Travel demand has roared back following a dip caused by the Omicron coronavirus type, according to US carriers, and will remain strong enough to help them overcome an increase in fuel prices with higher tickets.
Delta Air Lines, located in Atlanta, claimed it was experiencing “unprecedented” demand, with the greatest ticket sales in the company’s history last week.
“We’ve not seen a stronger demand…in my career,” chief executive Ed Bastian said.
United Airlines Holdings and American Airlines have both stated that demand is at an all-time high. United said business traffic is rebounding faster than projected, which is a positive indication for the sector.
As a result, carriers now anticipate higher revenue in the quarter ending in March than they forecasted in January.
Because of increased corporate traffic, United Airlines stated its quarterly revenue will be near the upper end of its expectation.
Despite the fact that Russia’s invasion of Ukraine has forced the closing of large sections of airspace, Delta has seen no impact on bookings for flights to Europe, according to Bastian.
Similarly, JetBlue CEO Robin Hayes stated that the firm is seeing a “spectacular” increase in travel demand between the US and the UK.
In afternoon trading, the NYSE Arca Airline index was up roughly 4%, led by advances in Delta, American Airlines, and United Airlines.
Carriers are banking on high demand to offset rising fuel costs following Russia’s invasion of Ukraine, which Moscow has described as a “special military operation.”
Fuel is their second-largest expense after labor, yet unlike most European airlines, major US airlines do not hedge against unpredictable oil prices. Typically, the industry seeks to offset fuel costs by raising fares.
Delta has warned that in order to pay fuel expenses, it will have to boost ticket prices by around 10% each trip. In the second quarter, it plans to do so.
It isn’t the only one. The majority of United’s fuel costs are passed on to customers. According to the firm, the higher tickets have had no effect on demand so far.
Southwest Airline’s chief financial officer, Tammy Romo, stated during an investor conference that the price situation has been favourable.
Fares on the Texas-based carrier have also been boosted.
Investors are concerned about the impact of rising fuel costs on the airline industry, which has spent the last two years attempting to recover from the COVID-19 crisis.
Executives in the sector, on the other hand, downplayed their concerns.
“We can make money at oil prices of $100 a barrel or higher, and we will,” said American Airlines CEO Doug Parker. Delta’s Bastian said he was not at “a point of nervousness” about rising oil prices.
“We can make money at oil prices of $100 a barrel or higher, and we will,” said American Airlines CEO Doug Parker. Delta’s Bastian said he was not at “a point of nervousness” about rising oil prices.
Carriers’ pricing power has been boosted by capacity restrictions caused by manpower shortages and delays in aircraft delivery, as well as strong demand. The announcements on Tuesday to reduce capacity are expected to raise ticket prices even higher, helping to mitigate the impact of increasing fuel costs.
Despite persistently rising prices and prospects of increased interest rates, JetBlue’s Hayes sounded pessimistic about the outlook for travel demand in the second half of the year.
We have to be a little bit cautious as we go into the second half of the year – what do we think the economy is going to do,” he said.
