Passengers pass through Chicago O’Hare Airport on July 3, 2024.
Scott Olson | Getty Images
Record summer air travel demand hasn’t translated into record profits for U.S. airlines. Operators will have to respond to this disconnect when they report quarterly results this month.
Some airlines are expecting record demand and, in some cases, record revenues. But rising labor and other costs have eroded airline profits. To adapt to slower demand growth and other challenges, some airlines have slowed, if not stopped, hiring compared with the hiring boom as they rebuild after the pandemic.
Some airlines are facing competition from Airbus and boeing company At the same time, a Pratt & Whitney The engine recall has grounded dozens of planes.
However, American Airlines has increased capacity and has about 6% more seats in July than in July 2023, according to aviation data firm OAG. The expansion has depressed ticket prices and stocks in the sector have lagged the broader market.
this NYSE Arca Airline Index, The company, which tracks 16 U.S. airlines, has seen its shares fall nearly 19% this year, while S&P 500 Index An increase of more than 16%.
“Clear as mud”
Raymond James analyst Savanthi Syth said in a note on Friday that the situation for airlines in the third quarter was “clearly clear”, pointing to a number of headwinds such as There may be weakening spending by economy class customers, the impact of the Paris Olympics on some European bookings, and possible changes in business travel demand.
Additionally, some travelers are choosing to travel in late spring and early summer, which raises questions about late summer demand.
When airlines report quarterly results, investors will get a deeper look into the traditionally slower late summer and rest of the year, starting with Delta Airlines Thursday.
Analysts consider Delta the best of the bunch, thanks in large part to the airline’s success in marketing more expensive premium seats and lucrative deals with airlines American Express.
In April, Delta Air Lines, the most profitable U.S. airline, forecast second-quarter adjusted earnings of $2.20 to $2.50 per share, down from $2.68 a year earlier.
Delta Air Lines, its competitor United Airlinesreports next week, and Alaska Airlines It is the top choice of Wolfe Research airline analyst Scott Group, who said in a June 28 research report that compared with other airlines, these three airlines have less profit risk and better free cash flow.
Shares of Delta Air Lines and United Airlines are both up about 14% this year through July 5, particularly impressive performances in an industry that has seen much of its decline this year. Alaska shares fell approx. 2%.
Fares are cheaper
Airports are buzzing with activity this summer. According to the Transportation Security Administration, nearly 3 million people passed through U.S. airport checkpoints on June 23 alone, setting a record.
Airlines have been expanding domestic and international flight schedules and driving down fares. According to data from consulting firm Airline/Aircraft Projects, U.S.-Europe capacity increased by nearly 8% in July compared with the same period last year, and the new routes are mainly targeted at leisure passengers.
Fare tracking company Hopper reported in June that the average summer fare for economy-class flights between the U.S. and Europe was $892, compared with $1,065 in summer 2023.
According to the latest inflation data in the United States, air ticket prices fell by nearly 6% year-on-year in May.
Downgrade forecast
Despite the increase in passenger numbers, some airlines admitted that sales were lower than expected due to more flights. American airlines On May 28, the company lowered its revenue and profit forecast for the second quarter and announced that the chief commercial officer’s sales strategy had backfired.
“Domestic supply and demand imbalances have resulted in a weaker domestic pricing environment than we expected,” American Airlines CEO Robert Isom said the next day at a Bernstein industry conference. “There is more discount activity than a year ago. Now. , industry capacity is expected to decline in the second half of this year, which should help.”
Passengers at New York LaGuardia Airport
Leslie Josephs/CNBC
Southwest Airlines It lowered its second-quarter forecast in June, citing changing demand patterns. The Dallas-based airline is under pressure to quickly change its long-profitable business model, which has no seat assignments and one class of service, as big rivals such as United and Delta Air Lines tout premium cabins. Strong growth.
The airline is trying to fend off activist investor Elliott Investment Management, which in June disclosed a nearly $2 billion stake in the airline and called for a leadership change.
“We will adjust as customer needs change,” Southwest CEO Bob Jordan said on June 12 while discussing potential new revenue initiatives at an industry event hosted by Politico.
American Airlines and Southwest Airlines both report second-quarter results in late July.
make change
Some loss-making operators, e.g. JetBlue Airways and Frontier Airlinesare already making changes.
JetBlue has been cutting unprofitable flights this year and making sure planes equipped with its high-end Mint business class, which costs more than four times the price of economy class fares, are flying on the right routes.
Meanwhile, Frontier Airlines and other discount airlines spirit airlines The cancellation of change fees for standard long-distance tickets and above follows actions taken by major legacy airlines during the pandemic. Two budget airlines announced in May that they would begin offering bundled fares that include seat assignments and other add-on fees they have charged in the past.
Spirit Airlines is grappling with the fallout from a judge’s ruling blocking JetBlue from acquiring the airline, and is the company most affected by the grounding of Pratt engines, according to the pilots union. May be fired.
At Spirit’s annual shareholder meeting in June, Chief Executive Ted Christie dismissed suggestions that Spirit was considering filing for Chapter 11 bankruptcy protection, which would see the company repay more than $1 billion in September 2025. dollar debt.
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