Airlines that were once eager to acquire new jets are now changing their strategy. Cash-strapped low-cost carriers and discount airlines are deferring billions of dollars in aircraft orders to save money and improve profitability. This comes as airlines flood the market with flights, driving down fares and putting a strain on revenue. Low-cost carriers like Spirit Airlines, JetBlue Airways, and Frontier Airlines have struggled to post annual profits since 2019, while larger carriers have returned to profitability.
One of the main reasons for the deferrals is the oversupply of aircraft. Years of delivery delays have caused a backlog of orders, making it difficult for airlines to add more planes quickly. Frontier CEO Barry Biffle explained that the delayed orders had piled up, leading them to smooth out the deliveries. This delay in deliveries has also allowed airlines to save money on plane tickets. Fare-tracker Hopper estimates that roundtrip domestic flights in the US are down 8% from last year, with prices as low as $240.
JetBlue Airways, for example, is deferring the delivery of 44 Airbus A321 airplanes until 2029, estimated to save the company about $3 billion. The airline is also exiting unprofitable routes and looking for ways to reduce costs. However, the deferrals come with their own challenges. JetBlue CEO Joanna Geraghty mentioned that taking delivery of aircraft that end up sitting on the ground after payment worsens the problem. With growing debt, the company cannot afford to buy too many planes.
Spirit Airlines, which had planned to be acquired by JetBlue, has also deferred aircraft orders as it fights to turn around the company’s losses. The airline reported an 11% drop in revenue and a $192 million loss, compared to a $2 million loss the previous year. They have deferred all the Airbus planes they have on order until at least 2030.
Despite the deferrals from low-cost carriers, there is still a scarcity mindset in the global airline industry. New fuel-efficient planes are in short supply, driving up lease rates. Lease rates for new Airbus A320s and A321s hit record highs in July, while leases for new Boeing 737 Max 8 aircraft are near a record. Airbus and Boeing, the main suppliers of commercial aircraft, are struggling to increase output due to worker shortages and supply chain issues.
While Airbus and Boeing still have a high number of unfilled orders, airlines are feeling the strain. Delayed deliveries have forced them to slow down or halt hiring and other growth plans. Southwest Airlines CFO Tammy Romo mentioned that they are actively seeking opportunities to mitigate cost pressures caused by Boeing delivery delays. Southwest has offered voluntary leave programs to staff and has flexibility with their order book to meet their needs.
In conclusion, low-cost carriers and discount airlines are deferring aircraft orders to save money and improve profitability. Oversupply and delayed deliveries have led to a backlog of orders, making it difficult for airlines to add more planes quickly. While this has resulted in lower prices for consumers, it has put a strain on airlines’ revenue. Despite the deferrals, there is still a scarcity mindset in the industry, with new fuel-efficient planes in short supply. Airlines are actively seeking ways to mitigate cost pressures and adjust their growth plans accordingly.
