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- [00:03]
A
I'm Brett Snyder, author of Cranky Flyer.
- [00:05]
B
I'm John Ostrower, editor in chief of the Air Current.
- [00:07]
C
And I'm Brian Summers, and I write the Airline Observer. You're listening to the Air show, the podcast where we talk about what goes on in the business of the sky. Support for this episode of the Air show comes from rokt. ROKT helps partners deliver more relevant offers and experiences throughout the online booking journey. Learn more@rokt.com that's R O K T. All right, guys, this week was the J.P. morgan Industrials Conference in Washington, D.C. where all the publicly traded U.S. airlines, plus some others, come to give us an update on the state of the business. I always enjoy this event, guys, because Jamie Baker, one of the lead analysts at JP Morgan, doesn't really care so much about offending the people that he interviews. And I just love to see this. We have too many people here that want to cozy up to executives. Now, this was a very interesting conference because we were all paying close attention to what airlines would say, considering some uncertainty in the world right now. Guys, you know anything about high fuel prices?
- [01:26]
A
No. Never heard of it.
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B
Understatement.
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C
So we we're divvying up the show today. We're each gonna focus on one theme that we saw coming out of the conference. Brett, you got the easy one. This week, we're gonna let you talk about fuel and capacity. What was your big picture takeaway?
- [01:45]
A
Everything is awesome. No, seriously, I'm not just saying that because it's been a while since I've carried a tune here, guys. Clearly, yeah, I still haven't carried a tune. It strange listening to this group update their guidance in a massively positive direction considering everything that is going on in the world. You know, forget about spiking price of fuel. Demand is good. It's just really, really good.
- [02:12]
C
Yeah, Brett, I heard a lot of that too. A lot of these carriers are surprisingly bullish about their positions, but still, I think some of them are in better shape than others. And a lot of it came down to that word that investors love to use, the moat. Some airlines have it and some don't. And I thought my good friend Jamie Baker, who I've actually never met, did a very nice job of asking questions that revealed to me who has a defendable moat and who does not, because right now, demand is pretty good, and that's wonderful. But what if fuel prices stay high, guys, and maybe demand lags a little bit? Maybe we're gonna discover my favorite cliche who's been Swimming naked when the tide goes out. I just. Sorry. I love that one. All right, your turn. John, I know that you were actually in the room in Washington, DC. What do you think was the most important element of this conference? Might it have something to do with airplanes?
- [03:17]
B
You know, I'm actually gonna go ahead and do a wild card here, is that Jamie and Mark Streeter, his colleague, really want to come on the air show. And so we're gonna have to make that happen. And the lobbying was a little intense, but I think, I think they made a strong case. But in all seriousness, it was a really, really, really interesting Monday there. So I was only there on the first day. I actually had to get home for a fourth grade class performance.
- [03:41]
C
John, it sounds like you have the wrong priorities.
- [03:43]
B
Yeah, thanks, Brian. Here's the thing. I am cursed with the affliction of journalism, which means I'm destined to never enjoy anything while it's good. Okay, yeah, things are great, but it's like a no hitter in baseball. Like, you don't talk about it because you're going to jinx it. And honestly, I just feel like everyone is calling the peak right now. Doug Parker, I'm looking at you.
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A
We're going to talk about it. Yeah, we're going to talk about it all day long.
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B
We're going to talk about it all day long. But seriously, this is a cyclical business with a bad habit of pianos falling out of windows on top of this industry. Like, I'm. I'm not saying you shouldn't celebrate when things are good. You absolutely should. And you should think about how you invest for the future to protect when things go bad. But look, for, for the love of Joe Sutter, can we please like talk about like the 21 mile elephant in the room, like straight to Hormuz. It's really, really, really bad in Iran right now. We don't know how long it's gonna last. But I think it, as we hit on last week's episode, it is going to have a profound effect and it feels like there's a massive incongruity right now within the industry.
- [04:46]
C
So we have a lot of good, we have a lot of bad. I think that's gonna make for a nice show today. Brett, let's start with you because I do think that you get to talk. Important takeaway from the conference. As you noted, a lot of airlines were raising their revenue guidance. Not really their profit guidance, but the revenue guidance. And it sounds like the better revenue is going to offset higher fuel prices. Gerry Nuance from these airlines, Were they talking about it in a different way or did it feel like they all got into a room before this and colluded about exactly what they were going to communicate to investors?
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B
Oh, don't tell the doj.
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C
Of course, that would be illegal.
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A
Yeah, yeah, because the DOJ is paying attention for sure. Sure.
- [05:29]
B
They're busy redacting.
- [05:31]
A
That's. Yeah, that's right. There was some nuance, but, you know, my God, I mean, listen, if you're looking for profit guidance to be improved, I mean, I think we should be looking, considering the price of oil, we should be looking for it not to be going down. And that is kind of what we've seen because of the strength of revenue, is that they're. They're treading water on profit, which in its own right is pretty impressive. But, yes, different airlines had different things. So overall, though, everything is great. Like, look at some of the stuff. Delta CEO Ed Bastion said that Delta has had eight of its 10 highest sales days ever in Q1, and somehow five of those have been since this war started. And it's not just Delta. So American CEO Robert Isom said eight of its top 10 revenue weeks have happened this quarter. United CEO Scott Kirby, not one to be bested by Robert Tyson, went even further, saying that the first 10 weeks of this year have been United's top 10 booking weeks. So let that sink in a little. It's insane. Like, the euphoria just continues. Southwest CEO Bob Jordan made it clear this isn't isolated to any one area. He said, quote, that strength is in all geographies. It's across all fare structures, it's across business, it's leisure. And as far as we have visibility, that demand strength is across all forward months, end quote. If I haven't made this point clear enough yet, let me just give you one more number. Andrew Watterson said that if they didn't sell $1 more in corporate bookings past last Friday, March would still be the biggest corporate month ever for the airline. For those keeping score at home, that's only half the month of March and it's already the best month ever. It's wild. And it's not even that it's holding up well. It's getting better. Alaska CEO Ben Minicucci also saw a great demand. He said that some of this could actually be because of the war in Iran.
- [07:37]
B
Can you unpack that? Like, say more?
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A
Say, sure, I can do that.
- [07:42]
B
So.
- [07:42]
A
So Ben said that when this all happened and oil prices spiked, Alaska saw a jump in demand and he thinks it was probably at least some pull forward of bookings to earlier than normal for, you know, the summer and potentially beyond. I guess, though United said it, it didn't actually see that sort of jump, but Alaska did. And the only rationale for something like this is people thinking that fares haven't already risen and they're somehow going to beat the oil price rise by buying their tickets quickly. I've had more than one news outlet asked me something along those lines. You know, it's the take on the, the old when should I buy my tickets thing that we've all been asked 3,000 times. So it seems entirely possible that this is what people are thinking, but it's very clearly not true. Prices are already going up very quickly. Scott Kirby said that yields are up 15 to 20% in the last week alone.
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C
Brett, I'll just point out individual consumers very dumb, generally not rational at all. But is there something here about the law of big numbers, that in the aggregate we think that maybe consumers are rational? And so do you think there's any truth that people bought tickets earlier and maybe this summer last minute demand won't be as strong as airlines had hoped?
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A
It is possible that people did that, but I don't think the airlines will have an issue with that because the fares have gone up so quickly. If people are buying earlier, they're not beating the rise. Unless, of course, oil goes to $200 next week and then maybe, maybe they did get in ahead of it. But I, it's people may be dumb, as you say, or maybe not, but they're still looking and seeing these higher fares that are going to be out there when they're going to buy because as we, I just said with Scott Kirby saying, you know, up 15 to 20% last week and they're still buying it. But you know, if, if you're an airline, you just need that revenue to keep rolling in at high numbers. You don't need to pad yourself with selling cheaply in advance to support load factors. You just need to get good fares. And as usual, you know, Scott Kirby laid it out here in numbers and he said, quote, it's about $4.6 billion at the moment for revenue to fully offset the fuel run up. And to do that, we need RASM to be up another 8.5 points, end quote. He noted that March is up 14%, not points percent, and Q2 will be up double digits. So they're on track to offset the fuel increase if nothing else changes. But fares are up very high.
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C
Brett I thought there were also some interesting comments on structural changes to the economy. There was a certain letter of the Alphabet that was discussed quite a bit. What was your take on that? Letter of the Alphabet?
- [10:47]
A
Yes, this episode is brought to you by the letter K. We the K shaped economy. It's pretty remarkable actually. And there were some divergence on this. So multiple CEOs talked about the K shaped economy, which is basically where the rich continue to get richer and the poor suffer as if that's apparently just the way things are now. And you know what? King Ed at Delta is here for it. Let me just say he said, quote, the underlying health of the economy, economy is still there, particularly the high end economy, the K that we talk about and we serve the top end of that K and probably the highest end of that K, end quote. So I guess Bezos flies Delta. I don't know. But he went, he, he went even further with this and, and said that, you know, others may have trouble. Let's see, the quote was, I think the issues that we've seen in our industry have tended to be at the lower end of the market. That's the impact. That's the area of the industry is going to be impacted the most and had to take the most ra change to their business models due to the events of the last few weeks. But it's certainly, I don't think, going to be impacting the folks at the top end at all. King Ed, ladies and gentlemen, I think
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C
that's right, at least for what we're seeing right now, even if it is a bit elitist and perhaps concerning from a societal level. But we also heard other airlines talk about the lower end of the K and they didn't seem so concerned either, did they, Brett?
- [12:21]
A
No, which is why I thought Ed's comments were a bit strange considering what we heard from others. JetBlue president and man of the people Marty St. George said that JetBlue is, quote, unique and that we very proactively and happily serve both sides of the K shaped economy, end quote. And JetBlue's numbers have been good on the revenue side. Unit revenues in Q1. Their guidance previously was that it would be flat to up 4% and now the guide is that it will be up 5 to 7%. And I can't stress how abnormal this revenue environment is. If we look at JetBlue again. Remember when they added a ton of new capacity this winter in Fort Lauderdale to try and position themselves if Spirit failed? Basically just poured a bunch in there. You know, they did that and they expected all that growth to be bad for short term earnings. But Marty said that the negative impact was less than half what they thought it would be thanks to strong demand. And then there's Frontier, which certainly serves more of the other end of the economy than King Ed serves. But even Frontier, which has previously predicted stage length adjusted unit revenues would be up about 10% year over year in Q1, is now saying they'll be in the mid teens. It's still going to lose money and actually at the worst end of its previous guidance. But Frontier doesn't make it sound like there's any kind of demand issue at all feeding into that. In fact, CEO Jimmy Dempsey said, quote, we haven't seen volume skip a beat in terms of bookings over the last two weeks since the oil crisis started.
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B
So, okay, is it a K shaped economy if everything is kind of moving in the same direction?
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A
Apparently not for the airlines.
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B
Well, well, it's like the price of everything is up but airfares. Right. There was like a really great chart that I, that I saw at that, at the conference that effectively said air travel in terms of like CPI adjusted changes since like 2019. Air travel is down three and a half percent, electricity is up 37%. So flying is cheap. It's just living is expensive.
- [14:31]
A
Yeah, and Scott Kirby actually addressed that. He did say that airfare is down 2% between 2019, 2025. And so some of this is just recapturing what you would expect from inflation. And that's maybe why it's easier for the airlines at this point is because they haven't already seen the same kind of run up as others. But I think the reality is, is that people just want to travel regardless of where they are in the economy and they may have to cut back on a variety of things, but so far travel is not something they want to cut back on and, and it doesn't seem to be showing any signs of slowing right now.
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C
Brad, unfortunately I don't have anything as good as John's piano falling metaphor, but so far this show has been a little bit too positive for my taste. I want you to put on your skeptical hat here. The war is still in its early phases and we don't know what's going to happen to oil prices. They could stay high, they could go even higher. Was there any pessimism here at the JP Morgan conference?
- [15:43]
A
Not really. There should have been, no, but there really wasn't. I think maybe caution. So Robert Isom probably spoke for almost everyone in the room when he said, quote, we're certainly going to be nimble in terms of capacity to make sure that supply and demand stay in balance and end quote. But fares keep rising, they're covering costs, planes are being filled. It's, it's all that. So I think the one outlier, I'm sure you will all be surprised. It was Scott Kirby saying that they are proactively cutting capacity at United. So they've already pulled out 1% in May and June, mostly on off peak days. Some of the more marginal flying and the way he put it is that if things stay the same, they're probably okay, but it could get worse. They're modeling all different ways of looking at this and if it does get worse, they would rather be more conservative, pull out a little capacity and, and then that'll position them better even if it gives up a little in short term revenue and profit. So, you know, that's probably as close as we got to pessimism in this whole thing. But nobody else is willing to pull the capacity trigger. But also they're not putting up a banner that says Mission Accomplished behind them. They're just kind of sitting there waiting to pounce if they have to. But I do think we also have to remember here, everyone's vision of success is different. American in Q1, they're apparently happy where they are, but they're going to lose Money in, in Q1. If Delta were going to lose money, I'm sure it would have cut back long ago. So they come from different positions. Right.
- [17:23]
B
This is amazing because I feel like a lot of this feels very divergent from the way the rest of the world is coming at this right now. Like SAS is cutting a huge amount of flights. Flights in Thailand and Vietnam have been cut because Chinese jet fuel is not being exported. We've got significant fuel surcharges coming. Cathay. A lot of that is to take obviously the Middle Eastern share over Hong Kong instead of Dubai and Doha. But there are cuts happening across the industry and the Middle east is still massively disrupted. If anything, I think what this is indicative of, and this is probably something that I've spent a lot of time thinking about recently, is how isolated the US is from an energy perspective from the rest of the world. Like the US is a net energy exporter. We make all our own jet fuel here and it's definitely not a closed ecosystem because it's an open market and that's why the price fluctuates. But, but obviously from a supply perspective it becomes an opportunity to control Your own destiny. So I think there's an interesting sort of isolation that has gone on here relative to US energy policy over the last 20 years that I think probably is protecting the airlines to some extent relative to major supply disruptions for things coming out of out of the Middle East.
- [18:38]
A
I don't know. I mean, prices on the west coast in particular are very high. And Alaska CEO Ben Minicucci said that they are now putting together this plan to tanker fuel in from Singapore because that's going to be cheaper to do it that way. So there are certainly still jet fuel issues. I do think that the US Is unique from a demand environment. We're very isolated here. Especially when you think about the huge windfall if the Middle east carriers stay shut down. I mean the Europeans are going to be making money hand over fist because that is an enormous amount of capacity that goes through the Middle east to Asia, Africa, all these different places. The US there's very limited difference there. We're kind of playing in the same capacity market as we always do here. So I think it's going to be interesting to see what does change here. But like for now it is wild, but all is well. That's what the airlines are saying. It is crazy to hear this.
- [19:43]
C
Yeah, Brett, but let's be clear here. Some airlines are more well than others. And this is where I want to talk about the moat. This is that simple idea that if you do something better than another airline, you can get a premium from it and then you can make more money than your competitors. And maybe that doesn't matter as much right now because demand is good for every carrier. But if demand sags, some airlines are going to do pretty well and some won't because customers are going to choose certain airlines over others. So it's pretty clear that Delta and United have similar moats. They've got real estate in important markets that no one can easily take away. And they've got some key long haul route authorities, the ones that still exist. They've got really nice corporate contracts, lockdown and they have a premium product that some competitors can't match. Brett, I don't think that you're a huge fan of those in seat screens, but they are a differentiator that some customers do choose.
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A
I'm coming around on those more.
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C
That's good.
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A
It's not necessarily about the ability to watch there. It creates very different feel. I know it's tough for me.
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C
So other, other carriers can match these things. But as Scott Kirby always says, like it takes a really long Time and a lot of money to retrofit aircraft and then redesign Lopas so It could take 10 years if another airline wanted to match these attributes. I also must mention, guys, another thing that is apparently involved in Delta's moat. It is, as Bastian said, the Delta people. I think some of us are tired of hearing that.
- [21:40]
A
They all talked about people. Southwest said people. They all talk about people.
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C
Oh, it's fakacta.
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B
Guys, guys, guys. You're not the audience for that. It's for the people.
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A
Listen, John, do you know why this podcast is so successful? It's the people. It's us.
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B
That was the level of crankiness.
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C
Well, there is some truth to this moat argument with the people. And investors and smart people like us know exactly what Bastion really means here. He's talking about non union people, but you don't actually want to say that. So I talked about Delta and United. So let's talk about American. Baker asked Robert Isom point blank, what's your moat? What do you think? Robert Isom said, is it that the
- [22:28]
A
Everglades provides a moat around Miami? Oh, wait, wait, wait. No, no, no, no. It's the lake around SK8 is a moat versus the rest of the headquarters campus.
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C
I think, Brett, if he had answered it that way, it would have been a better answer than he actually gave. Can we pay for to send Isom to like a month long communications camp? And we won't let him out until he's able to directly answer a question that maybe he had not expected.
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A
I think instead of paying for that, I think we should give it to him. Let's invite him to the air show boot camp.
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B
The questions in advance. You could spend a month preparing and then come on the show.
- [23:11]
C
And before I get to his awful answer, let me just say that he should have expected the question because Ed Bastian spoke to Baker before Isom, and the word moat came up 15 times during Bastion's session. So if I were going to follow Bastion, I might reasonably assume that I might be asked about a moat. But I kind of wondered when he talked if he didn't even know what a moat was. So let me get into it. He said, jamie, let me start with this. We're a premium global airline and he's really pleased with that. He said the biggest strength at American is what they do in North America and how they leverage that around the world. He talked about the network and he talked about the strength of in the Sun Belt. Okay, fine, some of those things are strengths, but is the Sun Belt really a Moat. When Delta is a giant in Atlanta and is growing quite a bit in Austin, I'm not sure about that. Then he went to partners. Not sure how that is a moat. All these airlines have pretty similar partners. I guess you could talk about American slot portfolio in London might actually be a moat just because it's expensive for other airlines to get in. But I'm not sure that just having partners is a moat. From there, Isom went into his greatest hits. That's to say the fleet. He said, in a world where supply chains are still very difficult, American apparently has the right fleet. Perhaps so, guys, but wouldn't it be nice to have those A330s to play with? Then he went into loyalty. Fine program, but certainly not a moat. Then he finished by not answering, answering any part of the question. He said, we have great confidence that we will be able to expand margins as we go forward and that's beneficial to our customers, our team and our investors as well. Why does he do this to himself, guys? Why can't he spin and just like, you know, answer the question?
- [25:17]
B
Well, this isn't about spinning, right? This is about knowing who you are, what your business is and what the fundamental structural strengths are that make you who you are. And I think we've talked about, we had a three part freaking series on, on, on this, right? I think that, that there are big questions about why they're not able to define that. I don't think it's about spinning. I think this is just about really kind of a more core understanding. I mean, look, he, nothing he said was inaccurate. I just don't know if it constitutes a moat. But American isn't also the only airline without a moat. A moat, so to speak. Look, how did other CEOs actually handle this question?
- [25:59]
C
Well, guys, I'm developing a big soft spot for JetBlue's Joanna Garrity.
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B
Joanna, come on the show.
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C
Yeah, she should. Robin Hayes did not give her much to work with. And I think a lot of people in the industry wonder if the airline even can turn it around. But I give her credit for some really good hires, including our good friend Marty St. George and the always wonderful Daniel Schurz, who has been cleaning up the network. Schurz, by the way, told me last summer, very honestly, that JetBlue wasn't number one anywhere in really anything that's changing a little bit as the airline makes a play in Fort Lauderdale. But typically if an airline isn't number one in any market, it's kind of hard to have a moat.
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A
So then Joanna did not have a good answer either?
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C
No, Brett, she actually had a pretty good answer considering what she's working with. And I think it might be because she's an ex lawyer who knows how to spin a plausible answer and knows her business pretty well, even if it's not the strongest. So she went right into it. Number one, liquidity and an unencumbered asset base. Number two, that they have good business on both sides of the K curve. Number three, strong presence in the Northeast and Florida that serves a very resilient VFR demographic. And then the last one, just this idea that a lot of customers who travel to the Caribbean are extremely loyal to JetBlue and also importantly, tend to be extremely resilient during periods of economic uncertainty. I'm not sure all that stuff constitutes a moat, but is it a viable answer that I'm not making fun of? Yes, it is.
- [27:47]
B
So, Brian, who handled the moat question the best here?
- [27:51]
C
Yeah, Garrity did a nice job, but she didn't have that much to work with. The person who handled it the best is the CEO of your favorite airline, John. It's the one that you are blindly loyal to, even when another carrier has a better price and schedule. We all know it's true. Those of us that talk to you offline know this. But look, Alaska is also one of my favorite airlines, too. And I think that's because, unlike ISOM CEO Ben, Minicucci knows exactly what makes Alaska special. And then by leaning into that as much as possible and forgetting the other stuff, Alaska has been able to withstand competition in Seattle and add market share in some important markets on the west coast, if not Los Angeles and San Francisco. So here's some quick stuff Minicucci outlined. Number one, the people and culture that actually rings true to me. What I love about Alaska as a West Coaster is that it just screams west coast to me. Minicucci says the airline hires for that. Number two, it has scale and relevance in the Pacific Northwest. As he said, that's our hometown and we'll never give it up. Number three, a very good loyalty program that punches above its weight. And then the network, not a nationwide network, not a great global network, but on the west coast, where it matters. This is an airline that flies where it needs to fly. And then the missing piece has been long haul. But Alaska is growing that, and I think that is going to work to the airline's advantage. What I also like about minicoochee guys is that he really knows how to make a point. Are we still Floating baseless rumors here, Brett.
- [29:44]
A
Oh, absolutely. Are they going to buy sun country and open a Detroit hub?
- [29:49]
C
No, What I want to see is Alaska buys American and then minicoochee becomes its CEO.
- [29:55]
A
Okay, we'll get right on that.
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B
Okay, so Ben was actually on my flight out from Seattle to D.C. again, flying economy. This, actually.
- [30:03]
C
That's nuts to me.
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A
Is he stalking you? Is that what's happening right now?
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B
We'll go with that. We'll go with that. But here's what I have noticed, and this might be one of those weird sort of coincidences, but every time I've been on a flight with him, the flight either leaves from or arrives at gate D2.
- [30:19]
C
Oh, so he does get preferential treatment.
- [30:21]
B
You know what? I'm just saying? I'm just saying that is the shortest walk out of Sea Tac Airport. I'm just. I don't know if it's a good maybe coincidence, but I'm just saying we weren't in the end, Gates. But look, I think that the fact that he was flying from Seattle, obviously, where he lives and where Alaska is based, I think speaks to the most like, this is Alaska's home turf. It's harder to be an invader, so to speak, if you're Delta and to minimize or muscle out the home team. Look, that's on the domestic front. I think there's still a big question about, you know, let's see how international goes. Certainly the connective tissue here between all of this is the loyalty program. And certainly they're. They're learning that. That lesson. I'm also really genuinely curious as to how much of the summer season to London, Rome, and Keflavic was already sold at one price before the war started. And what price Alaska will actually end up paying for gas either in Seattle or in Europe when those flights run this summer? I think that's going to be an interesting question. But look, the moat is real, and the moat is actually somewhat growing. So let's watch this space.
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C
If any of our listeners think that we've become too much of Alaska fanboys, I just want to say, come to the west coast, fly them 10 times, and why don't you see if there's a difference? Because I guarantee you, we're not speaking as fanboys here. We're speaking as experts who understand the business. And there is right now something special about Alaska. All right, John, let's wrap it up with your area of expertise.
- [31:57]
B
Okay.
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C
You flew to D.C. you were actually there in the room. What was the mood like? And what was the most important thing that you learned?
- [32:06]
B
Learned? Let's talk metal for a moment because I can't help myself. The reality is that demand for aircraft is intense right now and it was intense when oil was at $65 a barrel and it remains intense at $95 a barrel. Any airplane that burns 15 to 20% less than the previous generation is really, really attractive. But look, one of the points that kept coming up was that liquidity may be generous but the reality is that if it that liquidity gets eaten by by fuel, there's less room to maneuver on fleet. So what does that mean? Well, Darren Holst, VP of marketing for Boeing Commercial who was guest on this show last year, shared an amazing stat actually in his presentation. $1 per barrel increase in global fuel costs equals $2.5 billion in fuel spending by airlines worldwide. So effectively we're looking at about 40 to 50 billion in additional spending by airlines on this spike. That is enormous and it's going to shape how things play out certainly in the short term, potentially in the medium and long term depending how this crisis lasts. But look, I said this last week, no one is getting out of line for their airplanes. Those delivery positions are incredibly valuable when you think about the scarcity of output. That's true for single aisle aircraft. Over 100 airplanes per month coming out of Boe and Airbus right now. And, and then you factor in Embraer on top of that. But that's even doubly true for widebodies which are still way off of the 2018 peak. And as the widebody fleet is pretty much older than it's ever been. John Heimlich in his presentation made a really interesting point. He's the, he's the Chief Economist for A4A. He said that US airlines are going to take an airplane a day between 2026 and 2027. He also made a great point on the success of the US Airlines right now. And that really hinges on the shape of the K. Staying that shape, right? Like the top 30% of the market spending the way they're spending, enjoying the fruits of their labor or fruits of their investments is really going to be the thing that decides whether or not this party keeps going. But I think we have to ask where's the risk in all this? And I am really curious. You mentioned, mentioned Kirby earlier and United reducing capacity 1% heading into, into this spring months like what is coming out? Yes, it's less profitable flying but I think the one of the big questions is like when do retirements of older aircraft start accelerating or how long do a 319s 737, seven hundreds, triple seven, two hundreds, the last of the five sevens and the six sevens stay in service? Look, any capacity cuts at a large scale will probably be toward those older aircraft types first. Obviously as up gauging and new technology benefits the max eights and, and nines and eventually the 10 and the A321 Neo and obviously the 350 and 787. I think what's going to be interesting to see is the downstream impact from those retirements when and if they happen. And that's going to really hit the aftermarket for parts and engines. As you know, the scarcity of aircraft has really made those incredibly red hot sectors of, of aviation. If airplanes are scarce and the demand is there, then the older airplanes have ultimately stayed in service longer. But if you match that up against astronomical fuel costs, it's an open question. It's excellent that the industry feels like it's doing really well right now, but I also feel like we're walking a tightrope on the world. Who knows what happens next?
- [35:55]
C
John, has anything changed in the relationship between airlines and engine manufacturers now that fuel is so much more expensive? I know they're kind of really angry at the reliability of these new engines, but with fuel so expensive, do they look a little bit better than they did?
- [36:15]
B
Oh God, no. No, no. I mean, I think the airlines are incredibly frustrated And I think OEMs are too, that they don't feel like they have any leverage over the engine manufacturers, that they are steering the economics of their customers and the pace of their production output. And largely this reinforces that like, you know, when you've got a product that is the lever for in theory reducing your costs, particularly on fuel spending from a new aircraft perspective, that only puts them more in the driver's seat, not less. So, so I think, you know, we'll see. I mean, one of the big questions also was, you know, when does the, you know, the airline community cry uncle on a lot of the cost side of this as far as escalation on parts and overall the, you know, what GE and Pratt and others are getting paid for relative to the very, very slow paced of durability improvements and reliability for of the, of the engines that are out there and the time that they're spending on wing? So yeah, I mean, I think that this is not going to help anything. And I think, you know, I actually asked the lessor panel, I said, okay, so what's going to what? What's going to cause this dynamic to shift? And the answer almost universally was a significant economic downturn that's going to cause you to revisit this. So, you know, you know, we're kind of whistling past the graveyard a little bit, or even the better metaphor, we're wily coyoteing this thing and, you know, we're off the cliff and we know no one should look. I don't like, let's see how this plays out. But, you know, I mean, there's a, any number of metaphors that are going to, you know, might be apt here.
- [37:49]
A
Well, we do have one point we can look at from the conference where Scott Kirby talked about in response to a question, I think he said there were about seven widebody shells that are not needed because of the Tel Aviv and Dubai suspensions. And so people said, well, what are you doing with those shells? And he said that they are probably going to primarily put it on Transcon and they will temporarily park 757s that we're doing Transcon instead, but temporarily was very clear in that statement that this is not a, hey, we're gonna start retiring airplanes yet because times are still good and I guess we haven't looked down yet. Wiley,
- [38:40]
B
you've been listening to the Air Show. If you have any suggestions or questions for us or are interested in sponsoring the podcast, go to our website, the airshowpodcast.com to get in touch.
- [38:49]
C
Leo Duran produced and edited this episode. Our theme music is by Joshua Mosher. Thanks for listening and we'll be back soon.
- [39:00]
B
Sam.