Airfares cool as the peak summer travel season fades.  And now?

Airfares cool as the peak summer travel season fades. And now?

Passengers are seen at Delta Air Lines check-in counters at Atlanta Hartsfield-Jackson International Airport ahead of the July 4 vacation in Atlanta, Georgia, July 1, 2022.

Elia Newage | Reuters

Flights, believe it or not, are getting cheaper.

Air fares fell seasonally adjusted 1.8% from May to June, according to the latest US inflation data released last week. Tariffs have been one of the few categories to fall at a time when consumer prices have risen at the fastest pace in the past four decades.

According to recent reports from major carriers such as Delta Air Lines, the increase in spring and summer travel, even at sky-high prices, has been a boon for airlines, driving revenues above 2019 levels even as airlines fly. less than they did before the pandemic. and American Airlines.

Now the question is: how resilient will demand be after the summer peak as carriers and travelers grapple with lingering inflation and concerns about an economic slowdown?

CEOs from Delta at JPMorgan last week said consumers continue to spend voraciously on travel. But rising costs can impact families ‘vacation budgets and companies’ propensity to send employees on business trips.

Rising costs are already weighing on airline profits, and high fares are forcing some travelers to change their plans.

Ben Merens, a 62-year-old communications consultant, said he and his wife canceled their summer vacation plans due to a family emergency that occurred just before the 4th of July weekend.

The couple had their sights set on a trip to Denver or Seattle, but not going after a family death meant last-minute tickets from their Milwaukee home to New York City to attend the funeral, which Merens said was about $ 980 each.

“The price is exorbitant,” Merens said before the return flight from New York’s LaGuardia Airport.

Fewer flights, more revenue

Ticket prices often drop when the high summer travel season fades: children return to school and families end their holidays, although business travel often resumes. Airlines also adjust capacity for periods of lower demand so as not to flood the market with seats they would need to offer at low fares to fill.

Round-trip flights to the U.S. as of July 14 averaged $ 375, down from May’s peak of $ 413 but still up 13% from 2019, according to Hopper.

Airlines have been optimistic about future sales, however, citing the pent-up desire to travel by both business and leisure travelers.

“People haven’t had access to our product for nearly two years,” Delta CEO Ed Bastian said during the company’s quarterly earnings call last week. “We have no intention of satisfying … that thirst, in a space of an intense summer period”.

Delta posted a profit of $ 735 million in the second quarter on $ 13.82 billion in revenue, a 10% increase in sales over the same period in 2019. The airline said domestic corporate travel sales, lagging behind for much of the industry recovery, they rose to 80% of 2019 levels.

Delta is projected more muted revenue growth for the third quarter, though. The carrier expects revenue to increase 1% to 5% from 2019 levels and has said it will limit the growth of its program until the end of the year, a measure which in turn could keep fares high if it continues. strong demand for seats from travelers.

“We also recognize that our crystal ball is only three or four months old right now and it doesn’t go as far as people would like us to think,” Bastian said. “But everything we see tells us we have to run.”

American and United Airlines were also upbeat and are expected to report second quarter results and provide prospects for investors on Wednesday and Thursday, respectively. American on Monday projected second-quarter revenue growth of 22.5% versus 2019 for the three months ended June 30, up from its previous estimate of a 20% increase, with a slightly lower schedule.

Sanding operations

However, airlines will face cracks in the scorching job market and concerns about economic weakness as the peak travel season fades.

“In the fall, the impact of cost inflation on discretionary income and budgets of consumers and business travelers could lead to a softening of aggregate air travel demand,” wrote Jonathan Root, a transportation analyst last month. by Moody’s Investors Service. “However, current capacity constraints would protect airlines from having too much capacity if that were to happen.”

U.S. airlines have largely cut their schedules after biting more than they could chew this spring and summer. Many carriers have sold schedules to passengers only to curb the flight later as staff shortages and other challenges prompted them to recall.

Delta, American, United, JetBlue Airways, Spirit Airlines, and Alaska Airlines each have limited flights.

The seasonal drop in flights could help airlines improve operations and offer more breathing room to train their thousands of new workers without the hassles of summer.

Delta’s Bastian said the carrier has hired 18,000 people since early 2021, which is about the number it lost during the pandemic when it urged staff to shop.

“While we have over 95% of the employees needed to fully restore capacity, we have thousands at some stage of the hiring and training process,” Bastian said during the company’s quarterly phone call.

Southwest Airlines, for its part, said this week that it has hired 10,000 people since January to bring its employee base to 61,000, up from 2019.

Elizabeth Bryant, senior vice president of people, learning and development at Southwest, added that “hiring and training will remain the focus of attention throughout 2022”.

Smoother operations could ease traveler worries about delays and disruptions and keep demand high. But in the meantime, flying less means higher costs, which are often passed on to consumers.

“We are largely bearing the full cost of the airline with only 85% of our flight resumed,” Bastian said.

With high demand, airlines can still charge relatively high fares – the opposite is true, which is why at the start of the pandemic there was so much business when most of the potential travelers stayed home.

Furthermore, a decline in consumer spending or a decline in the labor market could reduce airline fares and revenues.

“Right now, people only have money to burn,” said Adam Thompson, founder of Lagniappe Aviation, a consulting firm. “Once people have no more money to burn, you have to convince them that they want to buy your product.”

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