Airlines are experiencing better unit revenues as summer comes to a close, indicating that customers will likely continue to pay higher prices for air travel in the coming months. Alaska Airlines recently raised its third-quarter profit forecast, expecting unit revenue to rise by up to 2% compared to its previous estimate of flat to positive unit revenue. Delta Air Lines also anticipates an increase in domestic and trans-Atlantic unit revenue in September compared to last year. However, due to the CrowdStrike outage in July, Delta revised its unit sales forecast, expecting a rise of no more than 1% instead of the previously anticipated 4% increase for the quarter. The outage and subsequent flight cancellations led to a $500 million hit for Delta, while Alaska Airlines benefited from the disruption affecting Delta’s customers more than its own.
Despite the challenges faced by airlines, there are signs of improvement. The U.S. inflation report for August showed a 3.9% increase in the airfare price index after five consecutive months of declines. This indicates that fares are rising again after a period of lower prices. Frontier Airlines, which had previously forecasted margins ranging from -3% to -6%, now predicts that it may break even this quarter on an adjusted basis. This positive outlook is attributed to the airline moderating its capacity. Similarly, JetBlue Airways raised its unit revenue growth forecast for the current quarter due to increased demand and the re-accommodation of customers affected by other airlines’ cancellations in July.
In addition to these revenue improvements, U.S. airlines have also slowed down or halted hiring this year. This is partly due to delayed aircraft deliveries from manufacturers like Boeing and Airbus, as well as a moderation in demand following a period of rapid hiring. These factors have led airlines to adjust their operations and focus on optimizing revenue streams rather than expanding their workforce.
Overall, the airline industry is seeing positive developments in unit revenues and pricing power after a period of challenges. While airlines continue to face disruptions and unexpected events like the CrowdStrike outage, they are adapting and finding ways to mitigate the impact. The recent rise in airfare prices and the improved profit forecasts from airlines indicate a more stable and potentially profitable future.
