The airlines have said the demand for travel is rising – and they believe the flyers will pay up to cover the airlines’ growing fuel bills.
After Omicron’s wave-driven swing covid-19 infection slow down Travel reservations for the beginning of 2022airline executives said demand refreshed faster than they expected. As a result, carriers said they expect to be able to absorb higher jet fuel costs by reducing flight capacity and passing on costs to customers.
“We are seeing an increase in demand that is truly unparalleled,”
Delta Airlines company
DA 8.70%
President Glenn Haunstein said at an investor conference on Tuesday. “This increase could not have come at a better time.”
Russia’s invasion of Ukraine prompted the West to impose sanctions and the airline industry was caught in the crossfire. As airlines face longer routes to avoid closed airspace and higher fuel costs, WSJ’s George Downs finds out how they plan to stay in the air. Illustration: George Downs
Russia’s invasion of Ukraine It raised concerns about global energy supplies, pushing jet fuel prices last week to their highest since 2008. Oil prices fell In recent days, airline executives have said demand is strong enough that fluctuating fuel costs do not jeopardize its recovery.
For consumers, this means one thing: higher ticket prices.
Fuel is typically the second largest expense for airlines after labour, accounting for about 20% of their costs. That could jump to 30% or more when prices rise, according to government figures. With few exceptions, most major US airlines no longer use futures and other financial instruments to hedge against price fluctuations, buying fuel only a few weeks in advance.
To cover increases in fuel prices, airlines usually try to increase fares and reduce less profitable flights, resulting in fewer flights and therefore higher prices for travelers. Some industry analysts have questioned whether these moves will work this time around, with price-sensitive leisure travelers now making up the lion’s share of publications, and amid a recovery that is still fragile and prone to sudden reversals.
But airline executives said on Tuesday they were confident the guide was still working. Executives have said travelers are willing to pay higher fares, allowing airlines to raise fares for their own Rising oil costs without undermining demand.
“We can make money with oil prices of $100 a barrel or higher, and we will.”
American Airlines Group company
AAL 9.26%
CEO Doug Parker said.
Major US airlines said, on Tuesday, that their revenues in the first quarter of 2022 will likely be at the maximum of what they expected at the beginning of the year, or better. Airlines shares jumped on Tuesday: America,
United Airlines Holdings company
UAL 9.19%
gained more than 9%. Delta rose 8.7% and
Southwest Airlines company
love 4.89%
Which repeated its forecast for a profit after the first quarter, rose 4.9%.
Delta would have no problem getting back the additional $15 to $20 each way for the average ticket it needs to offset higher fuel costs — an amount the airline believes its customers will be willing to pay, Mr. Haunstein said.
“We are very confident in our ability to recover more than 100% of the fuel price that rose in the second quarter and likely through the end of the summer,” he said on Tuesday.
Airlines including United and American said they would reduce some flights. United said it has scaled back its air plans and now expects them to be a little lower this year than in 2019. The US company said it now expects capacity to fall 10% to 12% from 2019 levels in the first quarter, compared to its previous forecast of a cut By 8% to 10%.
“At this point, there is no demand destruction, just the opposite,” said Andrew Nutisella, United’s chief commercial officer. He said the airline accounts for a “significant percentage” of the rise in oil prices – after many seats were left unsold next summer, United can now sell them at higher prices.
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Southwest, one of the few carriers to hedge against fuel price increases, said it raised fares across its network on February 1.
“The pricing environment was healthy as demand returned after the Omicron variant,” Tammy Romo, Southwest’s chief financial officer, said Tuesday.
The rise in ticket prices has not dampened demand so far, which has been hitting new stages in the pandemic era. In February, domestic ticket reservations and revenue rose above 2019 levels for the first time since March 2020, according to the Adobe Digital Economy Index. Daily travel spending on Chase credit cards has exceeded 2019 levels for the first time since late January 2020,
Analysts and Associates said this month. Both Delta and American said they hit record sales days last week.
Airlines said they are also seeing encouraging signs for work travel, a profitable sector that has been slow to recover as companies delay bringing workers back to offices. United said corporate travel bookings are at 70% of 2019 levels, the highest levels since the start of the pandemic.
Some airline executives and industry observers have raised concerns about this Gasoline price hike in the pump and High prices of food and other services It can weaken the economy, hit consumers and undermine their appetite for travel spending.
JetBlue Airways corp.
JBLU 7.22%
Chief Executive Robin Hayes said Tuesday that pent-up demand for travel could cause customers to travel all summer, but cautioned that that may not last.
“I think we have to be a little cautious in the second half of the year – what do we think the economy is going to do?”
write to Alison Sider at [email protected]
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