Strong demand for travel is giving US airlines a financial boost, even as the industry battles through a host of obstacles, including higher fuel and labor costs, and concerns about the effects inflation could have on consumer spending. Leisure bookings, which have accounted for most of the industry’s pandemic-era comeback, traditionally taper off at the end of summer, when business travelers normally start to make up a greater share of air passengers. Increased demand comes as dropped coronavirus testing requirements for international travel, including for entry into the US, are fueling a rise in overseas trips. Since the end of May, international ticket sales have outperformed those for domestic flights, according to the Bank of America’s Global Research group. “People have not had access to our product for two years and we’re not going to satisfy that thirst in one busy summer,” Delta Air Lines chief executive Ed Bastian said in July during a company earnings call. “A lot of that demand is still to come.”
Those trends, echoed by other industry executives, are another positive sign for the sector that's working to regain its footing after the near-collapse of air travel two years ago. The Transportation Security Administration is now routinely screening more than 2 million people daily at airport checkpoints - nearly at levels recorded before the pandemic - but airlines are struggling to accommodate the demand amid staffing shortages and a rise in flight cancellations. The three biggest U.S. carriers are dialing back their flight growth ambitions in an effort to fly more reliably. It seems they bit off more than they could chew this year, chasing an unprecedented rebound in travel, despite a host of logistical and supply chain constraints as well as staffing shortages.
Staffing levels are an obstacle for several carriers, despite the industry receiving $54 billion in federal pandemic bailouts meant to keep workers on the job when travel demand resumed. At Delta, Bastian said the issue is less about hiring than training. Replicating the work of thousands of veteran employees who left during the pandemic is a challenge, Delta’s CEO noted, adding that the costs of rebuilding have been significant. Executives said the carrier is projecting to spend $700 million in overtime pay by the end of this year, 50 per cent more than in 2019. Delta trimmed 100 flights per day between July 1 and Aug. 7, part of an effort to reduce delays and cancellations. Dan Janki, the company’s chief financial officer, said the airline is operating a network that is 18 per cent smaller than it was in 2019. The carrier said schedule reductions will continue through the end of the year with a goal of moving closer to pre-pandemic levels next year. Bastion acknowledged the difficulties recently, actually apologizing to Delta customers even as he sought to assure them the carrier is doing what it can to avoid delays and cancellations.
Delta was the first major US carrier to report earnings for the second quarter of this year. The company reported a second quarter profit of $735 million. In 2021, the carrier reported profit of $652 million, fueled by billions in pandemic relief funds. It made $13.8 billion in revenue this quarter compared with $7.13 billion during the same period last year. The gains come as airlines are operating fewer flights while ticket prices rise. Major US carriers have trimmed their schedules, with some ending service to smaller communities while citing a shortage of qualified pilots. Peter McNally, an analyst at the research firm Third Bridge, believes the industry still faces challenges while emerging from the pandemic. “The underlying demand for air travel is strong, but it is a less profitable business today than it was before the pandemic,” he said in a statement. “Planning has become increasingly difficult for airlines and the shortage of labor is an issue that is unlikely to turn around soon.” After a chaotic ramp-up last summer, airline executives this year pledged a renewed focus on improved reliability.
American Airlines posted its first quarterly profit since the Covid-19 pandemic started without government aid, but joined its competitors in scaling back growth plans after a spate of disruptions this year. American posted a second-quarter profit of $476 million, up from $19 million a year earlier, though the airline was still benefiting from federal coronavirus payroll support last year. Second-quarter revenue of $13.4 billion was up 12 per cent from before the pandemic, even though American flew 8.5 per cent less than the same period of 2019. American has been more aggressive than rivals United and Delta in restoring capacity, but Robert Isom, American’s CEO, said the carrier would limit its expansion this year. The company forecast a third-quarter profit, another sign of strong travel demand, even at high prices. The airline said it would fly 8% to 10% below 2019 levels in the third quarter but said revenue would be up as much as 12% from three years earlier as high fares continue through most of the summer.
American Airlines CEO Robert Isom also spoke of a “buffer” after reporting quarterly revenue. That carrier has been more aggressive than Delta and United in restoring capacity but said it would fly 90%-92% of its 2019 capacity in the third quarter. “We continue to invest in our operation to ensure we meet our reliability goals and deliver for our customers,” Isom wrote in a staff note, discussing the airline’s performance. “As we look to the rest of the year, we have taken proactive steps to build additional buffer into our schedule and will continue to limit capacity to the resources we have and the operating conditions we face.” American had cancelled 1,175 July and August flights, according to the Allied Pilots Association. US carriers have been hamstrung by costly flight cancellations and delays amid labor shortages and air traffic congestion, limiting their ability to take full advantage of unprecedented demand. Cutting flights could help restore reliability, but it means turning away passengers willing to pay higher fares and higher unit costs for airlines. The current industry environment is “very challenging,” Isom said.
United Airlines recently reported revenue of $12.1 billion for the three months ending in June, its largest quarterly haul in at least a decade and the most it has ever earned in the second quarter of any year. But, higher costs put a damper on that good news, holding profit to $329 million, after a loss of nearly $1.4 billion in the first quarter. The airline said it expected the economy to slow “in the near to medium term.” And its chief executive, Scott Kirby, disclosed in a statement that the possibility of a recession, high fuel prices and the industry’s struggles to keep operations running smoothly posed threats to the industry over the next six to eighteen months. United Airlines' load factor rose significantly to 86.7 per cent, solidly beating analyst predictions. (Load factor is a key metric used in the airline industry to indicate the percentage of a carrier's available seats that are filled with paying passengers.) Because the costs of sending an aircraft into flight are relatively the same whether there are fifty people aboard or a hundred, airlines have a strong incentive to fill as many seats as possible by selling more tickets. Higher load factors mean that an airline's fixed costs are spread across a greater number of passengers, making the airline more profitable.
Carriers have laid some blame for the reduction in flight schedules on the Federal Aviation Administration (FAA), citing staffing shortages at key air traffic control centers. In a memo to employees after the July Fourth holiday weekend, Jon Roitman, United Airlines’ chief operating officer, said the FAA’s air traffic management initiatives were responsible for 75 percent of the carrier’s cancellations over the past four months. The memo drew a pointed response from the FAA, which said several other issues were to blame.“It is unfortunate to see United Airlines conflate weather-related Air Traffic Control (ACT) measures with ATC staffing issues, which could deceptively imply that a majority of those situations are the result of FAA staffing,” the agency said in a statement. “The reality is that multiple overlapping factors have affected the system, including airline staffing levels, weather, high volume, and ATC capacity, but the majority of delays and cancellations are not because of staffing at FAA.” The reduction in flight schedules has come with a downside for customers. While data released recently by the Bureau of Labor Statistics showed airfares declined slightly from May to June, the cost of an airline ticket has risen significantly since the beginning of the year. According to a June report of data collected for the travel industry by Adobe Analytics, the price for a domestic airline ticket has jumped a whopping 47 percent since January! The price hikes appear to have done little to dampen enthusiasm for travel.
About 55,000 flights have been canceled in the US since the Friday before Memorial Day, according to data from flight tracking site FlightAware, and nearly a quarter of US flights have been delayed this summer.The US Department of Transportation has posted an airline customer service dashboard where passengers can find comparative information on what each of the large US airlines provides to passengers when delays or cancellations are caused by factors within the airline's control. Major US carriers also posted updated policies this week in response to calls from the DOT for more transparency. Here are customer commitments from American Airlines, Delta Air Lines, United Airlines, JetBlue and Southwest (pdf). Hopefully, things will soon improve.
Until next time…safe travels.
Very interesting to hear of the challenges in the USA airlines that reflect what is also happening here in the UK. The only positive for US citizens it to know how far your Dollar$ will stretch versus Ster£ing costs currently...