November 27, 2021

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The World Stock Markets Tips & Targets, News, Views & Updates

Airlines are gearing up for a busier — and costlier — holiday season

A Southwest Airlines Boeing 737-700 (LN2318) on final-approach after a pre-delivery test flight at dusk.

aviation-images.com | Universal Images Group via Getty Images

Demand for air travel is on the rise ahead of the holidays. So are the costs.

Jet fuel hasn’t been this expensive since 2014. Airlines also racing to hire thousands of employees to meet growing demand: pilots, flight attendants, reservations agents, baggage handlers and many others, competing in a tight labor market that would have seemed impossible in the early days of the coronavirus pandemic.

And, airlines have run through much of the $54 billion in government payroll aid that helped cover their labor bills during the crisis.

The rise in costs is threatening the industry’s attempt to return to profitability after losing a record $35 billion last year when the pandemic snapped a decade of profits. For passengers, the combination of returning demand and higher costs could mean more expensive ticket prices ahead.

Delta Air Lines last month said higher jet fuel prices would weigh on its bottom line in the fourth quarter. Frontier Airlines on Wednesday forecast a loss on an adjusted basis for the fourth quarter due to higher fuel costs.

Benchmark U.S. jet fuel was $2.27 a gallon on Nov. 10, up 25% from three months earlier.

The rise in fuel prices is “definitely delaying the earnings recovery,” said Savanthi Syth, an airline analyst at Raymond James. “If it’s a slow burn, airlines can handle it. This move up in this short of a period is not good.”

Airlines eager to cash in on a return to demand have tried to balance — with varying degrees of success — how much they can fly with their current staffing levels.

Overall, U.S. carriers will fly about 6% less in November and December compared with 2019, before the pandemic, according to aviation data and consulting firm Cirium. Low-cost airlines like Frontier and Spirit Airlines are exceptions, with more capacity scheduled than they did two years ago.

The ramp-up has been bumpy. Spirit, Southwest Airlines and American Airlines have each had mass cancellations since late July, many of them due to staffing shortages that make it harder to recover from routine issues like weather. Spirit and Southwest had trimmed some of their schedules to give themselves more wiggle room should something go wrong.

Southwest has also boosted the ranks of backup crews with new hires and more staff coming back from leave. Over the weekend, Southwest offered flight attendants, ground crews and others up to 120,000 frequent flyer miles, worth more than $1,400, to work certain numbers of shifts over the next two months.

American, for its part, is offering flight attendants a minimum of 50% more pay for working holiday trips and triple pay if they also have perfect attendance through early January. It is also offering $1,000 attendance bonuses to other groups throughout the company and at its regional subsidiaries. Pilots, however, turned down an offer of double pay for peak flights, saying the airline needs more permanent fixes to its scheduling.

“All these could ensure smooth operations and may cost less than any potential operational disruption,” Bank of America airline analyst Andrew Didora wrote in a note Wednesday.

Airfares haven’t fully caught up to the rise in costs, partly because international and corporate travel are still below pre-pandemic levels. Despite the surge in consumer prices in October that the Labor Department reported last week, airfares were down 4.6% from a year earlier, though they rose 3.5% from September to October.

While many airlines are chasing customers with fare sales, the bargain basement fares had already begun to fade in the spring, and some 2019 prices are starting to come back.

According to fare-tracking app Hopper, domestic fares will average $290 for a roundtrip around Thanksgiving, down 13% from 2019 and Christmas fares are set to average $390, on par with two years ago.

Airline executives have said that holiday bookings are strong and that they don’t expect disruptions. U.S. airline bookings for between Nov. 20 and Nov. 25 are up 78% from last year and 3% higher than 2019, according to a report from Adobe published Wednesday.

Travelers interested in avoiding the airport altogether and driving over the holidays instead may find they will pay more than last year. U.S. gasoline prices average $3.415 a gallon, up 60% from a year ago, according to AAA.

“Our revenue management team is acutely aware of the price of gas,” Frontier Airlines CEO Barry Biffle said on a quarterly call Wednesday, referring to the rise in energy costs broadly. “They fill up their cars, too.”

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