Despite looming recession concerns, people still want to spend money on travel.
That was the big takeaway from the US airline industry’s fourth-quarter earnings season, which saw the country’s last major airlines report results last week.
American Airlines recently announced that it is generating record revenue as demand has continued to rise since the magnitude of the pandemic. This trend appears to be showing little sign of slowing down — for now.
The latest results came on Thursday, when four major airlines reported their earnings for the fourth quarter of 2022.
American posted $803 million in net income Thursday, beating Wall Street expectations by saying it posted record fourth-quarter earnings. The Fort Worth-based airline said it earned 16.6% more in the quarter than the same quarter in 2019, despite flying at 6.1% less capacity.
“This is our best post-holiday booking period to date with broad strength across all units and travel periods,” American Airlines CEO Robert Isom said on the company’s quarterly financial results conference call. “Demand for domestic and international short-haul travel continues to lead. We expect strong demand to continue into 2023 and expect demand for long-haul international travel to continue to improve this year.”
American’s fourth-quarter earnings mirrored those of competitors Delta Air Lines and United Airlines, which also reported record earnings and promising 2023 guidance.
The other major airline in the Dallas-Fort Worth area, Southwest Airlines, hasn’t had such rosy earnings.
Southwest said it expects demand to pick up again after the holiday collapse. However, the airline reported a $220 million loss in the fourth quarter. Much of the airline’s revenue revolved around the catastrophic meltdown that occurred around Christmas and bled into the new year. Managers repeatedly apologized for the loss of operations.
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“First and foremost, I want to once again apologize to our customers and our employees for the impact the disruption has had on them and their vacation plans,” Southwest CEO Bob Jordan said on the call. “We are intensely focused on reducing the risk of this type of operational event happening again.”
The episode, which caused the airline to cancel nearly 17,000 flights, cost it approximately $390 million in operating expenses. Most of that spending went toward customer reimbursements, according to Southwest CFO Tammy Romo. Jordan said the airline is close to completing about 95% of those refund requests.
The Department of Transportation also launched an investigation into the Southwest meltdown to determine if the airline’s schedule was unrealistic. Southwest said it is working with the DOT on the investigation.
Jordan added that 25% of customers who received 25,000 Rapid Rewards points as a result of the fiasco have already booked future travel with the airline. Some used points and others were booked with cash.
“I take that as a sign of confidence that customers understand that we screwed up there,” Jordan said on the call. “We did everything we could to make it right.”
However, Southwest is still reeling from its holiday chaos, as executives said bookings eased in January. Southwest CCO Ryan Green said the slowdown in bookings was limited to just January and the first half of February, as part of a “hangover effect” from the incident.
Alaska Airlines and JetBlue — the other two major airlines reporting quarterly results on Thursday — also said demand trends for 2023 are promising. Both companies beat analysts’ forecasts.
Robust demand from leisure travelers appears to be driving the trend. Post-pandemic, leisure travel has returned much faster than business travel.
“Looking further ahead, we look forward to building on last year’s record performance as we anticipate another strong year of revenue growth, supported by robust leisure demand and multiple network and commercial initiatives,” said Joanna Geraghty, COO of JetBlue.
The public’s continued desire to travel has been good for airlines. It will likely result in higher fares as travelers continue to book flights.
That’s not to say there aren’t dark clouds on the horizon for the industry.
A shortage of pilots has put pressure on the industry – particularly on regional airlines, which have responded by raising wages and labor costs. Supply chain issues have slowed the delivery of everything from new planes to spares.
Also, renewed concerns about aging aviation infrastructure due to the recent collapse of the Federal Aviation Administration’s system has some airlines wary of even more disruption.
United CEO Scott Kirby made headlines last week for saying it’s difficult for airlines to operate like it’s 2019 amid the stresses that have plagued the industry since the pandemic.
Many airlines have only recently returned to adequate staffing after many employees have retired or made takeovers during the pandemic. Financial forecasters have speculated for months about the possibility of a US recession — something that could derail the industry’s recovery.
For now, however, airlines remain relatively optimistic about 2023.
“We have overcome many challenges together over the past year and have made tremendous strides in recovering business from the pandemic,” said Robin Hayes, CEO of JetBlue. “And we stand ready to continue to build on that success here in 2023 with a disciplined plan to continue to strengthen our fundamentals, both operationally and financially.”