Leading U.S. airlines learned a hard lesson this summer: making plans is easier than keeping them.
The largest three American carriers, Delta, United, and American, are adjusting their flight goals because they now know they can’t fulfill those they set last year while simultaneously avoiding the obstacles they now face such as a shortage of both personnel and aircraft.
The cuts come at a time when airlines are facing elevated costs and don’t anticipate them easing significantly anytime soon. They are also concerned about an economic slowdown and corporate spending by some of the nation’s biggest corporations.
Creating buffers
In the third quarter, United Airlines expects to restore 89% of 2019 capacity, and about 90% by the fourth. The airline forecasts that in 2023 it will fly no more than 8% more than it did in 2019, down from an earlier prediction that it would fly 20% more than it did last year before the Covid-19 pandemic slowed travel.
“We’re essentially going to keep flying the same amount that we are today, which is less than we intended to, but not grow the airline until we can see evidence the whole system can support it,” United CEO Scott Kirby said in an interview with CNBC’s “Fast Money” after reporting results Wednesday. “We’re just building more buffer into the system so that we have more opportunity to accommodate those customers.”
Robert Isom, American Airlines’ CEO, also spoke of a “buffer” after reporting record revenue on Thursday. It has been more aggressive than Delta and United in restoring capacity, but said it would fly 90-92% of its 2019 capacity in the third quarter.
“We continue to invest in our operation to ensure we meet our reliability goals and deliver for our customers,” Isom wrote in a staff note, discussing the airline’s performance. “As we look to the rest of the year, we have taken proactive steps to build additional buffer into our schedule and will continue to limit capacity to the resources we have and the operating conditions we face.”
For its part, Delta apologized to customers for last week’s spate of flight cancellations and disruptions and said it plans to limit growth this year. The company announced earlier that it would trim its summer schedule.
Delta deposited 10,000 miles into the accounts of SkyMiles members whose flights were canceled or delayed more than three hours between May 1 and July 1.
“While we cannot recover the time lost or anxiety caused, we are automatically depositing 10K miles toward your SkyMiles account as a commitment to do better for you going forward and restore the Delta Difference you know we are capable of,” said the email to customers, which was quoted by CNBC.
By reducing schedules, airlines could maintain fares at sky-high levels, an important factor for their bottom lines as costs remain high, but bad news for travelers.
“The more airlines limit capacity the higher airfare they can charge,” stated Henry Harteveldt, founder of Atmosphere Research Group and a former airline executive.
With economic uncertainty ahead, preserving the bottom line is key.
“They’re not going to get another bailout,” Harteveldt said. “They’ve squandered a lot of their goodwill.”
Higher revenue with more disruptions
According to flight-tracking service FlightAware, since May 27, nearly 22% of U.S.-based carriers’ flights have been canceled and nearly 2.2% delayed. It’s up from 1.9% of flights canceled and 18.2% delayed in a similar period of 2019.
Lack of staff has exacerbated routine problems that airlines already deal with, such as thunderstorms in spring and summer, leaving many travelers stranded because carriers lack a cushion of backup employees.
In the depths of the pandemic, airlines received $54 billion in federal payroll aid that prevented layoffs, but many idled pilots and urged staff to take buyouts in order to reduce costs.
Flight cancellations and capacity limits have also been caused by staffing shortages at big European hubs. Earlier this week, London Heathrow officials told carriers they must limit departing passenger capacity, forcing some airlines to cut flights.
“We told Heathrow how many passengers we were going to have. Heathrow basically told us: ‘You guys are smoking something,’” United CEO Kirby said Wednesday. “They didn’t staff for it.”
There was no immediate comment from Heathrow.
Although the big three U.S. carriers all posted profits for the second quarter, they are upbeat about summer travel demand.
The first quarter in the black for American and United since before Covid was without federal payroll support. Both airlines reported higher revenue than in 2019.
As consumers continue to fill seats at fares that are well above 2019 prices, each airline projected a third-quarter profit.
