriers of the show you might remember at the ayata agm back in june they announced that they were joining one world and And you can really tell, despite the fuel price we discussed, the Philippines has been one of the areas that's been hardest hit with regard to fuel prices, if not fuel shortages.

10:32They signed an MOU for 15 787 10s with options for five more. And they separately signed an MOU for nine more A350 1000s. So lots going on at Philippine Airlines on both sides of the aisle there. A few others, Uganda Airlines placed its first Boeing order, taking 7378s as well as Dreamliners. Luxair converted some options as well. And there were two new Airbus carriers, Bermuda Air, which you don't think you have to be Einstein to work out as Bermuda's hometown airline. They ordered 10 A220-300s. And Tajikistan's Soshin Airlines disclosed the first order for four A320 Neos. And they had been on the Airbus order book for about a month or so as an undisclosed customer.

11:16Shouldn't forget Embryo as well, Abro, which is the parent company of Avianca and Gol. They agreed to take up to 45 E195 E2s. That's the newer version, not the E1s that you will still find flying at some of the US regional carriers. That's due to scope clauses and various labor bits and pieces, but that doesn't affect Abra. 20 firm plus 10 options plus 15 purchase rights. And that's the Brazilian manufacturer's first deal with Abra Group. And those deliveries, maybe alluding to what I was saying earlier, j around production timelines they're due to begin in the fourth quarter of next year so obviously the e2 is not an aircraft for everyone it doesn't fly every mission but if that suits your brief then uh looks like there's some attractive delivery slots there bento canarias also taking some more e2s they were a very early e2 customer and japan's fuji dream airlines uh very colorful liveries there they added a couple more to their existing book so that's a very very very brief run through what there wasn't was off the top of my head united coming in and saying we're gonna buy 400 or you know one of the indian carriers coming in and saying we're buying 500 you know you do an air show like that and we have had those in in the past few years and they are just the sort of absolute blockbuster deals that knock your socks off and define the entire show we did not have one of those you could argue the smbc deal was approaching that in terms of volume but the fact that it was a lessor and the fact that it was split between two uh manufacturers and the fact that there wasn't an airline attached to it didn't uh you know i'm sure the oems are very happy a sale is a sale but from a from a sort of news value point of view it's a little bit less tangible it's a sort of thing of it a little bit yeah just a little bit but um well done to to all those teams that got that deal across the line and just to just to wrap up on the metric for success it used to be that we had these carefully choreographed deals and i remember my first farmer was 2014 it did feel like you had the oems and the airlines choreographing things to a degree so it was very quiet may june and then you would get a flyer of orders all presented at Farnborough and you'd be running between chalets and you get a little alert saying oh they're about to order this they're about to order that and all the sort of whispers that doesn't quite happen to the same degree anymore for a few reasons I think Harley Airlines like to have a bit more time in the limelight so we saw even with SAS earlier this month they had a very meaningful order for Airbus widebodies and they had their own event in Copenhagen and they were able to do all on their own terms it wasn't in some OEM chalet on a hot day, it was much more of an event.

14:00And this is, I think in SAS's example, the largest single fleet order in their history. You can see why they would want to make a day of it, bring all the press and do all the pomp and pageantry as opposed to just 20, 25 minutes as another order at a very busy show. So that makes sense. And then also you do have the rise of some regional events as well. So I'm thinking there are some carriers in and around the Middle East that have historically preferred to make announcements in region if your country has its own events. So that plays into things a little bit as well. But there were some technological developments.

14:33So you had both Virgin Atlantic and Logan Air both make some commitments to varying degrees in the eVTOL and flying taxi space. So what I don't want our listeners and viewers and readers to go away with is a sense that it was a flop. It was not a flop, but it was just different. And I think that is the style that it was always going to be, partly because of the operational crunch that we've already considered. And partly because airlines and OEMs are not choreographing to the same degree. And also because there have just been so many big orders in the past few years, Jay, they kind of need to work their way through the system before you have another supersized order.

15:12Yeah. Yeah. No, thanks for that, Gordon. A great, great roundup there. One thing that's getting a lot of people asking about, just sort of a long-term topic that's, I think in the back of airlines' minds, collective minds, is when are Boeing and Airbus eventually going to market a new generation of narrowbodies just because the 737 and A320s are getting a little bit long in the tooth. Even the Max's and the Neo's are ultimately, they're just a derivative of the original versions of those planes. Ryanair incidentally They said last week that they, I'm sure you heard that, nah, there's no need for that until the 2040s, 2050s.

15:57I think they're happy to use the maxes that they'll be getting for many years to come. That's one thing is when the bad part about a new product coming, a new generation of airline coming, an aircraft coming into service is that all the existing planes lose their values. So, you know, Ryanair, you mentioned leasing versus owning. Ryanair is a big owner of their aircraft, so they don't want to see the value being lost. But in any case, yeah, it is a legitimate question to ask whether or not it might be 2040, 2050s, because a lot just depends. I mean, you can't, you know, just snap your fingers and invent a new technology.

16:39a lot depends on, you know, can we make a new generation of narrow-body airplanes that have significantly better economics that are worthwhile for airlines to buy to spend all this money on? And the answer might be no. I mean, a lot of the improved economics come through the engines, through the power. And, you know, we see what's happening with this current generation of engines. They are certainly significantly more efficient than the previous generation, but they've also come with a lot of maintenance problems with a lot of reliability issues so you know all this big questions to ask now i did listen to the airbus airbus did hold a press conference that they you're you know i was able to listen to online one so they're they're actually two there are two products that they have that they are very seriously considering uh producing a derivative for.

17:33One is the A220. That's something that's been talked about for a while to do our stretch version of that. So there's an A220-100. There's a bigger A220-300. Now Airbus is thinking about producing a 500 series, which would be bigger. I know Air France and a couple of other airlines have been kind of pushed in that direction. They wanted that. And then even more interesting is Airbus is thinking of doing another larger version of the A350. So right now Now they have a 900. They have a bigger version, the 1000. Then they have some variations like the ULR, which you've written a lot about that. That's the one that's Qantas is going to be using to fly ultra long range.

18:13But now they're thinking of doing an A350 2000, which would be even bigger. So yeah, we'll see if they go in that route, go that direction. Obviously, the Boeing's competing product would be the 777 series, the 777X, which has had all sorts of production problems. Emirates told you personally, I know, Gordon, last week, Tim Clark did, that they're, you know, still have big concerns about when they're going to get that aircraft. And, you know, I don't know if you have anything more to say about that, but that's, you know, I think Airbus sees an opportunity there with Boeing struggling with that 777.

18:53Yeah, for sure. And, you know, to pick up on a few points there, Jay joined a media roundtable breakfast with Tim Clark, the emirates president of course and he was on absolute fighting form like he was just yeah it was like 9 a.m and like i said before it can be a real hassle getting to the uh the farmborough show side through security and everything else and you know early start obviously means you have to start early he was fabulous absolutely fabulous it was my first time seeing him in a few years face to face and you know he started off with sort of 20 minutes just you know setting the scene this is what we're up to obviously you know against the backdrop of a very fragile situation in the Middle East, but in terms of the Iran war and everything else.

19:32And he was fielding questions left, right, and center. And he was taking them as good as anyone. There were obviously some discussions around when Sir Tim may retire. There was talk about that in 2019, pre-COVID. We all know what happened next. And he's hung around, and I asked him, what about succession? Have the past few months changed anything around that in terms of having the best team in the crisis and everything else? And he said, no, now is not the time for that. But he does have two deputy presidents in post. But yeah, on Suttim's comments around aircraft, I asked him, are we just in a particularly boring part of the development cycle around aircraft?

20:09You know, we've made them and now we have to sell them. And now the R &D stuff's going on behind the scenes currently, but there's nothing really to show for it yet, certainly publicly. And he was, you know, Suttim, he was sort of bemoaning a sort of wider lack of ambition in the industry. and he was sort of hulking right back to the 80s and saying there were particular individuals in the industry at the time who had a sense of real ambition which may be somewhat lacking now. And that may manifest itself in the years to come when we don't have the new products from an airliner point of view. Feels like it's stale maybe, the product lineup.

20:50Yeah, yeah, I said that. And he didn't disagree with that and he actually spoke at length about that. I should probably write an article about that because I did some really good quotes. I'm going to be trying to add those into the next issue of Airline Weekly. But I also was able to join Airbus for an event and they are working on something. It's probably going to be a narrow body, single aisle, next generation aircraft broadly to replace the A320. So you have to remember that aircraft fundamentally goes back to the 80s in terms of its development. Fly by wire, everything else, very impressive at the time.

21:18But we are looking at an aircraft that could be sort of, in terms of its R &D 50 plus years by the time they get a replacement. So your sort of working name is e-action program. So they were on the record as saying they are working towards this, maybe around the very late 2020s, early 2030s, in terms of a formal announcement of the program and then targeting commercial entry into service in the second half likely of the 2030s. So there is something happening there, but it was really interesting just to go back to your point around maturity of various platforms, Jay, and platforms, a bit of jargon for anyone that's new, that just basically means an airliner product.

22:00You had Paul Kent, who is the chief commercial officer at BOC Aviation, another big lesson. And he was saying, let's just get some maturity in the programs that we've got. We don't necessarily need to be chasing the next big thing. Obviously, like we said, he's got skin in the game. He wants an aircraft to be as relevant and as sort of new as it can be for as long as it can be to get maximum bang from his buck. But actually it was a message air code across the board just in terms of let's get these existing programs embedded in and get the aircraft that we've ordered flying and in service before we start chasing the next big thing.

22:36I do want to just touch, speaking of the next big thing, I did have an opportunity to get on board the United A321 XLR, which is an aircraft which... Okay, they had them parked there? they had it parked there on the static display and i was able to join as well uh peter woloski he's united's director of onboard products and yeah he was you know delighted obviously as you'd expect with his aircraft and i was a little not cynical going in but i thought you know at the end of the day if you've got an option to fly on a wide body or an hour body particularly let's say across the atlantic you're probably still going to choose a wide body and i was really really impressed with this aircraft i was you know polaris as you would expect was was comfortable and you know there have been some critics around it feeling a little bit more narrow yeah it's a body but the actual seat uh when you're in it um maybe not quite as spacious as it might feel on a on a 787 or or triple seven but actually the real sweet spot for me was the the premium plus cabin and that is just in a 2-2 config on the a321 and that is everyone that was on the the group tour with was like dang yeah this is the sweet spot if you were paying your own money that is where you would probably choose to sit especially on a flight that's only going to be maybe you know maybe up to eight hours nine hours tops really really comfortable great um design there and a very intimate cabin as well so you know if money's no object obviously you're going polaris but if you put your hand in your own pocket that uh that premium economy equivalent very very competitive and actually probably more competitive than the equivalent product on a wide body just given uh the fuselage they're only able to fit two and two it's a really really uh generously generously proportioned product before we get into the break a quick reminder if you've got any questions or comments for us uh podcast at skiff.com that's podcast with nes at the end and please don't forget to follow or subscribe to the podcast wherever you're listening or watching and if you are enjoying the show please rate us five stars or leave us a poll to review so we can continue to spread the word about the airline weekly lounge.

24:38Don't go anywhere. We're going to be talking Q2 earnings in part two. Hello, and welcome back to the airline weekly lounge. I'm Gordon Smith, joined as usual by co-host Jay Shabbat. Part one, we were discussing Farnborough and my experience there last week. We are pivoting across to earnings, Jay, for part two with a particular focus on American airlines. We obviously said at the very start of the show, we've had a few special episodes, so we haven't been following the ups and downs of earnings season in the same detail as we might do in a regular quarter. So Jay, bring our listeners and viewers up to date.

25:10I'm going to focus on the U.S. just for brevity here. Obviously, as you said, there's a lot of airlines all around the world coming in. We got Singapore Airlines this morning and a lot more this week. So I'm going to focus on what we have for the U.S. so far, which are six of the U.S. airlines have reported as we're talking today on Tuesday at about noontime, New York time. So I'll go quickly through, rank them from best to worst in terms of their profit margin, operating margin. And then yes, we'll do a little bit more on American since that was the topic of this week's Airline Weekly feature story.

25:46Some of you may have seen or read that. So without further ado, Delta wound up coming in, no surprise, as the airline with the best operating margins. 9 % for the second quarter. That was down from 13%. And you'll see that's going to be a familiar theme, that year-over-year deterioration. No huge surprise. I always talk about the two rockets, right, Gordon? The fuel price rocket and the revenue rocket, they're both going up, but fuel price is up, going up more, ticketing the second quarter. So Delta did a good job of getting its revenues up to partially offset that fuel increase, but not quite all the way.

26:26Okay, so Delta at 9%. Coming in second, very big turnaround story here to talk about. Southwest Airlines, 7%. So almost close to where Delta was. And this is an airline that last year just did 3%. So I said 7 % this year, 3 % last year. So we're talking about quite a substantial year-over-year improvement. People might be listening to this on their iPhone or whatever else other other phone brands are available. They might be wondering, hey, hang on a minute, has Jade not just jumped over United? Well, we'll get there because the Southwest will in fact jump over United. Do not adjust your set. Yeah.

27:10So United came in next at 5%. So I said Delta 9, Southwest 7, United 5. You know, and again, I should always, you know, Surgeon General's warning here that we're talking about the second quarter. Some airlines do better than others in certain quarters. United tends to have a better third than second, just the way their network is structured. So, you know, don't get too concerned for United. United had a very good quarter, too. But Southwest is in the midst of just a really remarkable turnaround. I mean, to think that they, and they were the only one that was able to improve their revenues year over year quite significantly at that, despite a massive fuel shock.

27:52So that is extraordinarily impressive. If you want to read about, you know, in more detail about why they were able to achieve that, it's all laid out, I think, hopefully as clearly as possible in Airline Weekly this week. I'll just say quickly that a lot of their revenue initiatives, we've talked about the bag fees and distributing through online channels now or through third-party online channels, the new extra legroom seats, et cetera, et cetera, et cetera. They've done a lot of that stuff at the prodding, much of it at the prodding of the investment firm, Elliott Management, which came in in a hostile manner and sort of gave him a kick in the pants, he might say.

28:37But I think everybody has to be, their investors have to be happy about what's going on at Southwest financially right now. Really, really impressive story. Just remarkable in terms of revenues. So I had, after United, I said Delta, Southwest, United. After that comes American. American did make money at 3%. I'll talk about their situation in a bit. Alaska had a very difficult quarter, negative 3%. Again, for more on that, just for brevity's sake here, we'd go on forever if we'd dissect all these airlines on this podcast, but they do have some issues in Hawaii. They have some issues probably with their new long haul routes starting up.

29:21And then just for us this morning, Tuesday morning, JetBlue just reported, haven't listened to their call yet, but I do have their numbers negative 5%. So sure looks like JetBlue is on track for a seventh straight year of losses. Not a pretty situation for our friends in New York there. they insist that they do have a you know turnaround plan that's going to get them back to profitability in 2027 so you know we hope hope for the best there a couple of more things i just want to say in in broader terms speaking about the u.s airline industry before i get into a few extra things regarding american the pricing power in the u.s airline industry is probably stronger than i've ever seen it in.

30:09So this is my, I just realized this this morning. This is my 25th year in the airline industry. So almost exactly 25 years that I started as an intern at the old US Airways. So in my 25 years, I can't remember a time when pricing power was this strong. Now the question is, is this a demand phenomenon or is it a supply phenomenon? Maybe a little bit of both. Great question. Yeah, it's a good question, right? What is it? Is it just very, very strong demand, which I think there is some of that. I mean, the economy is pretty good. We've got this AI investment boom. We've got stock market booming. The job market is relatively healthy.

30:48So it probably is somewhat of a demand phenomenon. We had, as we discussed in our LinkedIn live event, Gordon, how there's just a yearning for premium seats. People are willing to spend more on that. Some argue that, well, Americans can't afford houses anymore. So, hey, let's just you know by by premium cpk there might be you know some validity to that so in any case could be a demand phenomenon but you can't discount the fact that it could be a just a supply phenomenon too airlines have pricing power because spirit airlines is gone because you know still a lot of planes are maybe not a lot anymore but quite a few planes are still grounded you know that have these gtf engines i think we're down to just chip blue or the only is the only u.s airline that has the gtf problems but uh in any case you know that is capacity that's uh that's not flying and i was just you know looking in at cerium you know looking at capacity numbers for this quarter total domestic u.s airline seat capacity is basically flat from where it was last year it's basically flat from where it was two years ago and it's basically up only about three percent from three years ago.

31:57Now, if you think about, you know, this is a U.S. economy grew 3 % in 2024 or 2023. It grew 3 % in 2024. It grew 2 % in 2025. You know, that's quite a bit, you know, it's not, you know, voracious GDP growth, but that is a pretty significant, you know, economic growth over the course of three years, yet supply isn't growing. So that, I think, speaks a lot about why there's pricing power as well. And obviously, it's not quite enough to deal with the enormous fuel shock that airlines experienced this spring, but still substantial. So that's that. Let's talk just briefly about American. Again, read the article on Airline Weekly for more.

32:48But again, they did make money. So it's not a desperate situation. And American made money. They had a 3 % operating margin for the full year last year. So don't think of this as an airline that's bleeding in the same way that JetBlue is, or certainly not the same way that Spirit was. but 3 % when Delta's making 8%, United's making 5%, Southwest's making 7%. That's not acceptable, I think, for their investors. And I think management would tell you as well that they don't find that acceptable. So the other thing that was rather alarming is American is forecasting a loss for the summer quarter. Summer quarter, it's true that they tend to, because they tend to be more north-south because they're big in South America.

33:43They're not quite as big in Europe and Asia. So it's maybe not hugely surprising, but to lose money in the third quarter is not a good thing. I mean, last year they came pretty close. They actually had a net loss last year too, but at least they made an operating profit. So we'll see how they wind up at the end of the year, but that's not a great situation. They're doing what they should be doing in terms of, you know, they're chasing the premium demand, they're expanding that, they're, you know, doubling down on the loyalty program, they're adding international routes, they're doing all that.

34:21Question, you know, should they be doing something even bolder like a merger or something like that? You know, who are they going to merge with? JetBlue? Well, they're kind of dancing with United now. They, you know, American JetBlue kind of went through their relationship already. I'm not sure if they're ready to revive that. Alaska Airlines. You could say that. Yeah. Yeah. So Alaska Airlines, I mean, maybe, but American, you know, they don't exactly have the greatest balance sheet to buy another airline. You know, maybe they'd have to get another firm involved in that. But anyways, I mean, that's, you know, we're all involving.

34:54United Airlines, should they marry? Should they have a big role? That would be like the Jeff Bezos wedding, wouldn't it be? Like, you know, United and an American merging. Even President Trump said he wasn't in favor of American United. So I think if you've got that, I think he was falling into CNBC's Scott Box or Fox Business or something, and he was asked about that. This was obviously a few months ago when the rumors were circling. But, yeah, I think if the president said he's not in favor of it, then that's a pretty clear indication that that's not going to fly on Washington more broadly, Jay.

35:26But just, you know, American aren't here to defend themselves. You have said those numbers, you know, they're not losing money. They're maybe just not making as much money as they could. What would your response be to someone that says, hang on a minute, this is a very large airline, a very complex airline. You can't just turn it around in a quarter or two or even a year or two. This is going to take quite a bit of time given some of the missteps that the company had made in years gone by. are we getting any sort of indication that things are turning around if not where they should be they're at least on the right path i mean the fact that they're going to lose money in the third quarter is perhaps an indication that it's the opposite of what you say is true is that it's not not going the right direction now maybe the third quarter is an aberration and you know they'll tell you that things will pick up uh you know later in the year fourth quarters are not nearly as off peak as they used to be for u.s airlines so that should be you know they have a perfectly fine chance of making money i think for the full year they they kind of have a guidance of you know maybe making money maybe not you know somewhere kind of uh plus or minus around that zero uh around that break-even point um it's just so hard to forecast anything because who the heck knows what fuel is going to be you know it's we thought in earlier this month that uh oh you know fuel is coming down now from where it was and now it's spiking up again so you know it's just so hard to make a forecast.

36:48Now, as I mentioned, they are doing a lot of the things that they clearly should be doing in terms of investing in premium, in terms of investing in loyalty. They are taking a rather risky network strategy, at least in the short term. If you look at where they're growing and hub by hub, interestingly enough, they're shrinking or holding flat in their strongest, most profitable hubs, they're growing in their weakest, least profitable hubs. Now, why are they doing that? And when I say the least profitable hubs, the one that stands out most is Chicago. Why are they doing that? Well, I've got a theory.

37:33You want to hear my theory? Love to. Go ahead. Okay. Okay. Well, one is just, this is not my theory, but one is it's Chicago's important market. And arguably it could be more expensive, to close. It could be more loss-making to close a hub than it is to operate it. You have to buy out your employees, where you put the planes. There's a lot of things to consider when you close a big hub. So I don't think that that's going to happen anytime soon. They believe that they can eventually hold their own in Chicago. My theory is, just take this with a grain of salt, but if you think about how important these credit card relationships have become, these banking relationships whereby airlines are selling miles to the banks.

38:17I mean, we're talking, you know, billions upon billions of dollars here. Well, Citigroup, I'm no banking analyst, but I do know that Citigroup, which is America's partner, they have struggled with their domestic U.S. consumer banking franchise. And if you look at one of the few places where they do have a sizable presence in the u.s the mess in talking about like the consumer banking like little branches on the street kind of thing um new york is one and so you would think american they they press citibank would probably wouldn't want american to you know scale that down chicago is another los angeles is another and that's pretty much it maybe i don't know they might be in a few other cities san francisco's and non non-hub cities miami i think is another one where where they're big so i can't imagine you know if you if you said to city group when you're negotiating that credit card deal well we're gonna we're gonna downsize chicago uh and you know which means you're not going to get a lot of new credit card signups in chicago anymore if people you know don't find if american travel you can chicago travelers don't find us as attractive the airline is going to be representative and it's going to be relevant to the local market You know, if you know, yep.

39:36Yep. So, you know, one of the things they said in their in their earnings call last week, American did, is that they're growing their credit card signups in Chicago quite a lot, which makes sense as you grow there, you're going to, you know, get more engagement. So, you know, that could again, it's I don't know if this is a fact, but but it could it does seem plausible that their Chicago network strategy is at least loosely tied to their strategy in negotiating with Citi. obviously they have this you know very um lucrative new city deal which should help them um you know it's just getting underway now so that should help them in their endeavor to close the margin gap with united and delta but they do still you know have a have a ways to go just want to say one more thing about american i know i've probably over over exhausted my uh my allocated time here But do keep in mind, in fairness to American, that they don't have the same level of cargo revenue that United does now.

40:38United is big in Asia. American is very small in Asia. Delta is not that much bigger in cargo than American, but United is. And I have the feeling that some of that cargo is pretty lucrative, like some of that semiconductor stuff, the chips and things like that. So American doesn't have that. And then they also, comparing to Delta, Delta has that very lucrative maintenance, Delta Tech Ops, they call it, repairing engines. That's got to be a very, very profitable niche to be in right now as well. American doesn't have that. So, you know, things to keep in mind when you're considering American's underwhelming margin performance.

41:17Sit the scene beautifully there, Jay. Thank you for that. And if you do want to go into more detail, it was the subject of our feature story in the last issue of Airline Weekly, the issue that was published just yesterday, July 27th. So jump into the back issues there if you want to read that in more detail. Yesterday for us. But no, yesterday, what is yesterday? Yesterday is time as a construct. Right. That's all we've got time for this week. But a quick reminder about email address podcast at skiff.com if you have any ideas, questions, suggestions for the program. And please don't forget to follow or subscribe to the podcast wherever you're listening or watching.

41:50Right. Thank you to Jay for joining me this week, back into our usual cadence. And thanks as always to our producers, John, Monica, Kelsey, and Will. And wherever you are in the world, thanks for listening and we'll catch you next time. Bye for now. Whether you're listening to us on Spotify, Apple, or wherever you get your podcasts, please remember to subscribe, rate us five stars, or leave us a positive review. This really helps us get the word out about the Airline Weekly Large, so we can continue to bring you this podcast every week, absolutely free of charge. And if you're watching us on YouTube, be sure to subscribe to the Skift channel and hit the notification bell to find out whenever a new video drops.

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