U.S. airlines, including United, JetBlue, and Delta, are trimming capacity through year-end to address an oversupplied domestic market that’s pressuring profits and fares despite robust summer travel demand. This move could lead to higher ticket prices for passengers. According to Deutsche Bank, last week saw one of the industry’s largest capacity reductions, with airlines slashing nearly 1% from their Q4 plans. They now project a 4% year-over-year increase in flying for the final three months of 2023. Further reductions are expected in the coming weeks as carriers fine-tune schedules, noted Deutsche Bank analyst Michael Linenberg.
Airline executives cite a saturated U.S. domestic market that necessitates scaling back growth plans, potentially driving up fares. A recent U.S. inflation report showed June airfare dropped 5.1% year-over-year and 5.7% from May. Reducing capacity aims to elevate fares and improve airlines’ financial performance, provided travel demand remains strong. Balancing profitable fares with consumer affordability is critical as discretionary spending declines elsewhere.
Delta and United’s Q3 outlooks fell short of investor expectations, yet CEOs predict capacity cuts will bolster results by August. Southwest Airlines anticipates a dip in third-quarter unit revenue and announced it will abandon its open seating model in favor of extra-legroom seats to increase revenue. American Airlines reported a 46% Q2 profit decline and plans minimal capacity growth in the upcoming months, expanding less than 1% year-over-year in September. CEO Robert Isom attributed higher-than-expected discounting to excess capacity.
Low-cost carriers are also aggressively trimming unprofitable routes. For instance, JetBlue has cut money-losing routes and redeployed aircraft to more lucrative destinations, with plans to report results imminently. Spirit Airlines, however, warned of a larger-than-expected Q2 loss due to weaker non-ticket revenue streams like fees for checked bags and seat assignments. Low-cost airlines plan a 2.2% capacity reduction in Q4 compared to the same period in 2023.
Original Story https://www.cnbc.com/2024/07/29/us-airlines-cut-growth-plans-for-second-half.html
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