You really want to fly
The airlines are slammed and making money
Thanks for finding Full Throttle. Please share and subscribe here. Full Throttle posts twice a week. Follow me on Twitter, Instagram, and Linkedin.
It will cost you more, but many Americans don’t seem to care. They want to travel this spring and summer after many were grounded for two years due to the COVID-19 pandemic. While travel started coming back last summer, demand has increased dramatically in the past couple months. It’s again being called revenge travel. Americans want to go somewhere, anywhere.
There was an echo as I listened to the CEOs of the top airlines the past week as they released earnings.“The demand is phenomenal,” said Ed Bastian of Delta Airlines. “I’ve never seen… such a hockey stick increase in demand,” said Scott Kirby of United Airlines. The new American Airlines CEO Robert Isom said, “while we have strong domestic and leisure travel, business is coming back. And I expect the same for international and international business too.”
Three airline CEOs talk to CNBC about the current booking demand. (Credit: CNBC)
The last point is an important one for the airlines. Business travel is the key factor for the large mainline carriers. The front of the aircraft (first and business class) is where the airlines make their money. The economy class, in the back of the jet, is really a break-even proposition for the airlines. The airlines survived the lockdown (with billions of taxpayer money), and now the mask mandate is gone. The CEOs are ready to make money again.
HIGHER FUEL COSTS PASSED ON
With demand so strong, the airlines admit they have been able to pass on inflationary costs including higher fuel costs (double what they were last year). That means that average airfares are on the rise. Travel company Hopper says fares are up 40% since the beginning of the year and will climb another 10% through May.
At the start of April the average fare was $330. That is 7% higher than fares before the pandemic in 2019. By the end of May prices will rise to an average of $360. Hopper does predict that this is a summer travel phenomenon. The company believes prices will moderate in the fall.
Hopper predicts airfares will drop in late fall. (Credit: Hopper)
This is all good news for the airlines. There is demand for their flights. They can pass on inflationary costs. Most of the airlines expect a return to profitability this quarter. Those airlines are managing the supply of seats, which has allowed for the higher fares.
LOOMING TROUBLE?
For many carriers, there is a shortage of both aircraft and workers. Some airlines were burned last summer when they tried to restart their businesses. Weather problems didn't help. Southwest and American Airlines ended up canceling thousands of flights and angering passengers. The airlines don’t want a repeat this travel season.
Already, some airlines are reducing their summer schedules, or at least not expanding their capacity. United Airlines CEO Scott Kirby said on the quarterly earnings call that gearing up after a near-shutdown is not easy. “We're realizing that the whole infrastructure is not set up to snap back to these rapid growth rates. I mean it's not just us. It's the FAA, TSA, fuel vendors,” he said.
Rather than assigning all their jetliners to routes, some airlines will keep some aircraft in reserve to allow them to respond to disruptions in service.
(Credit: Getty Images)
The antidote for COVID-19 and Zoom call fatigue are higher ticket prices to fly the coop. Airlines are happy to oblige.
(Cover photo credit: Getty Images)