Airlines temper flight ambitions after chaotic travel boom

Airlines temper flight ambitions after chaotic travel boom

An American Airlines Boeing 737-800, equipped with radar altimeters that could conflict with telecom 5G technology, can be seen flying 500 feet above the ground as it lands on its final approach at LaGuardia Airport in New York City, New York, USA, January 6, 2022.

Bryan Woolston | Reuters

The leaders of the country’s largest airlines learned a hard lesson this summer: Making plans is easier than following them.

The three largest U.S. airlines — Delta, United and American — are rolling back their flight growth ambitions, attempting to fly more reliably after biting off more than they could chew this year as they chase an unprecedented uptick in travel, despite a host of logistics challenges. and supply chain constraints as well as staff shortages.

The cuts come as airlines face high costs that they haven’t seen a significant drop at this point, along with the possibility of an economic slowdown and questions about the spending of some of the country’s largest business travelers.

Shares of the three major US carriers plunged Thursday, while the broader market was higher.

Building buffers

United Airlines estimated it would recover 89% of 2019 capacity levels in the third quarter, and about 90% in the fourth. In 2023, it will expand its schedule to no more than 8% above that of 2019, compared to an earlier forecast that it would fly 20% more than in 2019, before the Covid-19 pandemic crippled travel.

“We will continue to fly essentially the same amount we are now, which is less than we planned, but we won’t grow the airline until we can see evidence that the whole system can support this,” said Scott Kirby, CEO of United in a statement. interview with CNBC’s “Fast Money” after reporting results Wednesday. “We’re just building more buffer into the system so we have more options to accommodate those customers.”

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

“We continue to invest in our operation to ensure we meet our reliability goals and deliver for our customers,” Isom wrote in a staff note, discussing the airline’s performance. “Looking at the rest of the year, we have taken proactive steps to build additional buffer into 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 spate of flight cancellations and disruptions and said last week it would limit growth this year. It previously announced it would be shortening its summer schedule.

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

“While we cannot recover lost time or fear caused, we will 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 that you know we are capable of said the email to customers, a copy of which was seen by CNBC.

By cutting schedules, airlines can keep fares at sky-high levels, a key driver of their bottom line as costs remain high, albeit bad news for travelers.

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

Maintaining profits is critical in the face of economic uncertainty.

“They’re not getting another rescue,” Harteveldt said. “They’ve wasted a lot of their goodwill.”

More malfunctions, higher turnover

Since May 27, the Friday of Memorial Day weekend, 2.2% of US-based airlines’ flights have been canceled and nearly 22% delayed, according to flight tracker FlightAware. That is more than 1.9% of canceled flights and 18.2% delays in a comparable period of 2019.

Staff shortages have exacerbated the routine problems airlines already faced, such as thunderstorms in the spring and summer, leaving thousands of travelers stranded because carriers lacked a pillow of backup staff.

Airlines received $54 billion in federal payroll aid that banned layoffs, but many of them left pilots inactive and urged staff to take buyouts to cut costs during the depths of the pandemic.

Staff shortages at airports at major European hubs have also led to flight cancellations and capacity constraints. London Heathrow officials last week told airlines it had to limit departing passenger capacity, forcing some airlines to cancel flights.

“We told Heathrow how many passengers we would have. Heathrow basically told us, ‘You smoke something,'” United chief Kirby said on Wednesday. “They don’t have staff for it.”

A Heathrow representative did not immediately comment.

Still, the three major US carriers all posted second-quarter profits and were bullish on strong passenger demand throughout the summer.

For American and United, it was their first quarter in the black since pre-Covid, with no federal payroll support. Revenues of both airlines rose above 2019 levels.

Each airline predicted a profit in the third quarter as consumers continue to fill seats at fares far exceeding 2019 prices.

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