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Recently I asked a U.S. airline executive whether these are the best economic times in history.
He laughed. Someday, he said, we may look back and think so. But now that we’re in it, he said, it’s difficult to have perspective. Because investors always demand higher profit and better margins, few executives can stop to enjoy the moment.
Passengers have a similar inability to embrace good times. For the past three years, many have complained about onerous fees and high fares. That’s true in some smaller and less competitive markets, like Knoxville, Tennessee, or Salina, Kansas. But between big cities, fares have been cheap, often as low as $39 or $49 each way for short-haul travel. Passengers have even scored deals on last-minute fares.
We’re seeing less discounting now, and I suspect passengers will soon realize how good they had it in 2016 and 2017, when fuel was cheap and established airlines fought to keep customers from defecting to ultra-low-cost competition.
As I wrote Tuesday, U.S. carriers are so spooked by higher oil prices they’re moving to cut marginal flights. They’re not shrinking — the economy is too strong — but they’re seeking to improve pricing power. Airline pricing is complicated, so it’s challenging to predict how much fares will rise, but they’ll likely go up.
What do you think? As fares rise, will passengers fondly remember the recent past?
Stories of the Week
U.S. Airlines Hope to Charge Passengers More as Fuel Prices Climb: The good times are likely ending for U.S. consumers, as airlines limit capacity growth so they can push fares higher. At first, look for flights at marginal times of the day to disappear. “The fact is there are many activities that make sense at $45 a barrel of oil, which no longer make sense at $75 per barrel,” American Airlines CEO Doug Parker said last week.
Lufthansa Still Has Its Eye on Alitalia: Ideally, Alitalia would probably just die. Italy is a big and important market, and it wouldn’t be left without air service for long. But it seems no one wants to see the historic flag carrier go away, so it’ll probably keep flying in some form. Lufthansa Group wouldn’t be a bad buyer, as it has experience turning around underperforming European airlines. My colleague Patrick Whyte has new details on Lufthansa’s proposal.
Alaska Airlines Made a Costly Loyalty Mistake by Offering Too Many Free Seats: Alaska Airlines executives said they lost considerable second-quarter revenue because they mistakenly made too many free seats available for loyalty program members. Executives didn’t say exactly what caused the error, but promised they have fixed it.
Spirit Airlines Makes Gains Despite Rising Fuel Prices: During the end of former CEO Ben Baldanza’s reign, some investors lost patience with Spirit, as it combined massive growth with poor customer service and operational problems. His replacement, Bob Fornaro, is a short-termer — he’ll end his three-year term in December — but he has the airline on track. Fornaro, who had been Air Tran’s CEO, has prioritized customer service, while reducing growth and improving on-time performance. Skift’s Sean O’Neill covered Spirit’s earnings call and has more details.
European Heat Wave to Singe Thomas Cook’s Profits: There have been rumors Thomas Cook would sell its airline. That might happen, but on the company’s earnings call this week, executives said nothing is imminent. “Currently, we have no current plans to sell our airline and there’s nothing more to say because I’m not participating in any speculation,” its CEO said. Whyte, Skift’s Europe editor, has more in this story.
Southwest CEO Says Assigned Seats Still Don’t Make Sense: Like some Wall Street analysts, I once questioned Southwest’s model, asking why the carrier does not adopt some proven revenue-producing schemes adopted by its competitors. Now that I have watched WestJet Airlines implode in Canada by changing its model, I understand why Southwest sticks with what works. During Southwest’s earnings call, CEO Gary Kelly said the carrier still won’t assign seats or charge for bags.
American Airlines Cites the Competition in Forcing Basic Economy Changes: American will make its basic economy fares less punitive, executives said on the carrier’s second-quarter earnings call. All passengers — not just elite frequent flyers or credit card holders — soon can bring larger carry-on bags for free. That’s the policy at Delta Air Lines, and American’s CEO said his airline has been losing customers to Delta.
Sabre Sees Gains After Tech Investment Turnaround: Apparently, Sabre is not dead. At least that’s what O’Neill, Skift’s travel tech editor, writes. In the second quarter, Sabre earned net income of $92 million compared with a quarterly loss of $6 million a year earlier. O’Neill credits newish CEO Sean Menke for the turnaround, saying he “has been like a conductor replacing lead players and changing the tune.”
CEO: Air Canada’s Offer to Buy Back Its Frequent Flyer Program Has a ‘Short Fuse’ Air Canada has leverage. While the airline probably would prefer to control Aeroplan, it doesn’t need it. Given the circumstances, why shouldn’t the airline play hardball? Bloomberg has the details on the future of Air Canada’s loyalty program.
Meet Me in New York
Skift’s annual mega-conference in New York historically has focused on hotels and online travel agents. No longer.
This year, we have a large airline component, and I’m hopeful that means more readers of this newsletter will attend. It’s scheduled for September 27 and 28 at Jazz at Lincoln Center’s Frederick P. Rose Hall.
On stage, I’ll interview Ed Bastian, CEO of Delta Air Lines, and American Airlines President Robert Isom, United Airlines President Scott Kirby, and JetBlue Airways President Joanna Geraghty. Don’t worry: I’ll ask tough questions. And probably some irreverent ones, too.
Tickets and more information can be found on our website.
If you are coming, let me know, and we can meet.
Skift Aviation Business Editor Brian Sumers [email@example.com] curates the Skift Airline Innovation Report. Skift emails the newsletter every Wednesday. Have a story idea? Or a juicy news tip? Want to share a memo? Send him an email or tweet him.