US airlines are leaning on “unprecedented” travel demand to offset higher fuel costs

A Delta Air Lines airliner approaches landing at John Wayne Airport in Santa Ana, California
FILE PHOTO: A Delta Air Lines airliner approaches for landing at John Wayne Airport in Santa Ana, California, U.S. January 18, 2022. REUTERS/Mike Blake

March 15, 2022

By Rajesh Kumar Singh, Abhijith Ganapavaram and Kate Holton

(Reuters) – U.S. airlines on Tuesday raised revenue outlooks for the quarter ended March as falling COVID-19 cases boost travel demand but trimmed their capacity plans in response to higher fuel costs.

Atlanta-based Delta Air Lines Inc announced last week that it had the highest ticket sales in the company’s history due to an “unprecedented” surge in demand.

“We haven’t seen greater demand in my career,” Chief Executive Ed Bastian said.

Rival United Airlines Holdings said leisure demand was “very strong” and business travel was recovering faster than expected.

Shares of major U.S. airlines were up between 5% and 10% in midday trade.

Airlines anticipate strong demand to cope with fuel costs, which have skyrocketed following Russia’s invasion of Ukraine, which Moscow has described as a “special military operation”.

Fuel is their second largest expense after labor, but major US airlines are not hedging against volatile oil prices like most European carriers. The industry usually tries to offset fuel costs with higher fares.

Southwest Airlines chief financial officer Tammy Romo told an investor conference that the pricing environment is healthy. The Texas-based airline has increased its fares.

Similarly, American Airlines said the increase in revenue is expected to more than offset increases in fuel and other expenses in the current quarter.

However, the company reduced its capacity for the current quarter, which is now estimated to be down 10% to 12% compared to the same period in 2019.

Delta Air, United Airlines Holdings, Southwest and JetBlue Airways also moderated their capacity expectations.

Lower capacity at a time when travel demand is resilient should push ticket prices further and help cushion the blow from higher fuel costs.

Bastian said he was “not at a point of nervousness” given rising oil prices. Delta expects its tariffs to offset fuel costs in the second quarter.

While Russia’s invasion of Ukraine has forced large parts of its airspace to be closed, Bastian said Delta has not seen any impact on bookings for flights to Europe.

Delta expects its first-quarter adjusted revenue to recover to about 78% of pre-pandemic levels, compared to 72% to 76% previously estimated.

United Airlines Holdings Inc expects quarterly revenue to come in at the high end of its guidance. Southwest and JetBlue also expect their earnings to improve.

(Reporting by Rajesh Kumar Singh in Chicago, Abhijith Ganapavaram in Bengaluru and Kate Holton in London; Additional reporting by Nathan Gomes in Bengaluru; Editing by Jonathan Oatis) US airlines are leaning on “unprecedented” travel demand to offset higher fuel costs


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