The United check-in area at Washington Dulles International Airport.
Leslie Josephs | CNBC
Cheap airfares are hard to find and things might not get much easier in 2023.
Available seats are limited due to staff shortages, aircraft delays and airlines’ conservative flight schedules following costly travel cancellations. Airlines are also passing higher fuel prices and other costs on to customers, keeping ticket prices high. But travelers, at least so far, are willing to pay the price.
“Vacation flights are getting expensive again,” said Scott Keyes, founder of flight deals site Scott’s Cheap Flights. “The pricing power has shifted back to the airlines for winter holiday travel.”
Domestic fares peaked in May, according to fare tracker Hopper, but they’re up for the holiday year compared to last year. Domestic flights over Thanksgiving average $274, up 19% from 2021, while round-trip domestic flights over Christmas cost $390, up 40% from last year, Hopper says.
Lucky for airlines
The three largest US airlines – Delta, United and American – each reported profits and record earnings for the third quarter. They all expect to remain profitable through the end of the year as strong bookings and spending on co-branded credit cards continue.
It’s a far cry from the early days of the Covid pandemic, when travel collapsed and the industry headed for record losses. Airlines have been bolstered by $54 billion in taxpayers’ money to weather the crisis, urging workers to make takeovers.
“Demand is far from being satisfied by a hectic summer travel season,” Delta CEO Ed Bastian said on the airline’s quarterly conference call last week.
Bookings have remained resilient despite high inflation and rising interest rates as consumers persist in short breaks and some are even finding new ways to travel thanks to more relaxed office attendance policies.
“With hybrid work, every weekend could be a bank holiday weekend,” United CEO Scott Kirby said on the company’s quarterly earnings call on Wednesday. “That’s why September, a normally low-traffic month, was the third busiest month in our history.”
Other travel patterns have also changed. Airlines say they are maintaining more of their transatlantic flight schedules as travel to Europe remains popular well into the autumn, giving travelers a chance to avoid the crowds at popular tourist destinations. United and Delta recently announced that they will increase flights across the Atlantic in the spring and summer, a sign that they expect demand to recover well into 2023.
Customers also seem to be more flexible over the holidays, flying outside of traditional travel days such as the Wednesday before Thanksgiving or the Sunday after.
“If you look at our Thanksgiving schedule now, there’s less peak-to-trough volatility than I’ve certainly seen in the schedule in a number of years,” Vasu Raja, American’s chief commercial officer, said on a conference call on Thursday.
Limited places
Delta doesn’t expect to fully restore its 2019 capacity before next summer. American said Thursday it likely will return to between 95% and 100% of its pre-pandemic capacity next year.
For the fourth quarter, American Airlines plans to reduce capacity by up to 7% compared to 2019, while United and Delta plan to fly up to 10% and 9%, respectively, below their levels three years ago.
All three airlines reported higher revenue than 2019 despite flying smaller schedules – a sign of stronger fares, though higher costs eat into profits. Executives said customers are spending even more to upgrade to roomier seats.
Paid seats in premium classes are up five to 10 percentage points compared to 2019, American CEO Robert Isom said in an interview with CNBC’s “Squawk Box” on Thursday.
“It shows that your customers want to treat themselves,” Isom said. “I think that’s a phenomenon that’s going to continue not only now … but also if there’s any kind of stagnation in the economy.”
High fares hit Main Street and Wall Street
As demand rises and shifts, the airline industry’s workforce, particularly pilots, remains scarce and many still need training. Smaller cities have had to bear the brunt of the problem as airlines cut air travel due to a lack of pilots.
Some aircraft deliveries are being delayed as the largest manufacturers struggle to ramp up production due to labor and supply chain issues, limiting airlines’ opportunities for growth.
“These are limitations that will take years to fully resolve,” United’s Kirby said.
United and American said this week they would receive some of their Boeing planes later than expected.
American Airlines CFO Derek Kerr said the airline expects to take delivery of 19 Boeing 737 Max 8 aircraft in 2023, compared to the 27 it previously expected, based on “our latest guidance from Boeing.” .
“We continue to work closely with suppliers to address industry challenges, stabilize production and meet our commitments to customers,” Boeing said in a statement. The company will announce its quarterly results next Wednesday.
The combination of industry challenges is keeping tariffs stuck, a trend spreading across both Main Street and Wall Street.
The latest inflation reading showed air fares up almost 43% year-on-year and almost flat since August, which is generally a busy time for summer holidays.
Meanwhile, the NYSE Arca Airline Index of 17 airline stocks is up more than 9% this month through Thursday noon, nearly three times the rate of the S&P 500. Airline stocks are still down sharply this year along with the broader market .
Book early
Keyes, founder of Scott’s Cheap Flights, suggests travelers book as early as possible and even consider deals for summer 2023 the winter.
“Ideally, when you open your Christmas presents, you should think about booking those summer flights,” he said.
Major airlines ditched standard economy ticket change fees in 2020, allowing travelers’ plans to be more flexible, although they could be on the brink of a fare difference.
“You can make your plans in pencil instead of a pen,” he said.
Airlines have also made many flight schedule changes this year, so travelers should be aware that flight times may shift before their flight.
While it might be difficult to buy tickets for next year after shelling out Christmas gifts and other expenses, procrastinators beware:
“Last-minute rates tend to move in one direction, and it’s not down,” Keyes said.
