US airlines show warm front to Transatlantic recovery despite continued challenging conditions

The Transatlantic has been a challenging market for large US network airlines during the past year for a variety of reasons – the UK Brexit vote, terrorist attacks, expansion by low cost airlines and currency fluctuations. As a result of those coalescing factors, unit revenues for American Airlines, Delta Air Lines and United Airlines in their respective Transatlantic entities have been less than stellar.

Despite lingering challenges on the Transatlantic, those three airlines are presenting a somewhat positive outlook for the US summer season driven by strong US point of sale that is offsetting weakness in Europe, particularly in the UK as its currency remains weak against the US Dollar. But while none of the large three global US network airlines are declaring that conditions are on a definitive road to recovery. American and United appear to hold tempered expectations for the region beyond summer 2017. Delta, meanwhile, is more tentative in its outlook and has warned that it will take longer than expected to attain positive unit revenues on Transatlantic routes.

Delta, which is the largest airline operating between the US and Western Europe, posted a 3% yield decline in its trans-Atlantic markets year-on-year in 1Q2017, while unit revenues fell 0.5% on a 3.6% drop in capacity. Delta’s Transatlantic unit revenues fell 4.6% year-on-year in 4Q2016. The airline attributed approximately 1.5ppt of its unit revenue decline in 1Q2017 to currency pressure, and has warned that attaining a positive unit revenue performance in the Transatlantic could take longer than expected.

American posted a 5.9% passenger unit revenue decline in its Transatlantic markets year-on-year during 1Q2017 on the largest capacity decrease – 6.9% – among the three large US global network airlines. American has concluded that it continues to see modest improvements in trans-Atlantic markets as a result of some comparisons becoming easier after the lapping of certain terrorist events. But the still weak GBP, and the growth of low cost airlines, are still presenting challenges on Transatlantic routes.

United posted a positive PRASM result on trans-Atlantic routes in 1Q2017, driven by calendar placement of the 2017 Easter holiday in March 2017 versus April 2017. The airline has explained that it has not adjusted pricing in the markets it operates to in conjunction with its Star Alliance partners. Even with its lower adjustments for advance bookings, United is feeling the effects of pricing pressure in Transatlantic markets, but has also cited strong US point of sale for the US summer high season.

After more than a year of challenging conditions in the Transatlantic market, the three large US global airlines appear to have resigned themselves to bracing for weakness in the mid-term. Although demand looks solid for the summer high season, pricing pressure is lingering and geopolitical and economic uncertainties show no signs of waning. But, it is clear there is light at the end of the tunnel.

READ MORE… Large US airlines remain uncertain about a Transatlantic rebound in the near term