U.S. airlines cut growth plans for the second half of the yr

U.S. airlines are reducing their capability through the tip of the yr in a bid to chill an oversupplied domestic market that has led to lower fares and reduced profits despite strong summer travel demand. For passengers, that might mean higher fares are on the best way.

During the last week, U.S. airlines had “one in all the industry’s largest week-over-week capability reductions,” shaving almost 1% off of their capability planned for the fourth quarter, Deutsche Bank said in a note Sunday. Airlines now expect to grow flying about 4% yr over yr in the course of the final three months of the yr.

“Despite the sizeable overall reduction, we expect to see further cuts within the weeks ahead as carriers are expected to proceed to refine their schedules,” Deutsche Bank airline analyst Michael Linenberg wrote within the note.

U.S. airline executives have noted strong demand but a domestic market that is awash in flights, forcing them to dial back growth plans, which could drive up fares. The most recent U.S. inflation report earlier this month showed airfare in June fell 5.1% from a yr earlier and 5.7% from May.

Reducing capability could drive up fares for consumers and boost airlines’ bottom lines, if travel demand holds up. Getting fares out there which might be profitable to airlines but palatable to consumers is crucial for the industry as consumers have pulled back on spending in other areas.

Third-quarter outlooks from Delta and United earlier this month disillusioned investors, but their CEOs said they expected capability pullbacks across the U.S. industry to materialize in August, helping results. Southwest Airlines forecast a possible drop in third-quarter unit revenue, a measure of how much money an airline brings in for the quantity it’s flying. The airline said last week it can finally ditch its iconic open-seating model and introduce extra-legroom seats to drive up revenue.

American Airlines on Thursday reported a 46% decline in its second-quarter profit and said it plans to dial back its capability growth in the approaching months, expanding lower than 1% in September over last yr.

“That excess capability led to the next level of discounting activity within the quarter than we had anticipated,” CEO Robert Isom said on an earnings call last week. Overall, American plans to grow 3.5% within the second half of the yr after expanding about 8% in the primary six months of the yr.

Low-cost and discount airlines have been more aggressive in cutting unprofitable routes and scaling back capability. Those carriers plan to contract 2.2% within the fourth quarter from the identical period of 2023, Deutsche Bank said.

JetBlue Airways, for instance, has culled money-losing routes this yr and deployed aircraft to more popular city pairs. The carrier is scheduled to report results before the market opens on Tuesday.

Spirit Airlines, meanwhile, warned of a wider-than-expected loss for the second quarter after nonticket revenue, which accounts for fees like checked bags and seating assignments, got here in lighter than expected.