Strong demand for travel is giving U.S. airlines a financial boost as the industry battles through reduced flight schedules, higher fuel and labor costs, and concerns about the effects inflation could have on consumer spending, airlines officials said this week.
Leisure bookings, which have fueled much of the industry’s pandemic-era comeback, traditionally taper off at the end of summer, but business travelers are making up a greater share of air passengers. It comes as dropped coronavirus testing requirements for international travel — including for entry into the United States — are bringing a rise in overseas trips. Since the end of May, international ticket sales have outperformed those for domestic flights, according to BofA Global Research.
“People have not had access to our product for two years and we’re not going to satisfy that thirst in one busy summer,” Delta Air Lines chief executive Ed Bastian said Wednesday during a company earnings call. “A lot of that demand is still to come.”
Those trends, echoed by other industry executives, are another positive sign for an industry working to regain its footing after the near-collapse of air travel two years ago. The Transportation Security Administration is routinely screening more than 2 million people daily at airport checkpoints — nearly at levels recorded before the pandemic — but airlines are struggling to accommodate the demand amid staffing shortages and a rise in flight cancellations.
Delta is the first major U.S. carrier to report earnings for the second quarter of this year, but other airlines are signaling they expect strong results. In a filing with the Securities and Exchange Commission this week, American Airlines said it expected second quarter revenue to be up 12% compared with the same period in 2019.
Staffing levels are an obstacle for several carriers, despite the industry receiving $54 billion in federal pandemic bailouts meant to keep workers on the job when travel demand resumed. At Delta, Bastian said the issue is less about hiring than training. The carrier has added 18,000 employees since 2021 and staffing is 95% of pre-pandemic levels, Bastian said.
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He acknowledged the difficulties Wednesday, apologizing to Delta customers even as he sought to assure them the carrier is doing what it can to avoid delays and cancellations.
Replicating the work of thousands of veteran employees who left during the pandemic is a challenge, Bastian said, adding that the costs of rebuilding have been significant. Executives said the carrier is projecting to spend $700 million in overtime pay by the end of this year — 50% more than in 2019.
Delta reported a second quarter profit of $735 million. In 2021, the carrier reported profit of $652 million, fueled by billions in pandemic relief funds. It made $13.8 billion in revenue this quarter compared with $7.13 billion during the same period last year.
The gains come as airlines are operating fewer flights while ticket prices rise. Several U.S. carriers have trimmed their schedules, with some ending service to smaller communities while citing a shortage of qualified pilots.
Delta previously announced it would trim 100 flights daily between July 1 and Aug. 7, part of an effort to reduce delays and cancellations. Dan Janki, the company’s chief financial officer, said Delta is operating a network that is 18% smaller than in 2019. The carrier said schedule reductions will continue through the end of the year with a goal of moving closer to pre-pandemic levels next year.
“We’re going to have the capacity to grow when we’re ready, but we want to make sure we’re focused on serving what we have,” Bastian said.
Peter McNally, an analyst at the research firm Third Bridge, said despite Bastian’s upbeat assessment Wednesday, the industry still faces challenges while emerging from the pandemic.
“The underlying demand for air travel is strong, but it is a less profitable business today than it was before the pandemic,” he said in a statement. “Planning has become increasingly difficult for airlines and the shortage of labor is an issue that is unlikely to turn around soon.”
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After a chaotic ramp-up last summer, airline executives this year pledged a renewed focus on reliability. A spate of delays and cancellations over Memorial Day weekend — and again during the Father’s Day and Juneteenth holidays — prompted Transportation Secretary Pete Buttigieg to press airline executives on how they would avoid a similar meltdown over the July Fourth holiday.
Carriers have laid some blame on the Federal Aviation Administration, citing staffing shortages at key air traffic control centers.
In a memo to employees after the July Fourth holiday weekend, Jon Roitman, United Airlines’ chief operating officer, said the FAA’s air traffic management initiatives were responsible for 75% of the carrier’s cancellations over the past four months.
The memo drew a pointed response from the FAA, which said several other issues were to blame.
“It is unfortunate to see United Airlines conflate weather-related Air Traffic Control measures with ATC staffing issues, which could deceptively imply that a majority of those situations are the result of FAA staffing,” the agency said in a statement. “The reality is that multiple overlapping factors have affected the system, including airline staffing levels, weather, high volume and ATC capacity, but the majority of delays and cancellations are not because of staffing at FAA.”
The reduction in flight schedules has come with a downside for customers.
While data released Wednesday by the Bureau of Labor Statistics showed airfares declined slightly from May to June, the cost of an airline ticket has risen significantly since the beginning of the year. According to a June report of data collected for the travel industry by Adobe Analytics, the price for a domestic airline ticket has jumped 47% since January.
It also means there are fewer options for customers when their flights are delayed or canceled, although the price hike has done little to dampen enthusiasm for travel. On July 1, the TSA reported it screened nearly 2.5 million people — the busiest day for air travel since Feb. 11, 2020.
Among the nation’s largest carriers, American and United will report earnings next week. Southwest Airlines will follow on July 28.