Airlines said surging travel appetite will offset higher fuel prices, keeping them on track for a long anticipated recovery.
After the wave of Omicron variant-driven Covid-19 infections slowed travel bookings at the start of 2022, airline executives said demand has roared back more quickly than they anticipated. As a result, carriers expect to be able to absorb higher jet fuel costs by paring back flying capacity and passing the costs along to customers.
“We’re seeing an increase in demand that is really unparalleled,” Delta Air Lines said Inc.
President Glen Hauenstein said at an investor conference Tuesday. “That surge could not come at a better time.”
Russia’s invasion of Ukraine sparked fears about global energy supplies, pushing jet fuel prices last week to their highest levels since 2008. Oil prices have receded in recent days, and airline executives said demand is strong enough that volatile fuel costs will not jeopardize their recovery .
Fuel is typically airlines’ second-biggest expense after labor, accounting for around 20% of their costs. That can jump to 30% or more when prices surge, according to government figures.
To cover those increases, airlines typically try to boost fares and cut less profitable flying, which results in tighter supply. Some industry analysts have questioned whether those moves will work this time around, with price-sensitive leisure travelers accounting for the lion’s share of fliers now, and amid a rebound that remains fragile and prone to sudden reversals.
But airline executives have said they are confident that travelers will still be willing to pay up, even as fares rise to account for rising fuel costs. Major US airlines said Tuesday that their revenues in the first quarter will likely be at the high end of what they had expected at the start of the year, or better. Airline shares jumped Tuesday morning: Delta recently traded up over 9%, United Airlines Holdings Inc.
shares rose 9.7%, and American Airlines Group Inc.
shares climbed nearly 8%.
Delta will not have trouble recapturing the additional $ 15 to $ 20 each way that it needs to make up for the higher fuel costs, Mr. Hauenstein said.
“We are very, very confident of our ability to recapture over 100% of the fuel price run up in the second quarter and through probably the end of the summer,” he said Tuesday.
Airlines including United and American said they would trim back some flying. United said it has reduced its flying plans and now expects to fly slightly less this year than in 2019. American said it now expects its capacity to be down 10% to 12% from 2019 levels in the first quarter, compared to its previous expectation of an 8% to 10% reduction.
“The improvement in revenue is expected to more than offset the increases in fuel and other expenses in the quarter,” American said in a filing.
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Rising ticket prices haven’t so far dented demand, which has been hitting new pandemic-era milestones. In February, domestic ticket sales rose above 2019 levels for the first time since March 2020, according to the Adobe Digital Economy Index. Domestic bookings were 6% above 2019 levels and prices were 5% higher, Adobe said. Daily travel spending on Chase credit cards has eclipsed 2019 levels for the first time since late January 2020, JPMorgan Chase & Co. analysts said this month.
United said bookings for future travel have increased close to 40 percentage points since the first week of 2022, when the Omicron variant chilled appetite for travel. Corporate travel, which has been slower to recover, has reached 70% of 2019 levels, United said — the highest levels since the start of the pandemic.
Still, some airline executives and industry observers have raised concerns that soaring gasoline prices at the pump and rising prices for food and other services could weaken the economy, battering consumers and undermining their appetite to spend on travel.
JetBlue Airways Corp.
Chief Executive Robin Hayes said Tuesday that pent-up travel demand could keep customers flying through the summer, but cautioned that may not last.
“I think we have to be a little bit cautious in the second half of the year — what do we think the economy is going to do?”
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