Passengers are seen near the check-in desks of Delta Air Lines at Hartsfield-Jackson Atlanta International Airport before the Fourth of July holiday in Atlanta, Georgia on July 1, 2022.
Ilya Newage | Reuters
Air tickets, believe it or not, are getting cheaper.
Air fares 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 their fastest pace in more than four decades.
According to recent reports from major carriers like Delta Air Lines, increased travel in the spring and summer — even at sky-high prices — has been a boon for airlines, lifting revenues above 2019 levels, even as airlines fly less than before the pandemic. and American Airlines.
The question now is: How sustainable will demand be after the summer peak, as carriers and travelers alike grapple with persistent inflation and worries about a slowing economy?
Last week, CEOs from Delta to JPMorgan said consumers continue to spend voraciously on travel. But rising costs can affect family vacation budgets and companies’ willingness to send employees on business trips.
Rising costs are already hurting 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 because of a family incident that happened just before the Fourth of July weekend.
The couple had planned to go to Denver or Seattle, but after a death in the family, they don’t travel, so last-minute tickets from their home in Milwaukee to New York to attend the funeral, Merens said. $980 each.
“The price is prohibitive,” Merens said before returning from New York’s LaGuardia Airport.
Fewer flights, more income
Ticket prices often fall when the peak summer travel season ends — kids go back to school and families end their vacations — though business travel often picks up again. Airlines also adjust capacity for periods of low demand so they don’t flood the market with seats they would need to offer at low fares to fill.
As of July 14, the average round-trip price for U.S. flights was $375, down from $413 in May but still up 13% from 2019, according to fare tracker Hopper.
Still, airlines are optimistic about future sales, citing pent-up appetite for travel among 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’re not going to satisfy … that thirst in a busy summer.”
Delta posted a profit of $735 million in the second quarter on revenue of $13.82 billion, up 10% from the same period in 2019. The airline reported that sales of domestic corporate travel, which had largely slowed the industry’s recovery, were up 80%. level of 2019.
Delta projects more muted however, revenue growth in the third quarter. The carrier expects revenue to rise 1% to 5% from 2019 levels and said it will limit schedule growth until the end of the year — a measure that could in turn keep fares high if travelers maintain voracious demand for seats.
“We also recognize that our crystal ball is only about three or four months old now, and it doesn’t go as far as people want us to think,” Bastian said. “But everything we see tells us we have to run.”
American and United Airlines were also upbeat and are due to report second-quarter results and provide investors with an outlook on Wednesday and Thursday, respectively. American on Monday forecast second-quarter revenue growth of 22.5% from 2019 for the three months ended June 30, compared with a previous estimate of 20% growth on a slightly shortened timetable.
Still, airlines will have to navigate cracks in a hot labor market and concerns about economic weakness as the peak travel season winds down.
“In the fall, the impact of cost inflation on the discretionary income and budgets of consumers and corporate travelers could soften aggregate demand for air travel,” Moody’s Investors Service transportation analyst Jonathan Root wrote last month. “However, current capacity restrictions will protect airlines from overcapacity if this occurs.”
US airlines have significantly 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 staff shortages and other issues prompted them to call.
Delta, American, United, JetBlue Airways, Spirit Airlines and Alaska Airlines have all grounded flights.
A seasonal reduction in the number of flights can help airlines improve operations and offer more training space for their thousands of new hires without summer stocks.
Delta’s Bastian said the carrier has hired 18,000 people since the start of 2021, about the number it lost during the pandemic when it called for staff buyouts.
“While we have more than 95% of the employees needed to fully restore capacity, we have thousands at some point in the hiring and training process,” Bastian said during the company’s quarterly conference call.
Southwest Airlines, for its part, said this week it had hired 10,000 people since January to bring its workforce to 61,000, up from 2019.
Elizabeth Bryant, Southwest’s senior vice president of staffing, learning and development, added that “hiring and training will remain a focus throughout 2022.”
A smoother operation could ease travelers’ worries about delays and disruptions and keep demand high. But in the meantime, fewer flights mean higher costs, which are often passed on to consumers.
“We are basically bearing the full cost of the airline, having only resumed 85% of our flights,” Bastian said.
With high demand, airlines can still charge relatively high fares — quite the opposite, which is why there were so many bargains at the start of the pandemic, when most potential travelers stayed home.
In addition, lower consumer spending or a downturn in the labor market could lead to lower fares and lower airline revenues.
“People just have money to burn right now,” said Adam Thompson, founder of consulting firm Lagniappe Aviation. “When people don’t have any more money, you have to convince them that they want to buy your product.”