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Airfares cool down when the peak summer tourist season gradually decreases. So what now?

Passengers are seen at the Delta Air Lines check-in counter at Hartsfield-Jackson Atlanta International Airport ahead of their July 4 holiday in Atlanta, Georgia, July 1, 2022.

Elijah Nouvelage | Reuters

Believe it or not, flights are getting cheaper and cheaper.

Airfares fell 1.8% seasonally adjusted from May to June, according to the latest US inflation data, published last week. Fares are one of the few that fall at the time of consumer prices Rose at the fastest clip in more than four decades.

The surge in spring and summer travel – even with sky-high prices – has been a boon for airlines, driving revenue above 2019 levels even as airlines fly less compared to before the pandemic, according to recent reports from major airlines such as Delta Airlines and American Airlines.

Now the question is: How will demand recover from the summer peak as carriers and travelers grapple with persistent inflation and recession worries?

CEO from Delta to JP Morgan last week said consumers continue to spend lavishly on travel. But rising costs can affect household vacation budgets and companies’ need to send employees on business trips.

Soaring costs are weighing on airlines’ profits, and high fares are forcing some travelers to change their plans.

Ben Merens, a 62-year-old communications consultant, said he and his wife had put their summer vacation plans on hold because of an emergency that occurred just before the 4th of July weekend.

The couple had set their sights on a trip to Denver or Seattle, but not after a family death meant last-minute tickets from their home in Milwaukee to New York City to attend. funeral – which Merens said was about $980 per person.

“Exorbitant prices,” Merens said before a return flight from New York’s LaGuardia Airport.

Less flying, more revenue

Fares often drop as the peak summer tourist season fades – children return to school and families finish their vacation, although business travel often rises again. Airlines also adjust capacity during periods of lower demand so that they don’t flood the market with the seats they need at low fares to fill.

Round-trip US flights as of July 14 averaged $375, down from May’s peak of $413 but still up 13% from 2019, according to the fare tracker. Hopper.

Airlines remain optimistic about future sales, citing a pent-up desire to travel from both businesses and tourists.

“People haven’t had access to our product for two years,” Delta CEO Ed Bastian said during the company’s quarterly earnings press conference last week. “We will not satisfy … that thirst, in a space of a busy summer.”

Delta reports $735 million profit in Q2 revenue of $13.82 billion, up 10% year-on-year in 2019. The airline said domestic business-tourist revenue, a lagging factor for much of the industry’s recovery, has increased by 80% compared to the level of 2019.

Delta is slated to be more muted However, revenue growth in the third quarter. The airline expects revenue to grow 1% to 5% from 2019 levels and said it would limit its schedule growth through the end of the year – a measure that could keep fares from rising if travelers calendar ‘ the demand for seats continues.

“We also admit that our crystal ball is only about three to four months away and it’s not going as far as people would like us to think,” Bastian said. “But everything we see tells us that we must run.”

American and United Airlines was also upbeat and is expected to report second-quarter results and provide outlooks for investors on Wednesday and Thursday, respectively. Americans on Monday forecast second-quarter revenue growth of 22.5% year-over-year for the three months ended June 30, up from its previous estimate of a 20% increase, on a small schedule. slightly.

Operation smoothing

However, airlines will have to navigate the rift of the red-hot job market and concerns about economic weakness as the peak tourist season fades.

Moody’s Investors Service analyst Jonathan Root wrote last month: “By the fall, the impact of cost inflation on the income and discretionary budgets of travelers and businesses could lead to an overall decline demand for air travel”. “However, current capacity constraints will protect airlines with too much capacity, should this happen.”

US airlines have largely slashed schedules after cutting more than they could chew this spring and summer. Many airlines have sold schedules to passengers only to limit later flights as staff shortages and other challenges force them to redial.

Delta, American, United, JetBlue Airways, Spirit Airlines and Alaska Airlines all have limited flights.

The seasonal drop in flights could help airlines improve operations and provide more breathing room to train thousands of their new workers without hoarding over the summer.

Delta’s Bastian said it has hired 18,000 people since the start of 2021, roughly the number it lost during the pandemic when it called for employee acquisitions.

“While we have more than 95% of the staff needed to fully restore capacity, we have thousands of employees in the hiring and training phase,” Bastian said on the company’s quarterly call.

For its part, Southwest Airlines said this week it has hired 10,000 employees since January to bring its headcount to 61,000, more than in 2019.

Elizabeth Bryant, Senior Vice President of People, Learning and Development, Southwest, added, “recruitment and training will remain the focus throughout 2022.”

Smoother operations could ease travelers’ concerns about delays and disruptions and keep demand high. But for the time being, flying less means higher costs, which are often passed on to consumers.

“We are bearing the full cost of the airline with only 85 per cent of our flights being restored,” Bastian said.

With strong demand, airlines can still charge relatively high fares – the opposite is true, which is why lots of bargains at the beginning of the pandemic when most potential travelers were at home.

In addition, a drop in consumer spending or a downturn in the labor market could cause fares and airline revenue to drop.

“People just have money to burn right now,” said Adam Thompson, founder of Lagniappe Aviation, a consulting firm. “Once people run out of money to burn, you have to convince them they want to buy your product.”

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