Do Airline Earnings Meet their Customers’ Yearnings?
A decidedly un-analytical take on the year-end US airline reports
I’ve said this from the jump: when it comes to detailed analysis of airline financial reports, I’m not your guy. I was never on the “numbers” side of the business.1
That being said, airlines are businesses. As businesses, they need to make money. As publicly traded businesses, they need to be accountable and transparent with shareholders. That’s how this whole deal works, man!
Still, is there anything greater than the gap between what gets discussed on an airline’s quarterly earnings call and what actually happens every day out there in airports and airplanes around the country?2
Yes, I know—these calls are for the benefit of big institutional investors with very specific questions about financial performance. But this side of the airline biz gets right to what I like to call “the math problem mindset.” Plenty of people in important positions at airlines (and the investment banks) view the whole operation as one big exercise in assets, routes, average fares, yield, revenue, and (sometimes) profit—a purely transactional lens.3 It’s very easy to drift away from the nuts-and-bolts business of actually flying people when everything is viewed through a spreadsheet.
For example, let’s take the very first question for the Delta leadership team on their call last month:
“…but, you know, if we can assume that your prior commentary around mid-single-digit revenue growth for the full year stands and you’re starting off with high single-digit growth, would it be fair to assume that the 7.35 has a pretty conservative back-half revenue outlook baked in there? And then outside of potential revenue upside, what else drives that upside from 7.35?”
Ok, then.
Here was a question for my friends at JetBlue:
“Second question here just ties to leisure revenue and the, you know, recovery glide path that the current guide embeds. And, I’m thinking leisure fares so far this month are, you know, largely flat year over year, and I’m just wondering if that full-year guide embeds sort of the flattish revenue, you know, leisure component or what that recovery, the shape of that recovery could look like.”
I’m not sure what “flattish” means, but I will use that word from now on.
When the few questions did come about the actual experience of customers and flying, they were almost invariably about premium cabins, lounges, and other elite experiences. I’m guessing these lead analysts don’t fly in the back very often.4
Now, I’ll give some credit to the airline leaders on these calls. When things are going well (as they are for most US carriers right now), it’s very easy to get deeper and deeper into the “math mindset” and the excitement about future forecasts—and further away from talking about the “operation.” However, most of the execs I heard mixed in (at least) a little bit about running on time, the people in the field, and the challenges they face. As a whole, the industry is much better about this than it used to be.5
I’m also pleased that some of these leaders made clear they’re always ready for reality to hit them in the face. (Or, in the case of American, for reality to be hitting them right now.) Reality doesn’t care about EBITDA or CASM. It wants to strand your customers, disrupt your schedules, and generate bad press. And of course, the same analysts asking about your current premium revenue mix will be the first ones to ask how much in one-time charges you’re going to take thanks to Winter Storm Fern, CrowdStrike, or the latest crew scheduling meltdown.
Again, these calls aren’t built for me—or for most customers. But if I were ever in charge of an earnings call, I’d love to get some actual regular flyers in the mix.
It’s not always about the math.
Notes
Many people I worked with would say they are thankful for that
This is not a rhetorical question — I’d love to know if anyone does things differently/better when it comes to these calls and reports
These are also usually the smartest people at the airline
Any questions about economy class travel were generally polite ways of asking how much more juice airlines can squeeze from each seat via bundles and the like — Southwest in particular
The industry has had its fair share of leaders who did not enjoy talking (or worrying) about the nuts and bolts of an airline - there are less of these folks, now (thankfully)