Record summer air travel demand hasn’t translated to record U.S. airline profits, a disconnect airlines must address when they report quarterly results this month.
Despite some airlines forecasting record demand and revenue, higher labor and operational costs have impacted their bottom lines. To cope with slower demand growth and other challenges, some carriers have slowed or halted hiring compared to the post-pandemic hiring sprees.
Airlines are also dealing with delays in receiving new, more fuel-efficient aircraft from Airbus and Boeing, compounded by a Pratt & Whitney engine recall grounding dozens of jets.
U.S. airlines have increased capacity, flying about 6% more seats in July compared to July 2023, according to aviation data firm OAG. This expansion has kept airfare stable, but airline stocks have lagged behind the broader market. The NYSE Arca Airline Index, tracking 16 primarily U.S. airlines, is down nearly 19% this year, while the S&P 500 has risen over 16%.
The third quarter outlook for airlines remains to be determined. Raymond James analyst Savanthi Syth described it as “clear as mud,” citing potential weaker spending from coach-class travelers, the impact of the Paris Olympics on Europe bookings, and possible changes in corporate travel demand.
U.S. air travel in 2024 continues to surpass pre-pandemic levels and break records. Travelers are increasingly choosing trips in late spring and early summer, raising questions about late-summer demand.
Investors will gain more insight into the traditionally slower tail end of summer and the rest of the year when airlines report quarterly results, starting with Delta Air Lines on Thursday. Analysts consider Delta the strongest performer, largely due to its success in marketing premium seats and its lucrative deal with American Express.
In April, Delta, the most profitable U.S. airline, forecast quarterly adjusted earnings of $2.20 to $2.50 per share for the second quarter, down from $2.68 per share a year earlier. Delta, United Airlines, and Alaska Airlines are top picks for Wolfe Research analyst Scott Group, who noted they have less earnings risk and better free cash flow than other carriers. Delta and United shares are each up about 14% this year through July 5, while Alaska shares are down about 2%.
Airports are bustling this summer, with nearly 3 million people passing through U.S. airport checkpoints on June 23 alone, setting a record, according to the Transportation Security Administration. Airlines have expanded schedules domestically and internationally, reducing fares. U.S.-Europe capacity for July is up nearly 8% from a year ago, targeting leisure travelers.
Fare-tracking company Hopper reported that summer flights between the U.S. and Europe in coach were averaging $892, compared to $1,065 last summer. Airfare was down nearly 6% in May from a year earlier, according to the latest U.S. inflation data.
Despite the higher passenger numbers, some carriers have reported weaker-than-expected sales due to increased flights. American Airlines cut its second-quarter revenue and profit forecasts on May 28 and announced the departure of its chief commercial officer after a sales strategy misfired. CEO Robert Isom cited a weaker domestic pricing environment due to an imbalance in supply and demand.
Southwest Airlines also cut its second-quarter forecast in late June, citing shifting demand patterns. The Dallas-based airline, under pressure to revamp its profitable business model with no seat assignments and one class of service, is trying to fend off activist investor Elliott Investment Management, which called for leadership changes after disclosing a nearly $2 billion stake in June.
Some money-losing carriers, such as JetBlue Airways and Frontier Airlines, are making changes. JetBlue has been cutting unprofitable flights and ensuring its high-end Mint business cabin is on the right routes. Frontier and Spirit Airlines have eliminated change fees for standard coach tickets and introduced bundled fares including seat assignments and other add-ons.
Spirit, facing the fallout from a judge’s ruling blocking JetBlue from buying the airline and the impact of the Pratt engine grounding, warned 200 pilots of potential furloughs this year. At Spirit’s annual shareholder meeting in June, CEO Ted Christie dismissed suggestions of Chapter 11 bankruptcy protection, despite a more than $1 billion debt payment due in September 2025.
