CHICAGO, Jan 18 (Reuters) – U.S. airlines, supported by strong financial results, remain upbeat about travel demand even as economists and analysts say the risk of an economic downturn has increased.
United Airlines (UAL.O) and Delta Air Lines (DAL.N) reported higher-than-expected quarterly earnings on the back of resilient consumer demand, while American Airlines (AAL.O) upgraded its earnings outlook.
Carriers are enjoying the highest demand for travel since the start of the COVID-19 pandemic, fueled by reopening closed borders, a strong US dollar and increased corporate travel.
While recession fears have raised concerns about consumer spending, airline executives say travel demand is not likely to slow anytime soon.
They also point to industry-wide aircraft and staff shortages, which are expected to persist and limit capacity growth, supporting the prices airlines currently enjoy.
“The supply-demand dynamic is different than it has been in my career,” United Chief Executive Scott Kirby said on a call to discuss fourth-quarter results released Tuesday.
“I realize there’s a lot of investor skepticism about this, but every data point keeps proving it over and over again.”
United has forecast at least a quadrupling of profits by 2023, while Delta expects to nearly double its profits for the full year.
Booming demand has helped airlines mitigate higher fuel and labor costs through increases in ticket prices. Any slowdown in consumer spending would make it harder for operators to hit their intended targets.
Goldman Sachs called United’s outlook “optimistic” while Jefferies said it faces a “steep ramp” to hit its full-year profit target.
United shares were down 3.8%, while the NYSE Arca Airline Index (.XAL) was down 1%.
Airline executives are downplaying the risk of a demand slowdown, saying the need to travel remains strong and the relationship between passenger revenue and the broader economy is returning to pre-pandemic trends.
United estimates that domestic passenger revenue previously accounted for about 0.5% of the country’s gross domestic product. He expects the trend to resume this year, resulting in 15% more revenue for the industry.
Delta projects that consumers will spend $30 billion on travel by 2023.
“We know … that the public wants to travel in large numbers,” Delta Chief Executive Ed Bastian said Friday.
The first quarter, after the holiday travel season, tends to be the weakest for the industry.
But Delta said last week that advance bookings for each month of the current quarter are “significantly” ahead in both passenger revenue and volume compared to 2019.
Demand for flights to Europe is also strong and is expected to generate record revenue in the spring and summer, he said.
United called their spring and summer bookings “really strong”.
But the strong rebound in demand has exposed the fragility of the aviation system. The Federal Aviation Administration had to halt flights across the country last week due to a systems outage, just weeks after an operational collapse at Southwest Airlines (LUV.N) left thousands stranded.
United CEO Kirby said the industry needs more staff, including 10% more pilots and 5% more planes to operate at pre-pandemic capacity.
“Our industry has been profoundly changed by the pandemic and you can’t run your airline like it’s 2019 or you’ll fail,” he said.
Reporting by Rajesh Kumar Singh; Edited by Peter Henderson, Aurora Ellis, and Bill Berkrot
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