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Airfares: As the high summer travel season ends, airline prices are finally beginning to decline. What’s next?

Airfares: As the high summer travel season ends, airline prices are finally beginning to decline. What's next?
Photo by Pixabay/jet cloud landing aircraft Photo by Pixabay/jet cloud landing aircraft
Airfares: As the high summer travel season ends, airline prices are finally beginning to decline. What's next?
Photo by Pixabay/jet cloud landing aircraft Photo by Pixabay/jet cloud landing aircraft

According to the most recent U.S. inflation figures, released last week, airfares decreased by a seasonally adjusted 1.8 percent from May to June. When consumer prices grew at the quickest rate in more than forty years, airfares were one of the few categories to experience a fall.

According to recent estimates from major carriers like Delta Air Lines and American Airlines, the increase in spring and summer travel has been a windfall for airlines, increasing revenue above 2019 levels even as airlines fly less than they did before the epidemic.

After the summer high, how resilient will demand be as airlines and passengers struggle with ongoing inflation and are concerned about an economic slowdown?

According to CEOs of companies like Delta and JPMorgan last week, consumers continue to spend wildly on travel. However, increasing expenses may impact household vacation spending plans and employers’ willingness to send staff on business travels.

High prices are causing some passengers to reschedule their trip plans and are already having an adverse effect on the bottom lines of airlines.

62-year-old communications specialist Ben Merens said a family situation just before the Fourth of July weekend forced him and his wife to cancel their summer vacation plans.

A death in the family forced the pair to purchase last-minute flights from their home in Milwaukee to New York City to attend the burial, which Merens estimated to cost roughly $980 each. The couple set their hearts on a trip to Denver or Seattle, but they aren’t going.

Before they depart from New York’s LaGuardia Airport for their return, Merens said, “The cost is high.”

Less flying, more revenue

When the busy summer travel season ends, ticket costs frequently decline; nevertheless, corporate travel frequently resumes as families and children return to school. Additionally, airlines reduce capacity during decreased demand to avoid oversupplying the market with seats that would otherwise require extremely low prices to fill.

According to fare-tracking website Hopper, round-trip airfares within the United States as of July 14 averaged $375, down from a May record of $413 but still up 13% from the previous year.

Despite this, airlines remain optimistic about future sales, pointing to customers’ pent-up desire to travel for work and pleasure.

During the company’s quarterly earnings call last week, Delta CEO Ed Bastian stated, “People haven’t had access to our product for the greater part of two years.” Unfortunately, we won’t be able to quench that thirst throughout the hectic summer months.

In the second quarter of 2019, Delta reported a $735 million profit on $13.82 billion in revenue, an increase of 10% in sales. Domestic business travel sales, a laggard for much of the industry’s recovery, soared to 80% of 2019 levels, according to the airline.

However, Delta anticipates a more subdued increase in revenue during the third quarter. The airline said it would limit schedule expansion through the end of the year, which may keep tickets high if the intense demand for seats among passengers persists. As a result, the carrier anticipates revenue to climb by 1 to 5 percent over 2019.

We also realize that our crystal ball doesn’t extend as far as many would like us to believe at this time—only it’s good for around three to four months ahead, according to Bastian. But everything we see indicates that we must flee.

American and United Airlines, expected to publish second-quarter earnings and provide investors outlooks on Wednesday and Thursday, have been optimistic. For example, American predicted second-quarter revenue growth of 22.5% over 2019 on Monday for the three months ending June 30. This is an improvement from its earlier estimate of a growth of 20% on a somewhat smaller timetable.

Smoothing operations

As the busy travel season winds down, airlines will have to manage kinks in the scorching hot employment market and worries about economic instability.

According to Jonathan Root, a transportation analyst at Moody’s Investors Service, “come the autumn, the impact of cost inflation on consumers’ and business travelers’ discretionary income and budgets might contribute to weaker aggregate demand for air travel.” However, if this were to happen, the airlines would be protected by the present capacity restrictions from having too much capacity.

After attempting to take on more than they could handle this spring and summer, U.S. airlines have mostly reduced their schedules. Many carriers offered customers itineraries only to scale back their flights later due to human resources shortages and other issues.

Each airline has a flying cap, including Delta, American, United, JetBlue Airways, Spirit Airlines, and Alaska Airlines.

The winter drop in travel might aid airlines in streamlining their processes and provide them more breathing room to educate their thousands of new employees without having to contend with summertime crowds.

According to Bastian, Delta had employed 18,000 people since the beginning of 2021, around the same number of workers it lost during the pandemic when it encouraged employees to accept buyouts.

Bastian stated on the company’s quarterly call, “While we have over 95% of the personnel needed to restore capacity, we have thousands in some steps of the hiring and training process.

For its part, Southwest Airlines announced this week that it had added 10,000 new employees since January, bringing its total workforce to 61,000—up from the previous year.

The senior vice president of people, learning, and development of Southwest, Elizabeth Bryant, added, “Hiring and training will continue to be an emphasis into 2022.”

Smoother operations may allay travelers’ worries about holdups and disruptions while maintaining strong demand. However, in the interim, fewer flights result in greater expenses, frequently passed on to customers.

“We are largely carrying the full cost of the airline with only 85% of our flying restored,” Bastian said.

Airlines may still charge relatively high tickets when demand is high; the opposite is true, which explains why many deals were available early in the epidemic when most potential travelers stayed home.

Reduced consumer spending or a worse job market might also affect airline rates and revenue.

According to Adam Thompson, head of the consulting business Lagniappe Aviation, “right now, individuals just have money to burn.” “You must persuade them to buy your product once they no longer have money to burn.”

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