Pushing Back: Inside the Issue
When Taylor Swift sings her song “Cruel Summer,” she’s most certainly not referring to European airlines. IAG, Air France-KLM, and TAP Air Portugal all reported spectacular third-quarter financial results, powered by scorching-hot transatlantic demand, and strong intercontinental demand more generally. Shorthaul flying within Europe was hardly a drag either – Air France-KLM’s Transavia and especially IAG’s Vueling performed exceptionally well (Vueling’s operating margin was 26%!). Success was only somewhat less striking in the Nordic region, where Finnair and the Icelandic startup Play each recorded 12% operating margins. Nothing cruel about their summers.
Across the Atlantic, more U.S. airlines reported third-quarter results, providing a clearer picture of demand trends. Domestic markets, importantly, started softening in August as schools reopened. That’s especially true for leisure markets like Florida and Las Vegas, which experienced extreme strength last fall. Currently, it’s overseas markets that are shining. Even those U.S. airlines enjoying an intercontinental and premium boom, however, aren’t matching the margins they earned in 2019. One big reason: higher labor costs. Demand overall, to be clear, remains solid, even domestically.
In China, economic growth isn’t what it used to be. But one area holding up well is domestic travel, allowing the country’s Big Three airlines to earn solid summer profits. Air China, China Eastern, and China Southern all delivered operating margins of between 10% and 11%.
One reason why China isn’t growing so fast anymore is that some of its manufacturing jobs are moving to Mexico. The resulting economic boost there helped Viva Aerobus produce an outstanding third-quarter operating margin of 20%. Economic growth didn’t help rival Volaris nearly as much though. Its operating margin was just 5%. Expects lots of additional airline earnings reports this week.
Looking back at other developments from last week, longtime Qatar Airways chief Akbar Al Baker is stepping aside. JetBlue announced new European routes. Southwest and Turkish Airlines are adding more Boeing narrowbodies. And Lufthansa has yet another new airline brand.
Airline Weekly Lounge Podcast
Hawaiian Airlines and Volaris are two very different carriers. But they have one thing in common right now: A lot of planes affected by the issues with certain Pratt & Whitney geared turbofan engines on Airbus A320neo-family aircraft. Plus both airlines third-quarter results.
Weekly Skies
Europe’s Giants Air France-KLM and IAG Flourish
While U.S. carriers struggle to replicate their 2019 results (higher labor costs are partly to blame), Europe’s major airlines are making more money than ever. This was true for the third quarter anyway, headlined by a spectacular 20% operating margin for IAG. Air France-KLM did well too, earning a 15% third-quarter operating margin. IAG got a boost from its heavy exposure to transatlantic routes, both to North America and South America. But other areas of the business did well too, including its Avios loyalty plan, its maintenance unit, and BA Holidays (which sells package tours). Within Europe, IAG enjoyed a “standout performance” from the Italian, French, German, and Greek markets. Longhaul premium demand was strong. It said longhaul routes from London Gatwick also fared well. On the other hand, business travel has yet to fully recover from 2019. Operations throughout Europe were challenging. And IAG is watching events in the Middle East. The company still hopes to buy Air Europa but can only do so if competition regulators allow.
As for Air France-KLM, it too benefited from strong premium and longhaul demand, especially across the Atlantic. Compared to 2019, Air France has become a significantly more profitable airline, raising its third-quarter operating margin from 8% to 15%. KLM, however, under assault by its own government, saw margins decline from just above 16% to just below 16%. Transavia, the group’s low-cost carrier, similarly saw margins slip from four years ago. But still, its figure of 19% was solid. Air France-KLM, remember, recently made headlines by agreeing to buy a fifth of Scandinavia’s SAS. Other initiatives include a new Paris flight to Raleigh-Durham, a new partnership with Etihad, withdrawing mainline Air France from Paris Orly (to arrest ongoing domestic French losses), and flying to Dubai from France with Transavia.
Southwest Slows Capacity Growth, Adjusts Network to Boost Profits
Southwest Airlines executives want investors to be clear about one big thing: U.S. travel demand is “healthy.” Southwest leaders repeated the word several times during the third-quarter earnings call Thursday.
Healthy is OK in a normal market. It means airlines can fill their seats. But in a market with rapidly growing supply — with many more airplane seats — steady demand is not enough to boost profits. Add in rising labor costs and the pressure gets worse.
That was clear in Southwest’s results. It was profitable, but barely. Its operating profit margin excluding items was just 3.4%. Capacity grew 12.5% from a year ago, but passenger traffic grew only about half as much. That contributed a 6.4% drop in passenger unit revenue.
“Travel patterns are changing,” CEO Robert Jordan said. “While it’s still strong, they’re changing for leisure, [and] they’re also changing for business — we’re seeing gains, but that last 10 to 15 points of business recovery is a little bit stubborn here.”
One change Jordan highlighted is that return-to-school dates for many Americans are moving earlier in August. That contributed to weak off-peak demand in August and September.
The business travel recovery, as Jordan noted, remains stalled at roughly 80-85% of 2019 volumes. And blended leisure and work trips have increased since the pandemic, which has shifted when and where people are flying.
This has U.S. domestic-focused airlines rethinking where and when they fly. Frontier Airlines, JetBlue, and Spirit Airlines have all indicated that they are looking at making network changes.
For Southwest, that includes cutting growth to allow the many new markets it added during the pandemic to mature, for example Hawaii was one such market that Chief Operating Officer Andrew Watterson named. But remember, the airline added 18 new destinations during the pandemic — far more than any other major carrier and an expansion that, so far, has yet to prove its worth.
Network Changes
Southwest is beginning to adjust its map in an effort to boost profitability. The first such major move is shifting its southeastern international gateway to Orlando from Fort Lauderdale. The airline will add six new nonstops from the central Florida airport in June: Cancun, Grand Cayman, Nassau, Providenciales, Punta Cana, and San Jose (Costa Rica). It already serves Aruba and Montego Bay from Orlando.
“The international destinations … actually are modest-sized markets, that require a decent amount of connectivity to fill them up,” Watterson said. “Orlando being a little bit further north and having more flights for Southwest Airlines north of Orlando allows us to have the good complement of the local plus the flow.”
Southwest serves 22 U.S. cities from Fort Lauderdale, including Orlando and Tampa, in October, according to Cirium Diio schedules. It serves 47 cities from Orlando, excluding Fort Lauderdale and Fort Myers to the south.
Asked whether this marked a new focus on connecting traffic for Southwest, Watterson said: “Connectivity has always been the icing, not the cake, but we were very intentional about how we use it.”
The airline has long focused on travelers flying direct between cities, rather than connecting over a few hubs like at American Airlines, Delta Air Lines, and United Airlines. Roughly 25-30% of all Southwest passengers connect at airports across its network, Watterson said.
Southwest also has a crew base in Orlando, and not in Fort Lauderdale, that should help it lower costs on international routes.
The carrier will end flights between Fort Lauderdale and six international cities — Cancun, Grand Cayman, Havana, Nassau, Providenciales, and Punta Cana — at the beginning of June, a spokesperson said. Southwest will only serve Montego Bay on Saturdays from the South Florida airport. The airline will continue to serve Havana daily from Tampa.
Margin Question
All of the talk of Southwest’s network changes was really about one thing: Profitability. The airline’s historic profitability eroded during the pandemic as costs rose. This year, supply of airline capacity outpaced the growth in demand.
Jordan reiterated to Wall Street analysts that the network changes next year would drive roughly $500 million in incremental pre-tax profit. This, coupled with other cost initiatives and slower growth aimed at boosting revenues, were all part of a “relentless” focus on boosting profit margins.
It “is absolutely the plan to improve margins in 2024, and we’re committed to getting back to our long term outperformance and operating margin,” Jordan said.
Southwest posted an 11.5% operating margin excluding special items in the June quarter, and negative 5% in the March quarter thanks to the overhang from its December 2022 holiday meltdown.
Evercore analyst Duane Pfennigwerth, however, pushed Jordan, asking if Southwest was unable to raise margins, if it would consider adding more ancillary fees that are standard at other airlines. For example, checked bag fees and or assigned seating — free items that Pfennigwerth described as “sacrosanct” for the airline.
“We are going to follow the lead of our customers,” Jordan said. “And if our customers ultimately tell us that, that is what they want, and that is what we will do. We’re not ready to — obviously not ready to say that today.”
Southwest did not provide margin guidance for the fourth quarter, or for 2024.
One metric closely watched by analysts are Southwest’s unit costs excluding fuel and special items, which measures how much it costs the airline to transport a passenger one mile. This rose 3.7% year-over-year in the third quarter even as passenger unit revenues fell.
Unit costs excluding fuel and special items are forecast to fall 15-16% in the fourth quarter but a large part of that is the comparison to last year when Southwest’s December meltdown added significant costs. For all of 2023, Southwest expects the metric will fall 1-2%.
Speaking of the fourth quarter, Southwest anticipates a “nominal increase” in revenues compared to last year during the period, Chief Commercial Officer Ryan Green said. Passenger unit revenues will continue to be weighed down by the carrier’s — and others — accelerated capacity growth. Southwest plans a roughly 21% year-over-year capacity increase.
December quarter bookings, Green said, are “strong” for October and the Thanksgiving and year-end holidays.
More Third-Quarter Earnings
- TAP Air Portugal nearly doubled its operating profit to €266 million ($282 million) in the third quarter. Its operating margin excluding special items was 22%. Revenue increased nearly 13% to €1.26 billion. Those are impressive results for an airline that suffered deep losses in 2020 and 2021, and forced the Portuguese government to nationalize it. Going forward, one thing is clear: the focus for TAP is profitability. Growth will be metered with an emphasis on consistent profits, TAP Senior Director of Strategy, Network & Partnerships Henri-Charles Ozarovsky said at Routes World earlier in October. Profits also help in the Portuguese government’s planned re-privatization of the airline, which it launched in September. Air France-KLM, IAG, and the Lufthansa Group have all expressed interest.
- Denver-based Frontier Airlines suffered a $32 million net loss in the normally strong third quarter. Its operating margin was negative 6%, a sharp reversal from the positive 5% it earned in the same quarter a year earlier and the 16% it earned in 2019. Frontier executives last week blamed the weaker-than-expected sales on an “uneven” demand recovery following the pandemic. Some markets like Las Vegas and Florida, explained CEO Barry Biffle, have seen a large increase in capacity from 2019, while others — he gave Minneapolis-St. Paul as an example — have seen the opposite. Demand was particularly weak during offpeak periods, including September, the final month of the third quarter. Peak periods, management said, remain resilient. Biffle is confident that demand and capacity trends across different geographies will normalize next year. He also rejected the idea that Frontier was growing too fast, despite all indicators suggesting overcapacity in the U.S. domestic market. Capacity at the discounter increased 21% year-over-year in the third quarter.
- Mexico’s wunderkind airline, Volaris, has lost some of its luster. No, it’s still making money with a 5% operating margin — a $39 million operating profit — in the third quarter, but that’s far from the 18% operating margin it reported four years ago. A big issue for the discounter was overcapacity in Mexico’s domestic market, which was partially the result of the country’s Category 2 safety rating from the U.S. That rating was lifted to Category 1 in September that allows Mexican airlines to resume crossborder growth but that takes time; Volaris will begin shifting aircraft to U.S. routes in December. Another drag for Volaris are the 16 Airbus A320neo-family aircraft grounded due to Pratt & Whitney engine issues. This is something of a double-edged sword for the airline as it reduces capacity that, in turn, should push yields up but at the same time raises unit costs. “The next year has the potential to deliver improved performance compared to 2023,” CEO Enrique Beltranena said.
- Iceland’s Play, trying to compete with Icelandair, turned the corner on profitability last quarter. From July to September, the carrier earned a 12% operating margin, with 43% of its passengers connecting (between North America and Europe). It’s a good start for Play, but the real test lies ahead: Can it earn a profit for the full year? Winters will be tough and, sure enough, Play itself expects an operating loss for all of 2023. Another question is whether demand in future summers will be as rip-roaringly good as it was this summer. It probably won’t be.
In Other News
- Lufthansa, Air Dolomiti, Austrian Airlines, Brussels Airlines, Discover, Eurowings, Swiss Air, and maybe ITA Airways — it seems that is not enough for the Lufthansa Group. So, it will now add Lufthansa City, not to be confused with Lufthansa CityLine, to the mix next summer. City will initially operate Airbus A319s — Airbus A220s and Embraer E-Jet-E2s are being considered for the future — on routes feeding Lufthansa’s Frankfurt and Munich hubs. The move appears a thinly veiled plan to cut costs on select shorthaul routes at both hubs.
- Long-time Qatar Airways chief Akbar Al Baker stepped down suddenly last week. While the reason for his departure was not entirely clear, his legacy was. Al Baker grew Qatar Airways from a tiny, inconsequential airline when he took the helm in 1997 to the global superconnector carrier it is today. But he was also known for an unwillingness to compromise, for example it’s understood that the government of Qatar had to get involved to settle his dispute with Airbus over paint issues on A350s, and having a hand in everything of consequence at the airline. Aviation Week’s Jens Flottau reported that Al Baker was against a new governance structure pushed by the chair of Qatar Airways board that would have decentralized power by taking some out of the CEO’s hands. Doha Hamad airport’s chief operating officer, Badr Mohammed Al Meer, has been named Qatar Airways’ new CEO effective November 5.
- The U.S. Senate unanimously confirmed Michael Whitaker as the next administrator of the Federal Aviation Administration last week. Whitaker brings experience in the emerging electric vertical takeoff and landing, or eVTOL, aircraft space, a career at United, and a previous stint as deputy administrator of the FAA to the job.
Routes and Networks
- United dropped its summer 2024 transatlantic schedule last week. The sole new route is between Newark and Faro, Portugal, with a Boeing 757-200 from May. Other additions include the return of Newark-Keflavik after a two-year hiatus, and second daily flights on the Newark-Brussels and Washington Dulles-Rome routes. It’s not all additions for United: Dulles-Berlin will not return after launching this year. Now, the question on everyone’s mind is whether the transatlantic market will prove as lucrative for airlines next summer as it was this and last summer.
- Speaking of the transatlantic, JetBlue will add two new destinations — Edinburgh and Dublin — and three new routes next summer. The airline will serve Dublin from both Boston and New York JFK from March, and Edinburgh from New York from May. Both routes will be flown with Airbus A321neo aircraft due to delivery delays at Airbus; the planes are not optimized for transatlantic flights — for example, they lack ovens to heat food — compared to the delayed A321LRs that JetBlue has on order. The additions come as JetBlue risks losing access to Amsterdam’s Schiphol airport as the Dutch government moves to reduce the number of flights there.
- Southwest also unveiled its summer 2024 schedule — no transatlantic surprises there — with 14 new daily routes, plus a slew of weekend-only nonstops. The biggest expansion is from Orlando that replaces Fort Lauderdale as the airline’s southeastern international gateway (see Weekly Skies). Other new additions include Burbank to Boise, Kansas City, New Orleans, St. Louis, and San Antonio; Baltimore-Washington to Colorado Springs; Chicago Midway to El Paso; and Sacramento to Eugene.
- Route tidbits: Qantas is making good on plans to serve Paris; four weekly flights to the city of light from Perth with a Boeing 787 begin in July. Swiss will add Rotterdam to its map with six-times weekly flights from Zürich from January; no word on whether the addition is related to the flight cuts at nearby Amsterdam Schiphol. Spirit will join Delta among the first foreign airlines at the new Tulum, Mexico, airport; the discounter plans daily flights to Fort Lauderdale and Orlando from March 28. Breeze Airways will add Gulfport, Miss., to its map with nonstops to Las Vegas and Tampa from January 12. Canadian low-cost carrier Lynx will add its first Mexican destination, Cancun, in February with daily flights from Toronto Pearson.
Fleet
- Southwest unveiled a commitment for 216 more Boeing 737 Maxes last week. It now has firm orders for 302 737-7s and 271 -8s — a 111 plane increase — with deliveries through 2031, plus 207 options, Southwest’s latest fleet plan shows. Chief Financial Officer Tammy Romo touted “flexibility” in the deal which evens out annual deliveries at around 80 aircraft a year into the 2030s. Many of the aircraft, particularly the 737-7s, will be used to replace Southwest’s 737-700s.
- Turkish Airlines will lease 28 new Boeing 737 Maxes and 787s from AerCap with the first aircraft arriving next year. The deal, which includes 25 737-8s and three 787-9s, comes as Turkish continues to evaluate a mega-order for up to 600 new aircraft. However, given the long backlogs at both Airbus and Boeing, leasing companies are increasingly the only option for airlines seeking more aircraft in the next few years. Turkish will use the new leased aircraft for growth, according to AerCap. The airline has also extended the leases on six Airbus A330s from the lessor.
- In its third-quarter earnings call, Boeing described “incredibly robust” demand for its commercial airplanes — think 737s and 787s. But still, it faces monumental production headaches, not to mention hundreds of finished planes in inventory but not yet delivered. More specifically, it has 250 737 Max planes in inventory, some of them -7s and -10s not yet FAA certified. Others (85 to be exact) are destined for customers in China. By year end, Boeing expects to be building 38 737s and five 787s a month. It hopes to reach 50 and 10, respectively, sometime around 2025 or 2026. As for the long-delayed 777X, production will resume later this year.
- RTX won’t be getting too many holiday cards from its airline customers this year. The parent company of Pratt & Whitney has a manufacturing quality issue that’s causing upheaval throughout the industry. Many of its PW1100 geared turbofan engines, which power Airbus A320neo family aircraft, require removal from service for inspection, greatly disrupting capacity plans for many major airlines. As the chart below shows, Wizz Air, IndiGo, Spirit, and Volaris are the engine’s top customers. The same PW1000 series also powers Airbus A220s and Embraer E-Jet-E2s. A top priority for Pratt is increasing maintenance capacity to handle the inspections. “We’re accelerating previously planned investments in the GTF network to increase capacity and bring more shops online to support our customers.” Delta, Lufthansa, Air France-KLM, China Airlines, Korean Air, and soon Iberia are examples of airlines that have maintenance and repair divisions (MROs) now working on GTFs. “It’s a challenging time for the customers,” said RTX Chief Operating Officer Christopher Calio. “There’s going to be a fair amount of the aircraft on the ground, but we’ve got to accelerate MRO output.”
Separately, rival General Electric, in its latest earnings update, said total engine deliveries are up 30% year-over-year, testament to strong demand. Working with partner Safran, meanwhile, GE said it’s improved quick-turn shop visits for the LEAP engine by more than 30% year-over-year. The LEAP powers both A320neos — the aircraft has two engine options — and 737 Maxes. GE did, however, say that supplier delinquencies still remain high, slowing the supply chain.
Feature Story
Sydney, Not Disney
What’s the current status of air travel demand across the U.S.? Now that most U.S. airlines have reported their third-quarter financial results (JetBlue, Allegiant Air, and Sun Country are the exceptions), there’s a much clearer picture.
As Delta and United made crystal clear, longhaul international travel was super-strong in the summer, and that strength kept going into the fall. Both carriers said Asia was strong, with many Asian markets having just reopened to foreign travelers less than a year ago. Demand to Europe among Americans, their purchasing power amplified by a favorable exchange rate, has rarely if ever been as strong. American, though more domestic-oriented than Delta and United, substantiated the reports of white-hot transatlantic demand. Hawaiian Airlines, talking about U.S. point-of-sale demand to markets abroad, echoed the assessment, using the words “very strong.” Hawaiian, to be clear, relies much more on foreign points-of-sale than the U.S. Big Three, i.e., Japanese tourists visiting Hawaii. (That market is reviving from depressed levels but still subdued).
Will the intercontinental boom continue? The Big Three gave no indication of any tapering, aside from some specific markets affected by the latest Middle Eastern conflict, most importantly Tel Aviv. The only other cautionary statement came from Alaska Airlines, which cited a meaningful drop in the number of loyalty plan members redeeming and accruing miles for international trips on partner airlines this fall.
Americans are not just traveling overseas. They’re treating themselves to premium seats as well. That was true last quarter on international and domestic flights alike. The U.S. economy did after all grow a robust 5% during the third quarter, driven in part by consumer spending on leisure pursuits like travel. This premium affinity, furthermore, is making already-valuable airline loyalty plans even more so. Naturally, airlines with less overseas exposure, less premium exposure, and less attractive loyalty plans were ill-positioned this summer. It’s one reason why Frontier and Spirit had horrible third quarters.
But none of this is terribly new. Already during the second quarter earnings season in July, carriers like Delta and United were euphoric about trends in the intercontinental and premium markets. At the time, domestic demand appeared strong as well. Only in mid-September did cracks in the domestic armor become evident, specifically when Frontier and Spirit issued alarmingly-bad investor warnings. Some of their sudden pessimism was linked to trends in fuel prices, which remain down year-over-year but up sharply versus last quarter. But as Frontier made clear, “sales have been trending below historical seasonal patterns.”
Last week, Southwest, the airline with the largest domestic footprint, painted a much clearer picture of what’s happened. Domestic demand was indeed strong during the summer peak. The problem was that the summer peak shortened. Already by early August, primary and secondary schools across the country were reopening, marking an early end to summer vacation season. As Southwest’s chief commercial officer Ryan Green explained, “In our markets, a third of schools were back in session by the second week of August, which is nearly double what it was pre-pandemic, and nearly 95% of schools were back before the Labor Day weekend.” He added, “You usually don’t travel the week before your kids go back to school. So that kind of wipes almost all of August out there for one-third of travel in our market.”
Last year, as Southwest and others made clear, there was no major drop-off after the summer peak, regardless of school schedules. Americans unleashed a wellspring of pent-up travel demand that ran right through the fall. Of course, in 2022, many international markets weren’t yet opened, or in some cases challenged by operational disruptions (i.e., understaffing at key airports in Europe). So, most of this unleashing happened domestically, especially in leisure markets like Florida and Las Vegas.
It was these two markets — Florida and Las Vegas — that sure enough gave Frontier, for one, major problems toward the end of last quarter. These markets continue to struggle this quarter so far as well, Frontier said. Cooling demand surely deserves part of the blame, with so many Americans now vacationing in Las Palmas, not Las Vegas; in Sydney, not Disney. Tuesdays and Wednesdays are booking unexpectedly soft. Southwest, for one, feels compelled to discount more aggressively. But deserving at least as much blame for undershooting expectations is a surplus of capacity. Versus the third quarter of 2019, for example, Orlando and Miami seat counts were up nearly 20%. In Las Vegas they jumped 14%. Frontier expects this to normalize as carriers — including itself — reallocate planes to markets that are still down in capacity versus pre-pandemic. It gave Minneapolis-St. Paul as an example; the Twin Cities have a tenth fewer seats now than they did in 2019.
There were weather disruptions last quarter too, including wildfires in Maui. Also causing headaches: The Pratt & Whitney geared turbofan engine inspections affecting Airbus A320neo and A321neo planes (Spirit and Hawaiian were most affected, with JetBlue likely to mention this as a challenge too). Then there’s the case of business demand, which hasn’t yet recovered to pre-pandemic levels. As an aside, it’s quite remarkable that premium travel is so strong despite the absence of many jet-setting corporate executives. Leisure travelers, alas, are opening their wallets to pay for perks.
Despite the disappointing aspects of demand this fall (cooling offpeak leisure travel, the missing corporate fliers, etc.), overall demand — even domestic — remains “healthy,” to use Southwest’s adjective. That’s especially true during peak periods, including the upcoming Thanksgiving and Christmas holidays. Even the domestic-centric Southwest, without any premium seats, said confidently: “We’re seeing, again, record operating revenues, record passengers, record Rapid Rewards participation on revenues, record retail spend on our card, record new members, on and on and on. And we’re expecting record operating revenues and passengers again in the fourth quarter.” So, it’s hardly a time to despair.
Unless perhaps, you’re Frontier and Spirit. With outsized exposure to Florida and Las Vegas-like leisure markets, and with highly-growth dependent cost advantages flummoxed by severe operational constraints, both carriers reported steep third-quarter operating losses. Hawaiian joined them in their pool of red ink. Southwest, by contrast, earned a third quarter profit. But barely. American didn’t do much better, which left Delta, United, and Alaska as this summer’s profit champs so far. Alaska, keep in mind, doesn’t have direct overseas exposure but does sell longhaul international flights via its partners. It also sells many premium seats. We’ll find out soon how JetBlue, Allegiant, and Sun Country fared.
A final observation: None of the U.S. airlines reporting so far did as well this summer as they did in the summer of 2019, before the Covid crisis. Yes, corporate demand is weaker now versus then. But leisure demand is much stronger. The real culprit for the industry’s profit decline, it’s becoming clear, has more to do with higher costs. Fuel costs are up for sure; United for example paid $2.95 per gallon this year, compared to $2.02 four years ago. But that still doesn’t account for the lion’s share of regression. Instead blame higher non-fuel costs, led by the expensive labor contracts airlines have signed. Take Delta. Its labor costs were 30% higher this year than four years ago, even while producing 3% fewer available seat miles!
You can see the industry’s need to keep revenues elevated. But what happens if the economy cools? What happens when the intercontinental party peters out? What happens if business travel never returns to what it once was?
Fortunately, airlines will have help on the revenue side from constrained supply. By now it’s an accepted fact that capacity production will be less than it otherwise would be due to aircraft delivery backlogs, engine problems, air traffic controller shortages, too few pilot captains, and so on. The next big test for U.S. airlines: the upcoming holidays. Then comes peak season for sunshine markets like Florida, the Caribbean, and Arizona. And then comes … another summer.