Strong travel demand has allowed the largest US airlines to return to profitability, but efforts to bring capacity back to pre-pandemic levels face staffing and cost challenges.
For the first time in the Covid-19 era, both American Airlines and United Airlines reported profitable quarters without government support programs.
Delta Air Lines was also profitable in the second quarter, but previously achieved that milestone in the third quarter of 2021.
The so-called “pent-up demand” when it comes to flying has led to brisk ticket sales despite the high prices.
American’s revenue increased 12 percent compared to the same quarter before the 2019 pandemic, reaching $13.4 billion for the April-June quarter, an all-time high.
Delta’s revenue rose 10 percent to $13.8 billion, while United’s rose 6 percent to $12.1 billion.
But all three airlines are operating fewer flights than during that period, with Delta leading the way at 18 percent.
Strong pricing has allowed the industry to offset the impact of much higher jet fuel prices as well as increased wages.
But the freight forwarders are struggling operationally with the ramp-up. Troubles were particularly bad in June, when inclement weather, intermittent air traffic control problems and airline staffing shortages led to widespread flight cancellations and delays.
Overall, despite better second-quarter performance, it’s “fundamentally a less profitable business” than before the pandemic, said Peter McNally, an analyst at Third Bridge, a consulting firm.
While business travel has partially returned, McNally believes it may never quite reach pre-Covid levels due to greater use of virtual meetings. Business travel has traditionally been a huge contributor to airline profits.
Another issue is the cost. While jet fuel prices are expected to fall somewhat in the third quarter, they remain well above historical levels. A shortage of pilots and other key personnel will also put pressure on wages for the foreseeable future.
And while customers have not been put off by higher ticket prices so far, there are doubts as to how long this behavior can continue, especially with persistent inflation.
– Will charge cool? –
Airlines have been aggressively hiring staff, but making the most of new hires takes time.
“The main issue we’re working on isn’t hiring, it’s a training and experience bubble,” said Ed Bastian, Delta’s chief executive, who said the airline has hired 18,000 new employees since 2021.
“Our active workforce is at 95 percent of 2019 levels, even though we’ve only recovered less than 85 percent of our capacity,” Bastian said.
American forecasts the third quarter to be between eight and 10 percent below pre-pandemic levels, while United expects an 11 percent decline and Delta a decline of between 15 and 17 percent.
It remains unclear when the industry can fully restore its capacities.
“It depends on the supply chains, the aircraft manufacturers and ultimately on the supply to the pilots to bring everything back into line,” said US CEO Robert Isom.
“Not a day goes by that we don’t have problems supplying our planes with pillows, blankets, plastic cups and food,” he said in a conference call about the results. “At different times we have problems with refueling.”
Beyond such day-to-day worries, transport companies are also considering macroeconomic challenges.
These include volatility in the oil market, which has pushed up jet fuel prices, and “the growing likelihood of an economic slowdown or recession,” United chief executive Scott Kirby said.
McNally, the analyst, believes some of the fall’s operational pressures may ease with the seasonal drop in travel, allowing airlines to catch up on hiring, training and planning.
“However, revenue will also cool off,” McNally said.
American shares fell 7.4 percent to $14.08, while United fell 10.2 percent to $37.44 and Delta 2.7 percent to $31.96.
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