Top Ten Takeaways
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Here are ten significant trends observed by US airlines in the fourth quarter
- Omicron was a significant but brief setback. During December and into January, people canceled trips, companies postponed office re-openings, new bookings slowed and operations got messy as large numbers of staff (including pilots) called in sick.
- Jet fuel prices are getting uncomfortably high. This has the potential to spoil the recovery.
- The industry is consolidating again. Spirit and Frontier, on the day they announced their Q4 earnings last week, announced something much bigger: A merger. Assuming regulators allow it, the deal would create an ultra-low-cost giant with more planes than even JetBlue. (According to Cirium Fleets Analyzer, Spirit currently operates 175 planes while Frontier operates 110).
- Labor shortages remain an issue going forward. This is something felt across the economy, with airlines feeling it most in the regional pilot market. United, Delta and American, specifically, have been forced to limit their regional service due to lack of pilot availability. This has cost some smaller cities their air service. A tight pilot market will also make it challenging for growth carriers like Allegiant to execute their expansion plans.
- Non-fuel unit costs, which measure how much airlines spend to fly one seat one mile, remain elevated despite a lot of cost cutting. The reason is that carriers are still not fully deploying their fleet, or put another way, their asset utilization is too low. That won’t change until there’s enough demand to justify full utilization.
- New planes continue to arrive. One positive trend for unit costs is that airlines are taking new planes like B737 MAXs and A320 NEOs. These are more fuel efficient, which takes on greater importance as fuel prices rise. Spirit and Frontier alone, if they complete their merger, will have nearly 400 new planes on order, all of them Airbus NEOs. Allegiant, for its part, made a big splash by recently ordering MAXs.
- Demand remains strong for domestic and near-abroad leisure travel. Sun Belt and Mountain region areas have held up well throughout the pandemic. More leisure fliers are buying premium seats. Cargo continues to be strong. People, furthermore, are still eagerly signing up for credit cards that offer airline miles.
- Business travel is definitely starting to come back, especially among smaller companies. American, for one, said small and medium sized firms are back to traveling at about 80% of their pre-crisis level. For larger corporates, the figure is more like 40%. A big question is how work-from-home trends and videoconferencing will affect business travel demand longterm.
- International demand, other than shorthaul leisure spots like the Caribbean, are still suffering, though summer bookings seem to be picking up for Europe and other longhaul markets. Airlines are most pessimistic about East Asia. There is a glass-half-full perspective on this however: Foreign competition in international markets will be subdued for a long period following the retirement of many large planes (think A380s) and the collapse of key airlines (like Norwegian).
- Domestic leisure bookings for the upcoming spring and summer peak seasons appear very strong, signaling lots of pent-up travel demand. Based on such current trends, there’s certainly reason to believe that the U.S. airline industry could be back to profitability in 2022.
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Rachel Humphries
June Lee
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