Airfare cools off as the peak summer travel season fades. Now what?

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

Elijah Newage | Reuters

Flights, believe it or not, are getting cheaper.

Airfare fell a seasonally adjusted 1.8% from May to June, according to the latest US inflation data released last week. Tariffs were one of the few categories to decline at a time when consumer prices rose at the fastest clip in more than four decades.

A surge in spring and summer travel — even with high fares — has been a boon for airlines, boosting revenue above 2019 levels, even as airlines are flying less than before the pandemic, according to the latest reports from major carriers. like Delta Air Lines. and American Airlines.

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

Executives from Delta to JPMorgan last week said consumers continue to spend passionately on travel. But rising costs could affect family vacation budgets and companies’ appetite to send employees on business trips.

A surge in costs is already weighing on major airlines, 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 because of a family emergency that occurred just before the Fourth of July weekend.

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

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

Less flying, more revenue

Ticket prices often fall when the peak summer travel season fades — kids go back to school and families finish vacations, though business travel often picks up. Airlines also adjust capacity for periods of lower demand so as not to flood the market with seats they would have to offer at low fares to fill.

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

However, airlines have been optimistic about future sales, citing pent-up desire to travel from both business and leisure travelers.

“People haven’t had access to our product for the better part of two years,” Delta CEO Ed Bastian said during the company’s quarterly earnings call last week. “We will not satisfy … that thirst, in a space of a busy summer period.”

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

Delta is projecting less sound However, the increase in income for the third quarter. The carrier expects revenue to rise 1% to 5% over 2019 levels and said it will limit its schedule growth until the end of the year — a move that could in turn keep fares high if Wild passenger demand for seats continues.

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

American and United Airlines have also been upbeat and will report second-quarter results and provide an outlook for investors on Wednesday and Thursday, respectively. American on Monday forecast second-quarter revenue growth of 22.5% during 2019 for the three months ended June 30, down from its previous estimate of a 20% rise, with a slightly smaller target.

Mitigation operations

However, airlines will have to navigate cracks in the hot labor market and worries about economic weakness as the peak travel season fades.

“By the fall, the impact of cost inflation on the incomes and discretionary budgets of consumers and corporate travelers could lead to a softening of aggregate demand for air travel,” Moody’s Investors Service transportation analyst Jonathan Root wrote last month. “However, current capacity restrictions would protect airlines from overcapacity, should this occur.”

US airlines have largely cut schedules after biting off more than they could chew this spring and summer. Many carriers sold schedules to passengers only to hold back flights later as staffing shortages and other challenges prompted them to call back.

Delta, American, United, JetBlue Airways, Spirit Airlines and Alaska Airlines each completed the flight.

The seasonal decline in flights could help airlines streamline operations and provide more breathing room to train thousands of new workers without summer reserves.

Delta’s Bastian said the carrier has hired 18,000 people since the start of 2021, which is about the number it lost during the pandemic when it asked staff to take buyouts.

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

Southwest Airlines, for its part, said this week it hired 10,000 people since January to bring its employee base to 61,000, more than during 2019.

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

Smoother operations can ease travelers’ 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 mostly holding the full cost of the airline with only 85% of our flights restored,” Bastian said.

With strong demand, airlines can still charge relatively high fares — the opposite is true, which is why there was so much bargaining at the start of the pandemic when most would-be travelers stayed home.

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

“Right now people 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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