Airlines temper flight ambitions after chaotic rebound in travel

An American Airlines Boeing 737-800, fitted with radar altimeters that may conflict with 5G telecommunications technology, can be seen flying 500 feet above the ground on final approach to land at the airport LaGuardia of New York, New York, USA, January 6, 2022.

Bryan Woolston | Reuters

The leaders of the country’s biggest airlines learned a hard lesson this summer: it’s easier to make plans than to stick to them.

The three largest US carriers – Delta, United and American – are backtracking on their flight growth ambitions, an effort to fly more reliably after biting off more than they could chew this year as they continued a rebound without previous trips, despite a host of logistical and supply chain constraints as well as staff shortages.

The cuts come as airlines grapple with high costs they don’t yet see falling significantly, as well as the possibility of an economic downturn and questions over spending from some of the world’s biggest fliers. business of the country.

Shares of the Big Three U.S. carriers fell on Thursday as the broader market rose.

Build buffers

United Airlines estimated it would restore 89% of 2019 capacity levels in the third quarter and around 90% in the fourth. In 2023, it will increase its schedule to no more than 8% above that of 2019, down from an earlier forecast that it would fly 20% more than in 2019, before the Covid-19 pandemic. fails to travel.

“We will essentially continue to fly the same number as we are today, which is less than what we intended to do, but we will not grow the airline until we have proof. that the whole system can support it,” United CEO Scott Kirby said in an interview with CNBC’s “Fast Money” after announcing the results on Wednesday. “We’re just building more of a buffer into the system so we have more opportunities to accommodate those customers.”

American Airlines CEO Robert Isom also spoke of a “buffer” after announcing record revenue on Thursday. The carrier has been more aggressive than Delta and United in restoring capacity, but said it will fly 90-92% of its 2019 capacity in the third quarter.

“We continue to invest in our operations to ensure we meet our reliability targets and deliver to our customers,” Isom wrote in a staff memo, discussing the airline’s performance. “As we look to the rest of the year, we have taken proactive steps to create an additional buffer in our schedule and will continue to limit capacity to the resources we have and the operating conditions we face. “

Delta, for its part, apologized to customers for a series of flight cancellations and disruptions and said last week it would limit growth this year. He announced earlier that he would be reducing his summer schedule.

On Wednesday, Delta deposited 10,000 miles into the accounts of SkyMiles members whose flights were canceled or delayed more than three hours between May 1 and the first week of July.

“While we cannot recover time lost or anxiety caused, we automatically deposit 10,000 miles into your SkyMiles account as a commitment to do better for you in the future and restore the Delta difference you know that we are capable of,” the email said. to customers, a copy of which was seen by CNBC.

By cutting schedules, airlines could keep firm fares at sky-high levels, an important factor for their bottom line as costs remain high, although bad news for travellers.

“The more airlines limit their capacity, the higher they can charge airfares,” said Henry Harteveldt, founder of Atmosphere Research Group and former airline executive.

Preserving the bottom line is critical with the economic uncertainty ahead.

“They won’t get another bailout,” Harteveldt said. “They wasted a lot of their goodwill.”

More disruption, more revenue

Since May 27, the Friday of Memorial Day weekend, 2.2% of flights from US-based carriers have been canceled and nearly 22% have been delayed, according to flight tracker FlightAware. This represents an increase from 1.9% flights canceled and 18.2% delayed during a similar period in 2019.

Staffing shortages exacerbated routine problems airlines were already dealing with, such as thunderstorms in the spring and summer, leaving thousands of travelers stranded as carriers lacked a cushion of standby workers.

Airlines received $54 billion in federal wage aid that banned layoffs, but many of them idled pilots and urged staff to make buyouts to cut costs at the height of the crisis. pandemic.

Staff shortages at major European hub airports have also led to flight cancellations and capacity limits. London Heathrow officials last week told carriers it must limit departing passenger capacity, forcing some airlines to halt flights.

“We told Heathrow how many passengers we were going to have. Heathrow basically told us, ‘You smoke something,'” United CEO Kirby said on Wednesday. “They didn’t provide staff for that.”

A Heathrow representative did not immediately comment.

Still, the big three U.S. carriers all posted second-quarter profits and were optimistic about strong traveler demand throughout the summer.

For American and United, it was their first quarter in the dark since before Covid, with no federal payroll support. Revenue for both airlines exceeded 2019 levels.

Each carrier forecast a profit in the third quarter as consumers continued to fill seats at fares far exceeding 2019 prices.

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