Despite record summer travel demand, airlines are reporting disappointing quarterly earnings. Overcapacity in the market has led to discounted fares, affecting profits for major airlines including American, Southwest, United, Delta, Alaska Airlines, and Ryanair.
In the first six months of the year, the U.S. Transportation Security Administration (TSA) screened an average of 2.46 million passengers per day, up 6% from last year. However, airlines overestimated travel demand, leading to an excess supply of seats in the price-sensitive segment.
Shane Tackett, CFO of Alaska Airlines, noted that airlines had hoped for even stronger demand. Additionally, new labor contracts, higher lease rates, and increased maintenance costs have driven up operating expenses.
American Airlines slashed its second-quarter profit forecast in May due to weaker pricing power in the domestic market. TD Cowen analyst Thomas Fitzgerald highlighted that American’s network is particularly vulnerable to the oversupplied markets and the higher cost environment.
Southwest Airlines faces challenges from Boeing’s jet delivery delays and pressure from an activist investor to overhaul its leadership and operations. The low-cost carrier also cut its second-quarter revenue outlook, raising concerns about its financial stability.
In Europe, Ryanair’s second-quarter results were bleak, with profits dropping nearly 50% after a 15% decline in ticket prices. Analysts warn that Ryanair’s aggressive pricing could negatively impact other European airlines. Deutsche Lufthansa reduced its 2024 earnings guidance and issued a profit warning for the second quarter due to weaker yields. Shares of European airlines fell on Monday, with Ryanair experiencing a 14% drop.
Wizz Air CEO Jozsef Varadi remains optimistic about long-term yields but acknowledged limitations due to engine checks grounding part of its fleet.
In the U.S., airlines are moderating capacity, with annual domestic seat growth expected to slow to 3% in the September quarter from 6% in the previous quarter. Some carriers hope this will enhance their pricing power, although it may not significantly boost earnings.
United Airlines anticipates full-year earnings to be at the lower end of its forecast, relying on competitors to reduce unprofitable flights to improve profitability. United’s President Brett Hart emphasized the uncertainty in the industry’s timing and magnitude of recovery.
