Decoding Q3 U.S. Airline Earnings

0:00Jay Shabat: Hello and welcome to the Airline Weekly Lounge. I'm your host Gordon Smith and I'm joined as usual by co-host Jay Shabat. In this week's show, ahead of the Skift Aviation Forum in New York City, we're making sense of the latest earnings from America's biggest carriers.

0:30Jay Shabat: Hi, Jay. How's it going? All right, Gordon. How are you? Doing very, very well. Just as a little bit of context for anyone that's not joining us live, we are recording here on the 27th of October. And we've heard now from most, not all, but most of the major US carriers. And I don't know about you, Jay, but for me, this has been a particularly interesting earning season. We've got record revenues, soaring fuel costs, and some very, very different financial outcomes. A lot to unpack over the course of the next 30, 40 minutes or so of this special show. We are recording live on LinkedIn, but for regular viewers, regular listeners, do not worry.

1:05Jay Shabat: It's not going to be death by PowerPoint. We are going to be keeping things relaxed, chewing things over in our usual conversational format. That said, if you are joining us live and you have got a question either for myself or for Jay, feel free to jump into the comments section. And if we've got any time towards the end of the show, we'll try and take one or two of those, Jay. But with no further ado, let's get into it. With the notable exception of, I think, Allegiant, Frontier, and perhaps on a regional side, SkyWest and Republic. We've got all the U.S. numbers in. What's the Jay Shabbat overarching takeaway for Q3?

1:36Gordon Smith: Yes, we've got the big six, American Delta, United Southwest, Alaska, and JetBlue. There's the big six airlines now. And as you said, there are a couple of smaller ones that haven't yet reported. So we've got all the numbers. We got JetBlue last night. They did their earnings call this morning. I got a chance to listening to about maybe the first 20 minutes or so before preparing for this. So I have kind of a little bit of an idea of what's going on there. I think enough to sort of know the big picture, which is that JetBlue is struggling. I don't think there's any surprise there. Talk about that in a little more detail.

2:16Gordon Smith: Just, yeah, a broad overview from what we know from these six airlines having reported now is, I think, I think you said it, you know, two big things, costs are going to the moon and the revenues are going up really fast as well. So that's the, uh, you know, the big, the big story. And for most of these airlines, uh, well, let's say four of the six, the costs are going up more than the revenues in Southwest case. And actually in JetBlue's case, the revenues actually did go up more than the cost if you compare Q3 year-over-year. So yeah, there's, you know, little progress to report there. Now in both of those examples, Southwest and JetBlue, the margins are still not nearly where they need to be, particularly in JetBlue's case, but there was some year-over-year progress.

3:06Gordon Smith: I did want to, before just throwing it back to you, I have here the operating margins for these six carriers over the course of the first three quarters of the year. So January through September, just to give a, you know, kind of a longer term sense of how everybody's doing. I have to tell everybody, I quizzed Gordon on this this morning and he came almost close to 100%. I stumped him on the, you know, little, the middle portion here, but -

3:37Jay Shabat: It was a B plus if I was marking my own homework.

3:41Gordon Smith: We'll give you a B plus. I think that's a fair grade. Yeah, fair grade. Without any, yeah, I got them impromptu, no preparation. So maybe we'll bump that up to an A, just, you know.

3:49Jay Shabat: A minus. We'll give you an A minus. Yeah, A minus. I'll take it.

3:54Gordon Smith: Delta came in at 8%. That's the nine-month. They led the way. United at six. Southwest at five. Nice turnaround there from last year was much worse. American only one. And then you get into the two Red Ink guys. is Alaska negative two and JetBlue negative six. All this removes special items and kind of cleaned up numbers for the first nine months of the year. So there you have it. I'll turn it back to you.

4:24Jay Shabat: Yeah, fantastic scene set there, Jay. And I think it's important to look at things in context. That's what we try and do at Airline Weekly and Skift more broadly. We're not just taking an individual day, an individual quarter, even in isolation. We do try and contextualize and make sense of those sort of bigger picture trends and themes. Spoiler alert, I think a huge distinction between the revenue growth that we've seen and the actual demand growth is going to sort of underpin our entire conversation over the next half hour or so. Just before we do dive into the figures, get into a bit more detail, including JetBlue, whose numbers are pretty fresh, are there any big caveats that we should just keep in mind, our viewers, our listeners should keep in mind?

5:03Jay Shabat: Q3 isn't a sort of standout quarter for every airline, there are some that are historically stronger than others. Let's just set the scene a little bit in terms of that detail. And then when we are looking at those numbers, we've got to keep in mind as well that there are some data points that look impressive on paper, but don't necessarily tell us that much about the underlying health of an airline. So let's get the caveats and the small print out of the way before we really dig in.

5:28Gordon Smith: Yeah, correct me if I'm wrong, but the way I'm reading your question is about seasonality and how the third quarter is going to be different than, say, the first quarter for different airlines. Is that what you're asking?

5:40Jay Shabat: Couldn't have put it better myself.

5:41Gordon Smith: Yeah. Okay. I just wanted to make sure that we're on the same page here. So, yeah, I mean, it's true. The third quarter is the summer quarter, and that's traditionally a peak travel period. Now, it's become less peak than it was in the past, and that has to do with a lot of kids in the U.S. go back to school early. The school's open earlier. In some parts of the country anyway, parts of the South, there are schools that are open in early August. And so you'll hear airlines talk about the third quarter being not quite as peak as it used to be. The second quarter tends to be the best quarter now for the industry at large.

6:20Gordon Smith: Now, you know, Alaska, they didn't have a great quarter, but summer does still tend to be very, very strong for them. If you think about a lot of the east, west Seattle flows, a lot of tourism into Seattle, tourism. Nobody's going to Alaska in January. They're going in the summer. So it's going to differ from different airlines. One final, I'm probably giving you a longer answer than you bargained for here. But one thing with JetBlue that is interesting. You might assume that the first quarter might be a little bit more peaky for them because they have so much Florida, so much Caribbean stuff that tends to do well in the first quarter.

6:56Gordon Smith: But it's really not true. they'll have better margins in the Q2, Q3 than they do in Q1. That probably has a lot to do with their European service, their transcontinental service, which is a lot of seat miles. It's a lot of production. So there's your long answer to a question. You probably were expecting a shorter one too. It was a long answer to a long question. There we go.

7:19Jay Shabat: Okay. You mentioned JetBlue there, Jay, and we got the numbers out just in the past 24 hours here as we're recording on October 27th. for anyone that hasn't been able to get into those in some detail. What was your assessment?

7:31Gordon Smith: Yeah, well, so JetBlue went into this this week with a lot of concern about people using the B word, the bankruptcy word, and worried about they're going to lose money this year unless some miracle collapse in fuel prices. They're going to lose money for the seventh straight year in 2026. They have about$9 billion in debt. So there was, you know, some news headlines this week about bondholders getting concerned about, you know, bondholders just people that lent JetBlue money worrying, uh-oh, you know, if these guys can't pay us back, they might have to go, you know, declare bankruptcy. So there was, you know, news headlines swirling about that.

8:16Gordon Smith: Some reports, I think Bloomberg reported, I think it was Bloomberg, that JetBlue is, you know, hiring some restructuring advisors. So, you know, that's kind of how the situation as we went into this week So yesterday they reported numbers For the third quarter they reported a negative 4 % operating margin They were the only airline of those six, the big six that have reported so far That had a negative result Even Alaska, you know, positive 4 % So it's, you know, not a pretty picture The numbers were not pretty for the third quarter they are still, they continue to have negative cash flow. So they're burning through cash.

8:56Gordon Smith: Now, I only got a chance to listen to you about the first 20 minutes of the call. You know, I'll go back tonight, look at the transcript. But the basic message was, I'm trying to decide if I should, you know, say this in a nicer way, clean it, clean it, separate. But the way I was, I was speaking with Meghna earlier and the way I kind of said it is the message was that, you know, we're going to continue to burn cash for the next 12, 14, 16 months, but don't worry because we got a lot of furniture to burn. So we, uh, we've got, we've got plenty to, uh, you know, we, we can raise cash if necessary.

9:28Gordon Smith: And that's, um, you know, I'm being a little facetious there, but I think their point was, is that no, we don't, don't worry if you're buying order, we can pay you back. We have, if we can't, you know, generate enough cash in the inner, we have aircraft to sell, we have engines we could sell we have this loyalty program we can further monetize we have a couple of businesses that paisley business which is online travel platform they have some they have a small venture capital business airport slots i i they probably have some of that too they they own most of their fleet too um so they're saying you know don't worry we've got this bridge to 2027 when we'll start earning operating profits and a bridge to 2028 when we start producing positive free cash flow.

10:14Gordon Smith: That was kind of the overriding message.

10:16Jay Shabat: Yeah, there have been a lot of scary headlines, I think, for those that are involved in JetBlue in the past week, Fortnite even, going back, frankly, quarters and quarters, but particularly noisy in the past Fortnite, Jay. And if you speak to JetBlue, they will point to elements like you just said, the Jet Forward program, the new slots that they've got at LaGuardia freed up from Spirit's demise, that real push into Fort Lauderdale, the lounges, et cetera. So there is plenty that the executives can point to in terms of meaningful, your domestic first, meaningful changes to the business. But like you said, when the numbers stack up as they do, you are going to have some inevitable questions.

10:52Jay Shabat: I just want to bring in a quote. It wasn't directly related to JetBlue, but just a broader point from Scott Kirby, the CEO of United Airlines. He was reporting his own airlines numbers a few days ago. And he said here, quote, the fact that Spirit went away was a reprieve for some airlines from making hard decisions. He continued, but there are other airlines that are next up on the firing line, I think changes are coming. Obviously, he's been from a position of strength, United, as we've already established, being one of the most successful carriers, not just in the US, but further afield, certainly amongst its class.

11:26Jay Shabat: But when you do have someone like Scott Kirby with the platform that he's got saying that more changes are coming without necessarily naming names and naming specifics, it doesn't help that feeling that there is perhaps a sort of broader reckoning coming for the parts of the US industry. Let's broaden it out if we can, though, because it isn't just JetBlue that'll be making some meaningful changes to improve their bottom line. Southwest has been a really interesting carrier as well. They managed to really boost revenues, but also expand their all-important operating margin despite the fuel shock.

12:00Jay Shabat: Give our readers, give our listeners, give our viewers a little bit of color around that, because that does sound like a little bit of a paradox.

12:06Gordon Smith: Yeah, and I'll talk about Southwest a little bit. I just wonder if I can just say one more thing about JetBlue. There is kind of this collection of reasons why they are so distressed. I mean, if you ask someone, you know, what's JetBlue's problem right now? The quick answer is, well, fuel is where they expect us to pay. I'm looking at$4.64 a gallon for fuel this quarter, which is an extraordinary amount. So that's putting enormous pressure on all airlines, but especially an airline that's, you know, on its way to losing money for the seventh straight year. But there, you know, you have to remember this is an airline that was hit twice by adverse judicial rulings.

12:49Gordon Smith: I mean, they had a partnership with American that, by all accounts, was going pretty well. That was deemed illegal by a federal court. The Northeast Alliance.

13:31Gordon Smith: that they knew were coming, the inflationary problems, et cetera. It didn't work that way. And I'm one of those people that still thinks that the merger at the time made sense. I think that was maybe a more controversial premise among a lot of industry analysts, but I thought that would have done a lot for their network, a lot for their loyalty program, et cetera, et cetera. Now we're in a situation, and there are more things we could talk about. why is JetBlue having trouble? They are subject to, talk about a broken recording, it's one thing you can set your watch to is every time JetBlue does an earnings call, it's always, ah, we had rough operations last quarter because they are traffic control and the thunderstorms.

14:14Gordon Smith: I mean, it's just they're in a very difficult airspace. There's that. They obviously weren't as exposed as some of the bigger carriers to the international. They have some Europe, but they don't have wide bodies. Their frequent flyer program, it just doesn't have the scale for monetization to the same extent as the big guys do. Or even, I think they're even well short of what Alaska is able to do. And I can go on. There's a list of reasons why JetBlue is struggling. But if I can just move now to your question about Southwest. Southwest is kind of a little bit of a different situation where they suddenly, you know, flipped on all these revenue switches last year.

14:59Gordon Smith: Many of them at the behest of this management firm, Elliott. And it's working really well. I mean, the revenue performance at Southwest has been pretty outstanding. uh and you know the costs are of course they've got to deal with fuel too and you know their labor inflation airport inflation all sorts of inflation that's afflicting the industry they're dealing with that too but they are on a kind of much better trajectory back to health uh i should emphasize that their operating margin if you exclude aircraft and engine sales which you know you don't have to exclude them that's real money it's real cash but if you just want to get a picture of how the actual business is performing.

15:45Gordon Smith: If you exclude that, their operating margin for the third quarter was only 3%. So you can see, despite all the progress, they know there's still more progress. There's still more work to do. And so now the question is, how much further are they going to go? We know that they're opening lounges, for example. We know that they're making changes to their loyalty program. Will they buy wide bodies? I don't think so. It doesn't sound like it maybe will they uh you know have a domestic first class uh will they have you know additional international partnerships that kind of remains to be seen it remains to be seen um you might be

16:24Jay Shabat: wondering how u.s carriers compared to the european counterparts the short answer is we don't know yet for the most part we have had a handful of numbers out i think finna in the past 24 hours but some dates for your diary um i'm calling it the european european airlines mega week the very fact that I can't say it means I probably need to adjust the title there Jay but dates for your die Ryanair on Monday 2nd November Lufthansa Group on the 3rd of November Air France KLM on the 5th of November and IAG obviously the parent company of the likes of British Airways Iberia Airlines etc on the 6th of November so four European heavyweights all pretty much back to back next week and we'll keep you across that both on Airline Weekly and of course on skift.com Jay, just back to the US, if we can.

17:09Jay Shabat: It feels like airlines are generating revenues that would have been almost unimaginable a few years ago. I think you opened last week's issue of Airline Weekly with, and you told American this time last year that their revenues would be up 20%, they'd be delighted. But obviously, the huge caveat being that fuel's also short up. Airlines, as we've already established, and even Scott Kirby was saying himself on his earnings call, US airlines are still struggling to make money. despite these soaring revenues. What do you think that tells us about the broader economics of this industry? It is not easy to make money when costs are rising, even if your revenues are also rising.

17:48Gordon Smith: Yeah, I mean, this industry, as we know, as you said, it's extremely difficult to make money because it's so labor-intensive, it's so capital-intensive, and so dependent on government. Just for example, air traffic controls. You know, factors beyond beyond any airline management, executive team control.

18:10Jay Shabat: And at the same time, you know, anything that goes wrong in the world always hits the airlines first, whether it's a hurricane or a war, terrorism or, you know, pandemic.

18:21Gordon Smith: So it's it is just a very, very difficult, low margin, lowish margin industry. U.S. Airlines did a very impressive job during the 2010s to consolidate. And if you look over the course of that decade, particularly the latter half of that decade, earnings for the industry were much more stable across pretty much all the major airlines, whether it be a low-cost carrier like Spirit, they did very well. Even some of the big guys like United and Delta, they were doing well in the 2010s. Some of that was lowest fuel prices, but a lot of that was reformed via consolidation. So now, you know, fast forward to the 2020s post pandemic, we've had all this additional cost inflation.

19:07Gordon Smith: We've had some additional consolidation as well. We know that Alaska and Hawaiian are, you know, got married. We know that Allegiant and Sun Country got married. So there's been some consolidation. You know, will that have the same profound effect on industry-wide earnings as we've seen with consolidation of 2010s? Maybe not because those are, you know, relatively smaller airlines, Hawaiian, Sun Country. Will, you know, United ever get its wish and merge with America? And I'm not sure, you know, we've talked about that in the past. We know it's debatable whether that's, you know, how serious Scott Curry was.

19:40Gordon Smith: But, you know, as I suggested in the past, it might have been, you know, at least semi-serious because even with all of the prior consolidation, here we have a carrier like JetBlue on the verge of bankruptcy. We saw Spirit disappear, which was rare, right? I mean, usually, even if you went into bankruptcy, you could at least restructure, at least, you know, someone's going to give you cash. Spirit's case, it's like, poof, they're gone. So the industry... I'll be on a second bankruptcy. up to. Yeah, they did once. They were able to survive one bankruptcy. Number two, they couldn't do that. So yeah, very, very extreme.

20:22Gordon Smith: I mean, just think about an industry that one minute you're dealing with, and I'm pulling up the numbers while I talk here. One minute you're dealing, if you're Delta, let's not use Delta because they've got the refinery, but if you're United one year, one summer, you're dealing with$2.43 per gallon fuel. The next summer, you're dealing with$3.90. So, you know,$2.43 to$3.90. And, you know, these are companies that use massive, massive amounts of fuel. So multiply that, 10 is a very, very large number. And then that 3.90 number is, that's starting to look, you know, airlines wish they had 3.90 right now.

21:02Gordon Smith: So fourth quarter, I mean, what did I say for JetBlue? For, I have it referring here, for 64 is their forecast for Q4. That's, you can, it's not, it doesn't take a brain surgeon or an Einstein to understand why it's difficult to make money in the airline industry.

21:23Jay Shabat: Sure doesn't. Just a few of the names that you mentioned there. Allegiant, some country, consolidation, of course. We are due to have Drew Wells from Allegiant on our stage at the the Skift Aviation Forum. If you're not already familiar with that, that's November 11th, the opening reception in New York City, Manhattan, and then on November 12th, the full day event at the, I don't like to, most journalists don't like to use the word iconic, but I do genuinely reserve the word iconic for the TWA Hotel. I agree. It is a masterpiece. It is well justified, the usage of the word iconic there. November 12th, good luck to skift.com for the latest agenda.

21:56Jay Shabat: And we're still putting the final touches to that. So in the past two days, we've had some exciting new additional names there. And if you're an Airline Weekly subscriber, check out the latest issue of Airline Weekly or check out the weekly email that we send. There is a special promo code there for an exclusive subscriber rate. Later on in the podcast, we'll run through a few of the additional highlights for the aviation form, of which there are plenty. Let's just get back to the here and now and the U.S. industry. On a macro level, it does seem like we've been speaking about this sort of incredible resilience on travel demand.

22:30Jay Shabat: But there must come a breaking point, and we've seen that in previous fuel shocks, when if tickets get too expensive, you start to see travel demand being hit, especially on that more discretionary consumer, the leisure consumer. At what stage, generally speaking, or specific to this instance in 2026, do higher fares start actively discouraging people from flying, and airlines must surely be wary of that?

22:55Gordon Smith: They're wary of that, for sure. And that's the trillion-dollar question or billion-dollar question. The demand destruction. Demand destruction. How high can we go with the fares before demand starts getting, yeah, demand destruction? The Southwest said just, was it last week, two weeks ago, we don't see, this is a direct quote, we don't see any sign at this point that fares coming up are eroding customer demand in any way, shape, or form. At what point does the thing start to break? I mean, who knows? We know that the stock market has been mostly healthy. There's a little bit of wobbling in some parts of the stock market now.

23:44Gordon Smith: There certainly hasn't been any crash. That's produced a lot of wealth for people. a lot of, I think, confidence that people have to travel. So that's still there. The job market is, you know, I think people talk about the job market is it's not expanding, but it's not shrinking either. I mean, you know, no hiring, no firing. So people still have jobs in general. We're not seeing mass layoffs or anything like that. We still have some of those structural factors in place, like the favorable demographics, we do just have a very fast growing segment of retired people who they have seen their wealth increase quite substantially because of stock market gains, real estate gains.

24:30Gordon Smith: A lot of these people are, you know, they're collecting social security, which is indexed to inflation. So inflation doesn't hurt these people as much. These are people that you can argue have been, you know, healthier than in the past because of, you know various improvements to health care um which means they're you know eager to travel they're uh you know they're um so they got the money they've got the time because they're retired they've got that energy to travel and at the same time you know there's all these consumer preferences about people uh you know i i like to think of it as like uh you know uh trip to rome rather than new home.

25:08Gordon Smith: I'm not so interested in buying a fancy new house now. I want to go to Rome. Some of it is just genuine consumer change in preference. Some of it is just like I can't afford a home. That's one big problem in the United States and I think a lot of other countries as well. I'm sure that's... I'd be surprised if that wasn't a problem in parts of Europe as well where it's just very difficult to find affordable housing because of supply issues, because of higher interest rates. so uh it's there's a lot of people that even young people that are like okay well i'm not gonna bother saving for a house i'll just you know use my money to go to rest so there's all these structural issues that are in place too that might mitigate any spectacular you know if there's some crack in the economic armor whereas you know there are some you know unemployment goes up or the stock market goes down uh or corporate profits start to slip or this whole ai bubble you know if it really is a bubble it starts to pop you know some of these structural factors could mitigate some of that maybe but the obvious answer is you know who knows um and then there's uh we talked about this i think last week but there's kind of that um sort of risk looming in the background which is uh not a very big risk but if it does happen it's disastrous for the u.s airlines and that's you know we talked about how these credit card fees um are unregulated if there's movement on that.

26:33Gordon Smith: Just this enormous tidal wave of cash that's transferring from banks to airlines because of these mileage fees. I keep thinking of that old Barbie song, the credit cards of the plastic. It's made of plastic. It's fantastic. It's like kind of the theme song for the US airlines. Anything plastic is fantastic, just making so much money. So I think the serious to answer your question is that we have absolutely no idea when demand cracks, but it kind of feels a little bit tenuous. And there are, you know, very numerous examples in U.S. history dating back to, let's call it the 1970s, where during times of very high fuel inflation, not too long after consumers stopped spending.

27:22Gordon Smith: So we'll see. It didn't happen in 2022, though. So there's precedent for the opposite as well yeah near-time president jay and i never thought i would see the

27:31Jay Shabat: day when jay shabbat quoted directly or indirectly barbie girl by aqua you're a euro a euro pop favorite for anyone that's not familiar i did see that movie on an airplane actually okay i think um well there was a there was a list of favorite airplane films and the sun that i think i only ever watched on an aircraft i would never ever be tempted to watch sort of, you know, of an afternoon, I had a weekend on my... I think that one qualified for me. Yeah. Crazy Rich Asians as well. That's another sort of easy one to watch on the aircraft. Okay. And a few others. But we get off topic here. Jay, you mentioned aviation history, and we can learn some lessons, but like you said, 22, an indication that it doesn't always follow that historical pattern.

28:17Jay Shabat: But because I say you've been following the industry longer than most, looking beyond what we're seeing here in the q3 numbers is there a single most important thing that you're going to be watching out for in the in the next few months we're already almost a month into q4 things don't seem to be getting any cooler on the on the fuel front maybe quite the opposite depending on where you are and what you're doing are we seeing the fundamentally healthier elements of the u.s industry starting to appear or are we maybe storing up problems for 2027 because from where i'm sitting on this side of the atlantic it still looks like we've got some pretty nasty underlying issues still to address.

28:55Gordon Smith: Yeah, I don't think it's, you know, the answer to your question is, it goes back to a lot of the stuff we've already been talking about. I mean, obviously, I'm watching the fuel price. That's a huge deterministic factor. Watching the economy, you know, how's the economy going to perform? One interesting, you know, we talked about it really quickly before, but when we were going through some of JetBlue's problems, some of their, you know, reasons why they're in their current predicament. One of them is that JetBlue, although leisure traffic has been pretty good, over the last couple of years, we've had a really strong resurgence in corporate demand and JetBlue doesn't really have a lot of that.

29:33So that's kind of, you know, worked against them

29:37Gordon Smith: to a degree. That corporate demand is, that's another wild card. You know, does that disappear? year, you can just picture all of these big tech companies traveling, all of these, even small businesses that are associated with this AI investment. And we're talking trillions of dollars. And I remember I once heard this. It was a great, some professor talking about the difference between a million, a billion and a trillion. And I can't remember exactly what it, but they said, like, if you pile up a million dollars worth of dollar bills, it would be like this. And then, you know, a billion would be like this, and then a trillion would go to the moon or something like that.

30:17Gordon Smith: So it's just, you know, just understand the magnitude of when you say that these hyperscaling companies in Silicon Valley are investing a trillion dollars, even in some cases more than that, a year in these data centers. That's a lot of money just floating around the economy. You know, think of it like if I'm going to use a farmer analogy, you know, like if you're a farmer. uh think of it it's raining it's it's it there's plentiful rain right now you know farmers always praying for rain um we've got plenty of rain i mean the money's the money's circulating through the economy there's a ton of corporate investment um there's obviously other challenges at the same

30:59Jay Shabat: time that you know i could go i won't go with the farmer analogy but you can imagine you know

31:04Gordon Smith: the farmer's paying more for the tractor the farmer's paying more for the seeds the farmer doesn't know if he can sell his stuff to China because of a trade war, the farmer's losing 10 of his workers because they were deported. And you can go on and on, but you can extend that analogy to the overall economy too. There's a lot of money in the economy, a lot of investment in the economy, but at the same time, there's all these inflationary challenges, there's all sorts of challenges. So that's kind of where we are. So that's the kind of stuff I'm watching.

31:33Jay Shabat: That's the kind of stuff you're watching and that's kind of stuff that we love you for, Jay. For anyone that's not familiar with what we did last year at our Aviation Forum, we started the day with Jay. We started with you. So that was a sort of breakfast briefing around, I think, 8 or 9. For anyone that's not familiar with what we did last year, give them the elevator pitch. What do you do and what's Start Your Day with Jay all about?

31:52Gordon Smith: Yeah, nothing more than just kind of what you said, an hour of we're going to focus on U.S. Airlines as we kind of done here, we did last year. We'll go into more detail about how U.S. Airlines are performing. Funny thing is we're only how many days away? I think you told me this morning. Oh, just over two weeks. It's about two weeks away. I wouldn't be surprised if I have to change some of my slides. I finished my slides this morning, but I think I did that too early because everything's changing so fast. You know, who knows what the fuel price is going to be, who knows, et cetera, et cetera.

32:25Gordon Smith: But yeah, we will, if you encourage you to attend that morning session with me, we'll go over all of the latest and greatest developments in the always exciting US airline industry.

32:41Jay Shabat: Absolutely. And for anyone that wasn't there last year - Now wake you up.

32:43Gordon Smith: Are you going to be there, Gordon? We got to wake you up early.

32:46Jay Shabat: I always wake up early.

32:48Gordon Smith: Okay.

32:48Jay Shabat: Not as early as you. Full disclosure, it's only four hours time difference between Lisbon and New York right now, but I wasn't long out of bed and Jay was already messaging me. So I think you're up at 5 a.m. some mornings.

32:59Gordon Smith: I am. I'm not going to pretend to be here though, because I do take naps. I go to bed early. So, you know, it's just like early time. It's no distractions, no phone calls, no emails. No, it's nice.

33:09Jay Shabat: All right. And for anyone that wasn't in Dallas-Fort Worth with us last year, it was standing room only for Start Your Day with Jay. And I know, Jay, you're going to be very modest and say it was a relatively small room, but standing room only is standing room only. So, yeah, make sure you get there in good time if you're joining us in New York in a couple of weeks' time. The day is for your diary again. We've got the evening reception on Wednesday, November 11th. That's in Manhattan. and then the full day event at the TWA Hotel at JFK on Thursday, November 12th. I think, Jay, the speaker list is coming together beautifully, one of our strongest yet.

33:41Jay Shabat: Representing the airlines, a few highlights. We've got Luis Galego, the CEO of IAG, Nat Piper, the Chief Commercial Officer of American Airlines, Drew Wells, as we already mentioned, CCO at Allegiant, and Mark Nassau, the Chief Operating Officer at Air Canada. But that's not all. What I think we've done really, really well this year is hearing from some of the founders as well behind these airlines, no disrespect to the c-suite but it's a whole different ball game phoning an airline never mind just running one day to day so two big founders come to mind we've got david neilman a fan favorite of course serial aviation entrepreneur the man behind jet blue azul and now breeze he's gonna be joining us for an ask me anything session and you know if you've heard david speak on one of our stages before he he has a filter but you know quite you can pretty much get a lot out of David and the audience appreciates that.

34:30Jay Shabat: So compound David Nealman, who's already great on stage with an Ask Me Anything format, I'm expecting a lively conversation. And that's not all in terms of the founders. We've also got Adita Ghosh, who is the co-founder of Akasa Air, one of India's largest, fastest growing airlines. He's also a founding member of the Indigo team where he later served as president. So really looking forward to hearing his insights on stage. From an OEM perspective, we've got Embryo represented. We've got the president and CEO of Embryo Commercial Aviation, Arjun Maja. And then Robin Hayes, a familiar name to many as well.

35:06Jay Shabat: I think he joined us last at the Aviation Forum in 2024. Previously CEO of JetBlue, now heading up Airbus in North America. The list goes on. This is not an extensive list by any means, but two exciting airport representatives. We've got John Ackerman. He's the CEO of Los Angeles World Airports, obviously a huge couple of years ahead for Los Angeles with the Olympics coming to town, but always a busy airport at any time of the year. And then we've also got the MD of Paris Charles de Gaulle Airport, Regis Le Coe. So really, really looking forward to having those two contrasting perspectives from across the Atlantic Ocean.

35:42Jay Shabat: So, so, so many others, a few others off the top of my head, Sarah Nelson, the international president of the Association of flight attendants. We'll also be delving into the lucrative world of loyalty with senior representatives from One World Alliance and Air France KLM. Packed today, I can't do it on my own. We've got Jay obviously doing the start of the day with Jay. We've also got Mignamah Harishi, our SCIFT Airlines reporter, SCIFT founder, Rafael Ali will be joining us, the SCIFT editor-in-chief, Sarah Kopit, plus a few friends, I'd say, of SCIFT. We'll be joined by Brian Summers, a familiar name to many, editor of the Airline Observer.

36:18Jay Shabat: We'll also have Peter Greenberg as well, the CBS travel editor, joining us on stage. So, so much to get through. Live.skiff.com for the latest agenda and to secure one of the last remaining tickets. But, yeah, I'm excited. Jay, are you?

36:30Gordon Smith: For sure, yeah. I hope all of you will join us, or as many of you, as is possible. And, yeah, Gordon and I look forward to chatting with you on the sidelines and, yeah, learning from you as much as you learn from us, as always.

36:44Jay Shabat: Yeah, I think we've discussed this on the podcast before. No disrespect to the people on stage, they are amazing. But actually one of the best things about any Skift event, but particularly Skift Aviation Forum, is the audience as well. It's not a case of the audience being a lot of nobodies and all the talent being on stage. The audience itself, when you have the breakout sessions, even a coffee break, something informal at lunch, the people that you meet who are there as a delegate, to use sort of old-fashioned terminology, are really interesting folks as well. Very valuable insights. So, yeah, live.skift.com for the Skift Aviation Forum happening New York 11th and 12th.

37:20Jay Shabat: As promised, there's a QR code up there for anyone that's watching us. that will take you straight to the page where we've got the list agenda and also the link to buy your tickets. Jay, we have got a few questions that have come in over the past half hour as we're recording here live on LinkedIn. Can I put a couple to you? Yeah, sure. An interesting one here on capacity. Where are airlines pulling back on capacity heading into 2027? And do you think the capacity changes will be enough to support fares? Capacity is an interesting one. What's your assessment?

37:53Gordon Smith: Yeah, good question on that. We'll, I guess, keep the focus on U.S. airlines since that's the topic here. So, yes, as fuel prices have increased, airlines have, in fact, been trimming their capacity. You can go, you know, there's obviously still some markets where capacity, there's still capacity wars unfolding. one of them is chicago hair another one is you know american versus united another is san diego alaska versus southwest etc i think you know jeff blue is still growing in ford etc etc um but yes so there is some trimming of capacity now if you do if you look at published schedules and at airline weekly here we use a serium data and i was actually looking at this this morning for the upcoming first quarter, some of the capacity is still pretty elevated.

38:52Gordon Smith: I mean, industry-wide, growing at a pace considerably ahead of GDP growth. And think of GDP growth as about 2%. So the question is, we're talking about first quarter. We're still a few weeks away. Will that start to come down? Will airlines start to pull some flights? the answer is probably yes the fuel prices continue to stay high and then there's just some airlines that are growing at a little bit of an elevated level for strategic reasons you'll see that with united they've been doing that for a couple years now this whole idea is like you know moving from regional jets to main line and to larger gauge narrow body aircraft like the 321s and neos um those the max 10 is soon coming online you know that's been approved for service so that won't really be a factor until 2027 but you'll start seeing that sort of put some upward pressure and capacity as well c capacity obviously that's very low cost capacity so you know the low unit cost low marginal cost capacity so um you know keep that in mind uh but in general yeah i mean when fuel prices go up the bias is towards the trimming yeah you know and then big wild card you know is jet blue gonna have to you know are they gonna be forced to make big cutbacks for financial reasons.

40:12Gordon Smith: Who knows? Yes, the network. And we'll see Frontier's results in a day or two here as well.

40:18Jay Shabat: Yeah, absolutely. With caveat that we haven't got results in from every U.S. carrier yet, a second question here. Which U.S. carrier surprised you most this earnings season for better or for worse?

40:29Gordon Smith: Surprise? You're never surprised, Jay. I know everything in advance. No, everything surprised me. now uh i maybe i can't really say i was surprised i was thinking maybe southwest might have had a little bit of a better margin um i think the improvement so if you go back i'm just looking at my spreadsheet if you go back to the second quarter um their margin increased by three full percentage points year over year um and they didn't quite achieve that again close in q3 but they didn't quite achieve that so maybe i was expecting a little bit better but you know don't take that with a grain of salt i i uh you know i it's hard to be too surprised um on the downside with any airlines when fuel prices are so expensive i mean you're almost expecting things to be to be rough and sure i mean delta did well but they did two points worse than they did the year earlier and united did well but they did two part so it's pretty pretty expected that these airlines um would have shown some deterioration year over year with fuel prices where they are

41:41Jay Shabat: yeah expecting the unexpected it's spooky season after all jay yeah it says we got halloween here in a couple days okay um thanks for the questions and if uh you want a question answered by jay or myself podcast at skiff.com podcast with ness at the end i'm more than happy to to get that to you And Jay is also an excellent follow on LinkedIn. I am comparatively dull, but Jay, I know you, you, you, especially around those earning season polls and a few other insights and quirky bits. So yeah, give Jay a follow on LinkedIn. If you're looking for more insights from Jay and just as a final reminder, if you aren't joining the podcast, what we're doing here, why not consider a subscription to airline weekly, go to airlineweekly.com forward slash subscribe.

42:19Jay Shabat: There you can get a free trial issue and get Jay and I's insights 48 weeks out of the year. They give us a couple of weeks off in summer and over Christmas. But other than that, we are there week in, week out, even with those Friday earnings write-ups, Jay, which seem to be becoming more and more frequent. It feels like as soon as I said on the podcast, CFOs and other sort of airline types, please stop doing your results on a Friday. It seems like we've had an increase in Friday results. So someone up there is fighting against us.

42:46Gordon Smith: Gordon is looking at you, Air Canada. And IAG. I believe that. Yeah, IAG is. Are they again Friday? I think our Canada is Friday this week.

42:55Jay Shabat: We've got Luis Gallego on our stage in a couple of weeks. So I'll ask him to go and make it Monday or Tuesday.

43:00Gordon Smith: Yeah, see if you can get him to change.

43:03Jay Shabat: Fantastic. And a reminder as well that if you're an Airline Key subscriber, not only do you get the discounted ticket to our aviation forum in New York, but you also got all the airline news on skiff.com, plus Skiff Research's airline reports as well. So loads of additional value adds there. Right, that brings us to the end of this special episode recorded live on LinkedIn. But even if you're listening in a regular old-fashioned way, we thank you for joining us. Thanks always to Jay for joining me this week and also to our producers, John, Monica, Kelsey, and Will, plus Nicole and Fatou behind the scenes.

43:34Jay Shabat: Wherever you are in the world, thanks for listening. We hope to see you in New York in a couple weeks' time. 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 launch 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.