U.S. airlines on Tuesday raised their revenue outlook for the quarter through March as falling COVID-19 cases boost travel demand, though they cut capacity plans in response to higher fuel costs.
Atlanta-based Delta Air Lines Inc said last week it posted the highest ticket sales in the company’s history due to an “unparalleled” increase in demand.
“We haven’t seen stronger demand in my career,” CEO Ed Bastian said.
Rival United Airlines Holdings said leisure demand is “very strong” and business traffic is picking up faster than expected.
Airlines are in strong demand to meet fuel costs, which have skyrocketed after Russia’s invasion of Ukraine, described by Moscow as a “special military operation.”
Fuel is their second biggest expense after labor, but major US airlines don’t hedge against volatility in oil prices like most of their European peers. The sector often tries to offset fuel costs with higher rates.
Tammy Romo, chief financial officer of Southwest Airlines, stated at an investor conference that the pricing environment has been healthy. The Texas-based airline has raised its fares.
Similarly, American Airlines said improved revenue is expected to more than offset increases in fuel and other expenses in the current quarter.
However, it has cut capacity for the current quarter, which is now estimated to be down 10% to 12% compared to the same period in 2019. Delta, United, Southwest and JetBlue Airways have also lowered their capacity expectations.
Lower capacity at a time when travel demand is robust is expected to push ticket prices further higher and help soften the blow of higher fuel costs.
Bastian indicated that he is not at “a nervous point” about the increase in crude oil prices. Delta expects its fares to offset fuel costs in the second quarter.
Although the Russian invasion of Ukraine has forced the closure of large swaths of airspace, Bastian noted that Delta has not seen any impact on bookings for flights to Europe.
Delta expects first quarter adjusted revenue to recover to about 78% of the pre-pandemic level, versus 72% to 76% previously estimated.
United said it expects quarterly revenue to be near the high end of its forecast. Southwest and JetBlue also expect revenue improvement.
Source: Gestion
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