Analysis – Tolerance of higher prices for airline test flyers boosts profits By Reuters
© Reuters. FILE PHOTO: The Airbus logo is pictured outside the Airbus facility in Saint-Nazaire, France, Nov. 7, 2023. REUTERS/Stephane Mahe/File Photo
2/2
Joanna Plucinska, Rajesh Kumar Singh
LONDON/CHICAGO (Reuters) – U.S. and European airlines will aim to boost profits with higher ticket prices again this year as they try to make the most of the post-COVID-19 travel boom and ease rising costs due to persistent flight shortages. say.
Major airlines are scrambling to prepare more flights to meet demand, but have been hampered by delays in deliveries of new aircraft from Airbus and Boeing (NYSE:) and the grounding of some jets using RTX engines due to potential defects. I’m going through it.
Supply shortages have kept airfares high, allowing airlines to pass on higher jet fuel, labor and maintenance costs.
Average revenue per passenger, known in the industry as a proxy for airline pricing power, rose 6.2% last year, marking the fourth consecutive year of growth, according to data from global trade body IATA.
IATA expects harvests to increase by about 1.8% in 2024, albeit at a slower pace.
According to Bernstein forecasts, European airline returns will reach up to 8.5% this summer, the busiest time of the year, surpassing last year’s level and rising further in 2025 as travel demand continues and plane delivery delays persist. It is expected.
Bernstein analyst Tobias Fromme estimates demand will increase by about 15 to 20 percent this summer since 2019, while capacity will remain little changed.
“Higher fares will continue to drive revenue this summer,” said Jamie Lindsay (NYSE:), an airline investor at Artemis Investment. “Airlines can make more money because customers are still willing to pay more.” “There will be,” he said.
The fare data and interviews with six analysts, executives and investors reveal the airline’s resilience as it recovers from the pandemic at a time when planes were grounded, borders closed and the airline took on billions of dollars in debt to stay afloat.
It also highlights consumers’ renewed interest in travel and experiences after months of pandemic restrictions, known as “revenge travel.”
Taking Wizz Air as an example, even if capacity remains the same, this summer’s harvest will increase to the same level as 2023, UK managing director Marion Geoffroy told Reuters.
“When capacity is limited, the pricing environment goes up,” she said, without providing details about the size of the increase.
Airline tickets sold through U.S. travel agents in January hit a record high for the month, with average ticket prices up 3% from a year ago, according to data from Airlines Reporting Corp (ARC).
Since 2019, fares to North America have increased by 30% and to Europe by 25%, according to travel data company ForwardKeys.
Summer bookings will be a hot topic when British Airways owner IAG and Air France-KLM announce their 2023 results on February 29. They are expected to report higher operating profits, according to LSEG analysis.
European low-cost carriers Ryanair and EasyJet reported strong summer bookings, although Ryanair was more sluggish due to problems with sales through online travel agents.
Delta’s operating profits are expected to increase 3% to $6.5 billion in 2024, while United Airlines’ profits are expected to remain flat at $5.1 billion, according to the LSEG consensus.
No flaws to claim
So far, rising rates have not dampened demand. United said it expects transatlantic bookings and yields to remain strong this year.
Travel to China, one of the last markets to come out of lockdown, has also rebounded, with tourism receipts surging beyond pre-pandemic levels during this year’s Lunar New Year holiday.
“If you ask any airline today, they will tell you they are looking to be well booked for this summer,” said Paul Charles, founder of PC Agency.
Investors and analysts have said consumers can continue to tolerate higher prices as long as the economic outlook remains stable.
But some fear the trend could weaken, especially with recent recessions in Japan, the UK and Germany.
hotel operators Hilton Worldwide and Marriott International (NASDAQ:) and online travel agencies; Expedia (NASDAQ:) has already signaled the end of its “revenge journey.”
“If the labor market deteriorates further, it could have an impact on demand,” said Madeleine Rohner, portfolio manager at DWS Smart Industrial Technologies, which invests in Lufthansa and TUI.
