United, Delta, American Airlines: Cost creep, rising oil prices put pressure on the Big 3 to deliver

For the large three global US network airlines - American, Delta and United - the final quarter of 2016 offers some hope of negative unit revenue trends starting to stabilise, a welcome sign after two years of declines. But those positive developments are occurring against a backdrop of rising fuel costs and overall cost creep for those airlines, as labour expenses rise in the face of new collective bargaining agreements they have achieved.

Although each airline has offered a nuanced interpretation of domestic trends, the general consensus is that dynamics began to improve in Aug-2016 as close-in yields started to strengthen. After enduring tough conditions in Latin America driven by Brazil's recession, American and Delta posted positive passenger unit revenues (PRASM) in their Latin entities in 3Q2016, and expect further improvement. Higher industry capacity is creating challenges for those airlines in the Atlantic and Pacific, but generally it seems that the path of unit revenue declines in those regions should moderate progressively.

Delta is aiming to post positive PRASM early in 2017, and American believes it can reach a positive result in total unit revenues in 1H2017. For now United is not offering a specific time period for a reversal of negative PRASM, but feels confident it is heading in the right direction, given the changing dynamics in certain areas of its network.