Airlines remain bullish on travel demand despite growing economic concerns

By Rajesh Kumar Singh

CHICAGO (Reuters) – U.S. airlines posting strong financial results remain optimistic about travel demand, even as economists and analysts say the risk of an economic recession has risen.

Carriers are enjoying the strongest travel demand since the start of the COVID-19 pandemic, boosted by the reopening of closed borders, a strong U.S. dollar and rising business travel.

United Airlines Holdings on Tuesday predicted at least a quadrupling of annual profit for this year as it expects travel-hungry customers to fill their planes.

Similarly, Delta Air Lines expects to nearly double its annual profits this year.

The upbeat reports come just as more than half of the 50 U.S. states are showing signs of slowing economic activity, crossing a key threshold that often signals a recession is looming, the St. Louis Federal Reserve said. in a report last month.

The deteriorating economic outlook and the growing financial fragility of US households have raised concerns about consumer spending.

The surge in demand has helped carriers mitigate higher fuel and labor costs through higher ticket prices, but any slowdown in consumer spending should undermine their pricing power. .

Airline executives play down that risk, saying the urge to travel remains strong. Rather, they say, the relationship between passenger revenue and the wider economy is reverting to the pre-pandemic trend.

United estimates that domestic passenger revenue was about 0.5% of the country’s GDP. He expects the trend to recover this year, which will translate to a 15% increase in industry revenue this year.

According to Delta’s calculations, consumers will spend $30 billion on travel in 2023.

“We know…the public wants to travel in inordinate amounts,” Delta chief executive Ed Bastian said last Friday.

Last month, United chief executive Scott Kirby said the word recession wouldn’t have been in his vocabulary if he hadn’t read or watched the news because the airline hadn’t seen one. no sign in reservation data.

The first quarter, after the holiday travel season, tends to be the weakest season for the industry.

But Delta said last week that advance bookings for each month of the current quarter were “significantly” ahead in both passenger revenue and volume compared to 2019.

Demand for flights to Europe is also robust and should generate record revenues in the spring and summer, he said.

Meanwhile, industry personnel and aircraft shortages are expected to persist and limit capacity growth, underpinning the pricing power carriers currently enjoy.

United expects total revenue per available seat mile, an indicator of pricing power, to rise 25% from a year ago in the current quarter.

“Demand remains strong, pricing should remain supportive due to industry capacity constraints,” said Cowen analyst Helane Becker.

(Reporting by Rajesh Kumar Singh; Editing by Peter Henderson and Aurora Ellis)

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