Record summer air travel demand isn\u2019t translating to record U.S. airline profits. Carriers will have to answer for that disconnect when they report quarterly results this month.<\/p>\n
Some airlines have forecast\u00a0record demand, and in some cases, revenue. On Sunday, the Transportation Security Administration screened more than 3 million people, a one-day record.<\/strong><\/p>\n But higher\u00a0labor\u00a0and other costs have eaten into airlines\u2019 bottom lines. To adapt to slower demand growth and other challenges, some carriers have\u00a0slowed\u00a0if not\u00a0halted hiring\u00a0compared with hiring sprees when they rebuilt after the pandemic.<\/p>\n And some airlines are facing\u00a0delays\u00a0of new, more fuel-efficient aircraft from Airbus and\u00a0Boeing\u00a0at the same time that a\u00a0Pratt & Whitney\u00a0engine\u00a0recall\u00a0has\u00a0grounded\u00a0dozens of jets.<\/p>\n Yet U.S. airlines have increased capacity, flying about 6% more seats in July than they did in July 2023, according to aviation data firm\u00a0OAG. The expansion is keeping\u00a0airfare in check, and stocks in the sector have fallen behind the broader market.<\/p>\n The\u00a0NYSE Arca Airline Index,\u00a0which tracks 16 mostly U.S. airlines, is down almost 19% this year, while the\u00a0S&P 500\u00a0has advanced more than 16%.<\/p>\n What the third quarter will look like for airlines is \u201cclear as mud,\u201d Raymond James analyst Savanthi Syth said in a note Friday, citing headwinds such as potentially weaker spending from coach-class clientele, the Paris Olympics\u2019 impact on some Europe bookings, and possible changes in corporate travel demand.<\/p>\n Also, some travelers have been opting for trips in late spring and early summer, raising questions about late-summer demand.<\/p>\n Investors will get more insight into the traditionally slower tail end of summer and the rest of the year when airlines report quarterly results, starting with\u00a0Delta Air Lines\u00a0on Thursday.<\/p>\n Analysts consider Delta the\u00a0best of the bunch, thanks in large part to the airline\u2019s success in marketing more expensive, premium seats and its lucrative deal with\u00a0American Express.<\/p>\n In April, Delta, the most profitable U.S. airline, forecast quarterly adjusted earnings of $2.20 to $2.50 a share for the second quarter, which would be down from the adjusted $2.68 a share it brought in a year earlier.<\/p>\n Delta, its rival\u00a0United Airlines, which reports the following week, and\u00a0Alaska Airlines\u00a0are top picks for Wolfe Research airline analyst Scott Group, who said in a June 28 research note that the three have less earnings risk and better free cash flow than other carriers.<\/p>\n Shares of Delta and United are each up about 14% this year through July 5, the standouts in a sector that is mostly down this year. Alaska shares are down about\u00a0<\/strong>2%.<\/p>\n Airports are bustling this summer. Nearly 3 million people, setting a record, passed through U.S. airport checkpoints on June 23 alone, according to theTransportation Security Administration.<\/p>\n Airlines have been expanding their schedules, both domestically and internationally, pushing down fares. U.S.-Europe capacity for July is up nearly 8% from a year ago, according to consulting firm Airline\/Aircraft Projects, with new routes largely targeting leisure travelers.<\/p>\n Fare-tracking company Hopper reported in June that summer flights between the U.S. and Europe in coach were going for $892 on average, compared with $1,065 for summer 2023.<\/p>\n Airfare was down nearly 6% in May from a year earlier, according to the latest U.S. inflation data.<\/p>\n Despite higher numbers of passengers, some carriers have admitted weaker sales than expected because of the increased flights.\u00a0American Airlines\u00a0on May 28\u00a0cut its second-quarter revenue and profit forecasts\u00a0and announced its chief commercial officer was leaving after a sales strategy backfired.<\/p>\n \u201cThe domestic supply and demand imbalance has led to a weaker domestic pricing environment than we had forecast,\u201d American Airlines CEO Robert Isom said at a Bernstein industry conference the next day. \u201cThere\u2019s more discounting activity than we saw a year ago. Now, industry capacity is expected to come down in the second half of the year, and that should help.\u201d<\/p>\n Southwest Airlines\u00a0cut its\u00a0second-quarter forecast\u00a0in late June, citing shifting demand patterns. The Dallas-based airline is under pressure to quickly change its long-profitable business model \u2014 which has no seat assignments and one class of service \u2014 as big rivals such as United and Delta tout strong growth from premium cabins.<\/p>\n The airline is trying to\u00a0fend off activist investor\u00a0Elliott Investment Management, which\u00a0disclosed a nearly $2 billion stake\u00a0in the carrier in June and called for a leadership change.<\/p>\n \u201cWe will adapt as our customers\u2019 needs adapt,\u201d Southwest CEO Bob Jordan said at an industry event hosted by Politico on June 12, discussing potential new revenue initiatives.<\/p>\n Both American and Southwest report second-quarter results toward the end of July.<\/p>\n Some money-losing carriers, such as\u00a0JetBlue Airways\u00a0and\u00a0Frontier Airlines, are already making changes.<\/p>\n JetBlue has been\u00a0cutting unprofitable flights\u00a0this year and making sure that planes outfitted with its high-end Mint business cabin, where tickets can go for more than four times a coach fare, is on the right routes.<\/p>\n Meanwhile Frontier Airlines and fellow discounter\u00a0Spirit Airlines\u00a0have\u00a0done away with change fees\u00a0for standard coach tickets and above, following larger,\u00a0legacy carriers\u2019 move\u00a0during the pandemic. Both budget airlines announced in May that they will start offering bundled fares to include seat assignments and other add-ons that they used to charge for.<\/p>\n Spirit, which is struggling with the fallout from a\u00a0judge\u2019s ruling\u00a0that blocked JetBlue from buying the airline, and is the most affected by the Pratt engine grounding, last week warned some 200 pilots they could be\u00a0furloughed\u00a0this year, according to the pilots union.<\/p>\n At Spirit\u2019s annual shareholder meeting in June, CEO Ted Christie\u00a0brushed off suggestions\u00a0that Spirit is considering filing for Chapter 11 bankruptcy protection, with a more than $1 billion debt payment due in September 2025.<\/p>\n<\/p>\n Record summer air travel demand isn\u2019t translating to record U.S. airline profits. Carriers will have to answer for that disconnect when they report quarterly results this month. Some airlines have forecast\u00a0record demand, and in some cases, revenue. On Sunday, the Transportation Security Administration screened more than 3 million people, a one-day record. 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