JetBlue Airways, Spirit Airlines and United Airlines airplanes proceed to gates after landing at Newark Liberty International Airport in Newark, Recent Jersey on May 30, 2024.
Gary Hershorn | Corbis News | Getty Images
Airlines that spent years clamoring for brand spanking new jets are changing their tune.
Money-strapped, low-cost and deep discounter airlines are pushing aside spending billions of dollars on recent aircraft to get monetary savings as they struggle to return to regular profitability and face the impact of engine repairs.
Airlines flooded the U.S. with flights this 12 months, driving down fares particularly within the domestic market, where low-cost carriers concentrate, and weighing on carriers’ revenue while costs have gone up. Spirit Airlines, JetBlue Airways and Frontier Airlines last posted annual profits in 2019, while larger carriers have returned to profitability.
Lower prices on plane tickets are noticeable: Fare-tracker Hopper estimates “good deal” airfare in September goes for $240 for roundtrip U.S. domestic flights, down 8% from last 12 months.
Now, a few of those self same airlines are dialing back their growth plans and deferring deliveries of latest aircraft. The majority of the worth of an airplane is paid upon delivery.
“You could have an excessive amount of supply, so it’s natural for us as an industry to scale back the provision,” Frontier CEO Barry Biffle said. Frontier earlier this month said it’s is deferring 54 Airbus aircraft to no less than 2029.
A part of the issue is that years of aircraft delivery delays mean carriers don’t desire so as to add too many planes too quickly, Biffle said.
“Because they delayed a bunch, [the order] got piled up,” he said. “So we needed to smooth that out”
Frontier’s revenue rose 1% from last 12 months within the second quarter despite carrying 17% more passengers, with average fare revenue falling 16% to only shy of $40.
JetBlue Airways is estimating it would save about $3 billion by deferring 44 Airbus A321 airplanes through 2029, opting to increase some aircraft leases. The Recent York carrier posted a surprise profit within the second quarter but is scrambling to scale back its costs through the deferrals and steps like exiting unprofitable routes — and it wants to do this quickly.
The airline and others are also grappling with grounded jets from a Pratt & Whitney engine recall.
Deferring so many aircraft even while the carrier is brief on planes due to engine recall is a “double-edged sword,” JetBlue CEO Joanna Geraghty said in a note to employees on Aug. 19.
“We want planes to grow, but taking delivery of aircraft that find yourself sitting on the bottom after we have paid for them significantly worsens the issue,” she said. “As well as, given our growing debt, we just cannot afford to purchase so many planes.”
Spirit Airlines — which had planned to get acquired by JetBlue until a judge blocked the deal in January — has also deferred aircraft because it fights to show the corporate’s deep losses around.
Spirit earlier this month reported an 11% drop in revenue and a $192 million loss, compared with a roughly $2 million loss a 12 months earlier, and said it might furlough some 240 pilots in the approaching weeks. The airline has been especially hard hit by the Pratt & Whitney engine recall.
The airline said it was deferring all of the Airbus planes it has on order from the second quarter of next 12 months through the tip of 2026 until no less than 2030.
Aircraft leasing firm AerCap said earlier this month that it would assume 36 of Spirit’s Airbus A320neo family aircraft from the carrier’s order book. CEO Gus Kelly called it a “win-win” transaction for the airline and AerCap.
Airbus, Boeing jets still hot items
Even with the moves from low-cost carriers, a lot of the global airline industry continues to be in a scarcity mindset, with recent fuel-efficient planes in brief supply.
Lease rates for brand spanking new Airbus A320s and the larger A321s hit fresh average records in July of $385,000 a month, and $430,000 a month, respectively, in response to Eddy Pieniazek, head of advisory at aviation consulting firm Ishka. Meanwhile, leases for brand spanking new Boeing 737 Max 8 aircraft, probably the most common model, are near a record at $375,000 a month, Pieniazek said.
Airlines should purchase aircraft directly from suppliers or lease them from firms like Air Lease or AerCap, paying monthly rent. Some airlines, like Frontier, have been energetic in sale-leasebacks, during which they sell planes to generate money and lease them back.
The primary U.S.-made Airbus jetliner moves down the assembly line at the corporate’s factory in Mobile, Alabama, U.S. on September 13, 2015. Picture taken on September 13, 2015.
Alwyn Scott | Reuters
Boeing and Airbus, the world’s two primary suppliers of business aircraft, are struggling to extend output as a post-Covid hangover lingers in the shape of expert employee shortages and provide shortfalls. Airbus recently cut its delivery goal for the 12 months, while Boeing is proscribed from ramping up output because it tries to work through a security crisis.
Despite the deferrals from budget airlines, an Airbus spokeswoman said the corporate is not seeing any slowdown in demand for airplanes within the A320 family, for which it has greater than 7,000 unfilled orders. Boeing has nearly 4,200 orders for its competing 737 Max planes.
“We provide a full range of aircraft to satisfy our customers’ needs and maximize their flexibility with fleet decisions,” the Airbus spokeswoman said in a press release.
But airlines are feeling the strain. Executives have said delayed deliveries of latest planes have forced them to slow, if not halt, hiring and other growth plans.
“We’re urgently and deliberately pursuing opportunities to mitigate cost pressures, including the drag from overstaffing related to previously reported Boeing delivery delays,” Southwest Airlines CFO Tammy Romo said on an earnings call last month. The all-Boeing 737 airline has offered some staff voluntary leave programs.
When asked about Southwest’s fleet plans, Romo said the airline has “a variety of flexibility with our order book from Boeing. Boeing didn’t comment for this text.
“We’re not ready yet to put out all of our plans,” Romo said, adding that the corporate would supply more details at a Sept. 26 investor day. “But now we have ample flexibility to reflow the order book to ultimately meet our needs.”
