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Sky-high airfare was a boon for U.S. airlines coming out of the Covid-19 pandemic.
But airline executives are actually seeing lower domestic fares as carriers’ schedules swell and customers go for trips abroad over closer destinations that were popular in the course of the pandemic.
Southwest Airlines, Alaska Airlines and American Airlines are among the many carriers which have forecast slower revenue growth or weakness for the third quarter, despite strong demand.
The NYSE Arca Airline Index is down greater than 6% this week, slimming its gains to 37% to date this yr. Airline shares have largely outpaced the S&P 500 this yr, which is up marginally this week and has advanced 18% in 2023.
Domestic U.S. airfare is currently averaging $258 for a round-trip ticket, down 11% from last yr and 9% from 2019, in keeping with fare-tracking company Hopper. International tickets, compared, are up 8% from 2022 and are 23% dearer than 2019, averaging $958. The most recent U.S. inflation report showed a pointy drop in airfare.
The shift marks a latest chapter in airlines’ recovery from the pandemic and a possible challenge to domestic-focused airlines after the height summer travel season, which traditionally fades in mid-August when schools reopen.
That is happening while corporate travel demand still hasn’t recovered to pre-pandemic levels.
Southwest on Thursday said it expects unit revenue to drop as much as 7% in the present quarter from a yr ago on a 12% increase in capability.
An airline’s revenue per available seat mile is a measure of how much a carrier generates compared with how much capability it’s offering.
The Dallas-based airline blamed its forecast on faster-than-usual capability growth. Overall, Southwest still expects record revenue for the quarter, but estimated unit costs, excluding fuel, would rise between 3.5% and 6.5% from the identical period in 2022.
Southwest said it will refocus its network next yr to adapt to changing travel patterns after the pandemic, comparable to weak business-travel demand growth. The airline’s shares dropped greater than 9% Thursday, wiping out its 2023 gains.
Meanwhile, Alaska Airlines this week forecast third-quarter revenue starting from flat to up 3% and unit revenues down about 9% “on the midpoint,” with capability up as much as 13% compared with last yr.
“As we approach the remainder of the yr and beyond, it is obvious the environment is evolving as domestic leisure fares have recently began to come back down from their peaks,” Alaska Airlines CEO Ben Minicucci said on an earnings call Wednesday.
American Airlines last week said it expected unit revenues for the present quarter to fall as much as 6.5% from a yr ago, but it surely noted full-year unit revenues could be up within the low single digits. The airline still forecast a profit for the summer quarter.
Delta Air Lines and United Airlines‘ very upbeat forecasts that topped expectations reiterated strength in international revenue, particularly trips to Europe and Asia, as they ramp up flights.
