US airlines are taking measures to reduce their capacity in the domestic market in order to address oversupply and lower fares. This comes despite strong travel demand during the summer season. Deutsche Bank reported that airlines have implemented one of the largest week-over-week capacity reductions in the industry. As a result, airlines are now expecting to grow flying by only 4% year over year during the final quarter of the year. However, analysts predict further capacity cuts in the weeks ahead as carriers continue to refine their schedules.
The oversupply of flights has led to a decline in airfare prices. The latest US inflation report showed a 5.1% decrease in airfare in June compared to the previous year. This reduction in capacity could potentially lead to higher fares for consumers, benefiting airlines’ profitability. Finding a balance between profitable fares for airlines and affordable prices for consumers is crucial for the industry. With consumers cutting back on spending in other areas, it is important for airlines to maintain profitability.
Some airline executives have already adjusted their growth plans in response to the oversupply. Delta and United Airlines, for example, disappointed investors with their third-quarter outlooks but expressed optimism that capacity pullbacks across the industry would improve results. Southwest Airlines also forecasted a potential drop in third-quarter unit revenue and announced plans to introduce extra-legroom seats to boost revenue. American Airlines reported a 46% decline in second-quarter profit and announced plans to reduce capacity growth in the coming months.
Low-cost and discount airlines have been more aggressive in cutting unprofitable routes and scaling back capacity. Deutsche Bank predicts that these carriers will contract by 2.2% in the fourth quarter compared to the same period in 2023. JetBlue Airways has already discontinued money-losing routes and shifted focus to more popular city pairs. Spirit Airlines, on the other hand, warned of a wider-than-expected loss for the second quarter due to lower-than-anticipated nonticket revenue.
In conclusion, US airlines are taking steps to reduce capacity in order to address oversupply and lower fares in the domestic market. This may lead to higher fares for consumers but could also improve airlines’ profitability. Low-cost and discount airlines are being more aggressive in cutting unprofitable routes, while major carriers are adjusting their growth plans. Finding the right balance between profitability and affordability is crucial for the industry.
