Stock Market News

US low-fare airlines slow growth in response to easing travel demand

2023.10.26 11:20


© Reuters. FILE PHOTO: Southwest airline pilots approach to land at San Diego International airport in San Diego, California, U.S., May 18, 2023. REUTERS/Mike Blake/File Photo

By Rajesh Kumar Singh

CHICAGO (Reuters) -U.S. low-fare carriers are slowing capacity growth as they look to protect their pricing power in the face of softening domestic travel demand.

At the same time, higher labor and fuel expenses along with jet engine problems are driving up their costs and hurting their profits, they said on Thursday.

Southwest Airlines (NYSE:), the largest U.S. domestic carrier, now expects year-on-year capacity growth in the January-March quarter to be in the range of 10% to 12%, lower than its previous estimate of 14% to 16% growth. It has also lowered capacity growth plans for 2024 to better match current demand trends.

The Dallas-based company said while overall demand for travel remains stable, it experienced lower-than-expected close-in bookings in both August and September.

Separately, ultra-low-cost carrier Spirit Airlines (NYSE:) said it is evaluating its growth profile as it faces softer demand.

“Unfortunately, we have not seen the anticipated return to a normal demand and pricing environment for the peak holiday periods,” Spirit said.

The Florida-based company has forecast a 7% annual growth in capacity in the March quarter of 2024, lower than an estimated 14% growth in the current quarter.

Rival Frontier Airlines did not provide an estimate for the first quarter, but its capacity growth in the current quarter is projected to be down as much as 9 percentage points from a quarter ago.

Shares of Southwest and Spirit were down 2% and 4%, respectively. Frontier’s shares were up were up 4%.

Analysts have been calling on airlines to cut capacity to protect their pricing power. Carriers increased capacity in the U.S. domestic market by 10% from a year ago in the third quarter and are planning for a 9% increase in the current quarter.

Southwest forecast a 9% to 11% year-on-year decline in revenue per available seat mile, a proxy for pricing power, in the December quarter due to higher-than-seasonally normal capacity growth.

Savi Syth, airline analyst at Raymond James, called the capacity adjustments “favorable for future pricing trends.”

The airline industry has been relying on robust demand to mitigate inflationary pressure with higher ticket prices.

Airline fares, however, have been posting a double-digit decline from a year ago for five straight months. Ticket prices for upcoming Thanksgiving holiday weekend are also down, according to data from travel website Kayak.

JET ENGINE PROBLEM

Meanwhile, tighter supplies of and higher labor rates are driving up fuel and wage bills. Southwest forecast increased cost headwinds next year.

At Spirit Airlines, a snag with RTX’s Pratt & Whitney Geared Turbofan (GTF) engines has only compounded the operational challenges. It is the largest operator of GTF-powered neo aircraft in the United States.

The company said Pratt & Whitney recently notified it that all the GTF engines in its Airbus’ A320neo fleet, including the engines slotted for future aircraft deliveries, are in a potential pool for inspection and possible replacement.

Spirit expects an average of 10 neo aircraft will be grounded in the December quarter, affecting its margins in the quarter. The number of grounded planes is estimated to steadily climb in 2024, from 13 in January to 41 in December.

Source link

Related Articles

Back to top button
bitcoin
Bitcoin (BTC) $ 98,797.47 1.02%
ethereum
Ethereum (ETH) $ 3,487.99 5.63%
tether
Tether (USDT) $ 1.00 0.04%
solana
Solana (SOL) $ 261.71 2.46%
bnb
BNB (BNB) $ 675.50 8.94%
xrp
XRP (XRP) $ 1.55 9.36%
dogecoin
Dogecoin (DOGE) $ 0.464012 16.65%
cardano
Cardano (ADA) $ 1.10 23.05%
usd-coin
USDC (USDC) $ 1.00 0.01%
staked-ether
Lido Staked Ether (STETH) $ 3,487.73 5.66%
tron
TRON (TRX) $ 0.222939 12.22%
avalanche-2
Avalanche (AVAX) $ 42.76 11.29%
shiba-inu
Shiba Inu (SHIB) $ 0.000028 11.72%
the-open-network
Toncoin (TON) $ 6.15 12.75%
wrapped-steth
Wrapped stETH (WSTETH) $ 4,111.78 5.16%
wrapped-bitcoin
Wrapped Bitcoin (WBTC) $ 98,649.43 1.11%
stellar
Stellar (XLM) $ 0.453727 55.52%
polkadot
Polkadot (DOT) $ 8.19 33.81%
chainlink
Chainlink (LINK) $ 17.60 16.78%
bitcoin-cash
Bitcoin Cash (BCH) $ 539.59 13.10%
sui
Sui (SUI) $ 3.65 3.66%
weth
WETH (WETH) $ 3,497.23 5.92%
pepe
Pepe (PEPE) $ 0.000022 8.91%
leo-token
LEO Token (LEO) $ 8.63 1.40%
near
NEAR Protocol (NEAR) $ 6.41 14.69%
litecoin
Litecoin (LTC) $ 102.90 15.76%
aptos
Aptos (APT) $ 12.98 9.66%
uniswap
Uniswap (UNI) $ 10.83 15.05%
wrapped-eeth
Wrapped eETH (WEETH) $ 3,675.99 5.76%
hedera-hashgraph
Hedera (HBAR) $ 0.150328 15.50%
internet-computer
Internet Computer (ICP) $ 11.47 17.11%
crypto-com-chain
Cronos (CRO) $ 0.201336 8.47%
usds
USDS (USDS) $ 1.00 0.21%
polygon-ecosystem-token
POL (ex-MATIC) (POL) $ 0.582762 28.75%
ethereum-classic
Ethereum Classic (ETC) $ 30.87 12.44%
render-token
Render (RENDER) $ 8.02 12.04%
kaspa
Kaspa (KAS) $ 0.161249 9.79%
bittensor
Bittensor (TAO) $ 542.97 11.13%
bonk
Bonk (BONK) $ 0.000051 2.64%
ethena-usde
Ethena USDe (USDE) $ 1.00 0.09%
fetch-ai
Artificial Superintelligence Alliance (FET) $ 1.44 16.69%
arbitrum
Arbitrum (ARB) $ 0.874702 9.96%
whitebit
WhiteBIT Coin (WBT) $ 24.68 0.04%
vechain
VeChain (VET) $ 0.043896 35.97%
dogwifcoin
dogwifhat (WIF) $ 3.54 12.39%
dai
Dai (DAI) $ 1.00 0.12%
mantra-dao
MANTRA (OM) $ 3.78 3.46%
cosmos
Cosmos Hub (ATOM) $ 8.26 17.01%
blockstack
Stacks (STX) $ 2.12 12.27%
filecoin
Filecoin (FIL) $ 5.30 14.85%