Airlines facing turbulence from rising costs and labour shortages
In the Interview, the specialist said labour and fuel costs are likely to rise by 29% in H2 2022 vs 2019 levels. They said labour costs are exceeding expectations due to airlines’ elevated attrition levels and they do not see this ending “anytime soon”.
We heard that regional carriers as a percentage of domestic departures are currently “less than 30%” – down from 43% in 2019. This is unlikely to change in the foreseeable future, according to the specialist. We were told the reduction in regional flight capacity could open the door to low-cost carriers (LCCs), ultra-low-cost carriers (ULCCs) and start-up airlines in secondary markets.
The specialist expects LCCs and ULCCs to benefit from the current macroeconomic environment. They said both carriers are likely to have a “significant impact” on the industry as customers become more price conscious and could push established carriers like American Airlines to add cheaper seats.
Meanwhile, the specialist gave their views on the potential merger of Spirit Airlines with rival carriers JetBlue and Frontier. They told us that a combination of Frontier or JetBlue with Spirit would make it the fifth largest US carrier and that the top six US carriers would control 85% of seats in the US. The specialist said American Airlines is most “exposed” to the deal because it does not have the “strongest balance sheet”.
The specialist predicts Spirit will choose to merge with Frontier instead of JetBlue and that together it will be a “tough competitor”. However, they do not think JetBlue will be too disappointed if it misses out, given it has a “higher class model, [it] has higher costs” and manages its seating at a “higher level” compared to Spirit.
In the short term, the specialist said that all airlines need to find ways to “improve their productivity, their fuel utilisation, and reduce costs wherever possible”. However, they said low-cost carriers are in a “better position” to find them.
Nevertheless, the specialist warned airlines should buckle up for a sustained period of turbulence, with the airline industry unlikely to recover from its current quandary for a number of years.
Click here to access all the human insights in Third Bridge Forum’s “US Airlines H2 2022 Outlook – Cost & Capacity Control & Demand Expectations” Interview.
The information used in compiling this document has been obtained by Third Bridge from experts participating in Forum Interviews. Third Bridge does not warrant the accuracy of the information and has not independently verified it. It should not be regarded as a trade recommendation or form the basis of any investment decision.
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