Airlines largely kept a grip on their improved profitability off the back of continued strong air travel demand in 2017, but the positive mood was punctuated by a series of high-profile challenges and service interruptions that dominated headlines.

In North America, the practice of overbooking came publicly into view when a video of the forced removal of a passenger from a United Airlines flight went viral. While United found itself in the eye of a storm of negative coverage regarding the incident – and its initial response – the focus shifted to the wider overbooking practices across US carriers.

The incident led to a review of the practice – and while United, American Airlines and Delta Air Lines all amended their policies as a result, grillings followed by US lawmakers, and new consumer rules were included in the bill to reauthorise the US Federal Aviation Administration budget.

United was also at the forefront of the other major battleground in the US market this year: the fight for price-conscious travellers. The Star Alliance carrier rapidly rolled out its no-frills basic economy fare, but was forced to take a step back from it amid a fierce competitive response from rivals.

By September the largest US carriers were lowering their third-quarter unit revenue expectations as, nearly universally, they reported a spike in competitive pricing activity. While US carriers continue to lead industry profitability, the competitive pricing – combined with the negative impact from the damaging hurricane season – has taken the gloss off their profit performance.

As US airlines were grappling – in some cases literally – with their overbooked passengers, in Europe the difference between an "IT meltdown" and a "power failure" had to be explained by British Airways. The incident grounded a host of BA flights and served as an illustration of the almost impossible customer service challenges that disruption can cause.

That was to become further apparent when Ryanair, having positioned itself as an airline that now cares about its customer service, found itself with plenty of customer care to do following its pilot-rostering process went wrong. After initially hoping to control the crisis with a series of flight cancellations in September and October, it ultimately had to make a second wave of cancellations and temper growth plans in a bid to wrest back control of the situation.

Yet the underlying strong business environment – and IAG and Ryanair have been among the most robust groups in Europe in recent years – means both are still on course to make record-high profits for the 2017 financial year. Indeed, European airlines as a whole are likely to improve profits.

That comes even with the woes of Monarch Airlines, Air Berlin and Alitalia. None were strangers to the last-chance saloon. But Monarch ceased flights at the start of October, and flights under the Air Berlin brand followed suit by the end of that month. It remains to be seen how Alitalia's fresh spell in administration will play out.

Much of the pressure for all three came from the competitive impact from increased capacity. That was compounded by the shift of capacity from still-recovering tourism markets in North Africa and Turkey into popular Mediterranean markets.

But there does not seem much likelihood that cuts to these carriers will have a significant impact in reducing capacity. EasyJet and Lufthansa have moved in to take the prime assets from Air Berlin – and are also among those vying for the same at Alitalia – while carriers have already begun filling the void left by Monarch.


Europe to the Americas was also at the heart of the burgeoning long-haul low-cost model – both for operators like Norwegian and in the competitive response from network carriers on either side of the Atlantic. That has, for example, involved IAG launching its own Barcelona-based operation Level. The popularity of the model – and contrasting fortunes of the all-premium model – was further evident when IAG announced plans to replace its premium OpenSkies operation out of Paris Orly with Level.

The long-haul low-cost model has been aided by the still relatively low fuel costs and the arrival of next-generation aircraft. Norwegian is, for example, using its first Boeing 737 Max 8s to launch routes from Europe to new points on the US east coast: Hartford, Newburgh Stewart and Providence.

But new aircraft and relatively benign fuel costs were supported by wider new route development as a whole.

Norwegian had also benefited from the granting of its controversial authority to operate long-haul flights under its UK subsidiary. Campaigners against the move urged the incoming Trump administration to consider reversing the decision. While there was no movement, it did not take long for the new US president's policies to have an impact on overseas operators.

In particular, several Middle East and North African operators were hit first by the attempted travel ban on citizens from seven Muslim-majority countries visiting the USA, and then the implementation of restrictions on bringing large personal electronic devices on board flights to the USA from a number of airports in the same region. UK authorities followed suit, albeit with a different list of airports.

Notably, the UK list of restricted airports excluded major hubs like Dubai, Abu Dhabi and Doha, which were all included in the US restrictions. That left the US open to accusations that its actions were related to the ongoing campaign by the big US carriers and unions that are pressing for a review of open-skies deals with Qatar and the UAE over alleged subsidies received by its main carriers – allegations rejected by the Gulf giants.

The UK and USA began lifting the restrictions in the summer, but the simmering row between the big Gulf and US carriers rumbles on. American Airlines hardly welcomed a planned – but ultimately aborted – move by Qatar Airways to take up to 10% of the carrier. The airline also then dropped its codeshare with Qatar and Etihad, prompting the latter to drop its Dallas/Fort Worth service. These factors all contribute to a first year in recent memory featuring a fall in UAE carrier capacity to the USA.

Middle East carriers were also hit by diplomatic tensions closer to home when the severing of ties with Qatar by a number of states in the region resulted in the closing of airspace in several markets. Any hopes that the spat, which took place in June, would be temporary proved unfounded and routes between countries involved remain closed.

Qatar Airways later turned its investment attentions to Cathay Pacific, acquiring around 10% of its Oneworld partner in November. That followed similar investments in two other Oneworld partners: British Airways and Iberia parent IAG, and LATAM Airlines. Qatar also completed its acquisition of a 49% stake in Italian carrier Meridiana, just as its Gulf rival Etihad's own European airline investment strategy was cracking.

Cathay Pacific was dominating many of the headlines among Asia-Pacific carriers, as it and Singapore Airlines continued restructuring efforts. The latter, which continues to develop its group structure by developing low-cost and regional units Scoot and Silk Air respectively, has made some progress, though yields remain under pressure. Cathay, meanwhile, is embarking on a major restructuring under new chief executive Rupert Hogg. But its worst interim loss for more than two decades illustrates that it remains a work in progress.

African carriers largely struggled to break free of the shackles that have held back their progress. Notably, South African Airways spent much of the year as a political football. The airline will receive a further bailout as it aims to secure a strategic investor. It remains to be seen whether the departure of its controversial chair Dudi Myeni in October will signal a settling of some of the boardroom issues that have plagued its progress.

Elsewhere, there were signs of some recovery in key travel markets which have suffered the impact of geopolitical and security issues – such as Turkey. But wider security and terrorist issues continue to impact many markets.

Despite all the challenges from a travel demand perspective, however, the picture is strong. While capacity expansion continues to keep yields under pressure, airlines have been able to lift passenger numbers and load factors. And while the oil price has crept up over the year, fuel costs remain relatively low.

The demand environment has remained strong and, given various struggles in recent years, the key BRIC economies have been consistently positive, helping support growth in emerging markets. As a result, despite various negative headlines across the year, 2017 has proved another profitable one for airlines.

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Source: Cirium Dashboard