HomeTravelIs demand for air travel falling? Depends who you ask

Is demand for air travel falling? Depends who you ask

U.S. airlines have presented widely divergent outlooks on the demand environment this week, with discount airlines reporting a recent decline and full-service airlines saying demand remains in line with previous expectations.

“Over the last two weeks, things have changed and gotten worse sequentially,” Frontier CEO Barry Biffle said at the Morgan Stanley Laguna conference on Wednesday. But in an appearance at that same conference, executives from Alaska, United and Delta offered confident assessments for the coming months.

“We see really strong business and high performance through the fall,” Delta CEO Glen Hauenstein said Thursday.

Throughout the week, American and Delta, as well as ultra-low-cost carriers Frontier and Spirit, issued updates to their third-quarter guidance.

Spirit joined Frontier in reporting a sharp drop in demand. The airline lowered the midpoint of its third-quarter revenue guidance by $60 million. Lower demand, coupled with higher-than-anticipated fuel costs, has Spirit expecting a negative operating margin of about 15% from July to September. This is much worse than the airline’s estimate in July of a loss margin of about 6.5%.

Similarly, the double whammy of reduced demand and rising fuel costs has Frontier now heading toward a negative operating margin this quarter of 4% to 7%, compared to its previous expectation of a operating profit of 4% to 7%.

Major airlines are also forecasting lower margins due to fuel costs. But each still expects to post an operating profit during the third quarter.

Delta has lowered its operating margin guidance to 13% from a previous expectation of the mid-teens. American now anticipates an operating margin for the quarter of 4% to 5%, down from previous guidance of 8% to 10%.

None of those large operators have made any material changes to their revenue guidance. Notably, Delta now expects revenue for the September quarter to be in the upper half of the expected range. projected in july.

The canary in the coal mine?

Speaking at the Morgan Stanley conference, Biffle said Frontier is the canary in the coal mine. Full-service airlines will also feel the impact of declining demand, which he said is now accompanied by industry overcapacity.

“If there’s a slowdown, there’s a slowdown. And that impacts everything,” he said.

But both Hauenstein and Mike Leskinen, president of United Airlines Ventures, said ULCCs could be feeling the impact of aggressive growth.

According to consulting firm Ailevon Pacific, Frontier plans to fly 44% more seats in October than in October 2019, and Spirit has 41% more seats scheduled. Meanwhile, American, Alaska and Delta expect to fly slightly fewer seats next month than they did in October 2019, and United is scheduled to increase its seats by 3%.

“It’s clear that something is happening to carriers who are growing points on the map that is much worse for them,” Leskinen said.

Hauenstein added: “People ask, ‘When will revenge trips end?’ I think it has a long way forward. And I think for our client it will work well until 2024.”

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