US airlines Part 1: labour and oil costs create challenges for the Big 3 airlines as 2017 begins
US airlines, across all business models during 2017, are attempting to arrest negative unit revenue trends that have remained stubbornly in place for two years. Rising labour and fuel costs are heightening the importance of a return to positive unit revenue as investors attempt to determine whether an inflection point in the weaker US pricing environment has been reached.
In order to achieve their stated targets to return to positive unit revenue during 2017, most US airlines are planning lower capacity growth than the year prior as a means to stabilise pricing trends in the market. Many of the country’s airlines struck a positive tone at the end of 2016 after close-in yields began to stabilise in the domestic market. However, challenges remain in some international markets, particularly the trans-Atlantic. American, Delta and United are working to adjust their capacity in order to fuel investor confidence that their unit revenue fortunes will turn positive in 2017.
Investors are likely viewing declarations by US airlines of a return to positive unit revenue in 2017 with some level of scepticism, since many of those entities have inaccurately predicted when their unit revenue performance would improve. But with higher labour and fuel expenses, the urgency to chart a positive unit revenue performance is becoming more pronounced.
This is is the first of two reports examining the outlook for US airlines in 2017.
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