Despite the looming worries of a recession, people still want to spend on travel.
That was the big takeaway from the U.S. airline industry’s fourth-quarter earnings season, where the last of the major flag carriers reported results last week.
American Airlines was the latest to say it achieved record revenues as demand continued to soar from the depths of the pandemic. This trend appears to show few signs of slowing down – yet.
The latest results came in on Thursday as four major airlines announced their profits for the fourth quarter of 2022.
American raked in net income of $803 million, easily beating Wall Street expectations on Thursday as it reported record fourth-quarter revenue. The Fort Worth-based carrier said it earned 16.6% more in the quarter than in the same quarter in 2019, despite flying at 6.1% lower capacity.
“This is our strongest post-holiday booking period with great strength across all entities and travel periods,” American Airlines CEO Robert Isom said on the quarterly earnings call. financials of the company. “The demand for domestic and international short-haul travel continues to lead the way. We expect a strong demand environment to continue into 2023 and anticipate further improvements in long-haul international travel demand this year. »
American’s fourth-quarter result mirrors that of rivals Delta Air Lines and United Airlines, which also reported record profits and promising guidance for 2023.
The Dallas-Fort Worth area’s other major carrier, Southwest Airlines, did not have such rosy revenue.
Southwest said it expects demand to pick up after its vacation slump. However, the airline announced a loss of $220 million in the fourth quarter. Much of the carrier’s revenue appeal centered on the cataclysmic meltdown that happened around Christmas and spilled into the new year. The leaders repeatedly apologized for the operational failure.
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“First of all, I want to apologize again to our customers and employees for the impact the operational disruption has had on them and their vacation plans,” said Southwest CEO Bob Jordan, on the call. “We are intensely focused on reducing the risk of a repeat of this type of operational event.”
The episode, which caused the airline to cancel nearly 17,000 flights, cost it about $390 million in operating expenses. Most of those expenses went to reimbursing customers, according to Southwest’s chief financial officer, Tammy Romo. Jordan said the airline is on track to process about 95% of those refund requests.
The Department for Transport has also launched an investigation into the South West collapse to see if the airline’s timetable was unrealistic. Southwest said it was cooperating with DOT in the investigation.
Jordan added that 25% of customers who received 25,000 Rapid Rewards points due to the fiasco have already booked future travel with the airline. Some used points and others booked cash.
“I take it as a sign of confidence that customers understand we messed up there,” Jordan said on the call. “We did everything we could to make it right.”
However, Southwest is still reeling from its vacation, as executives said bookings dwindled in January. South West CCO Ryan Green said the slowdown in bookings was only isolated to January and the first half of February, part of a ‘hangover’ effect from the incident .
Alaska Airlines and JetBlue — the other two major airlines to report quarterly results on Thursday — also said demand trends for 2023 were promising. Both companies beat analysts’ forecasts.
Strong demand from leisure travelers appears to be driving the trend. After the pandemic, leisure travel returned much faster than business travel.
“Long term, we are excited to continue to build on last year’s record performance as we expect another solid year of revenue growth ahead of us, supported by strong leisure demand and multiple initiatives. network and commercial,” said JetBlue Chief Operating Officer Joanna Geraghty.
The public’s continued appetite for travel has been good for airlines. Fares are likely to increase 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 weighed on the industry, particularly among regional carriers, which have responded by raising wages and labor costs. Supply chain issues have slowed the delivery of everything from new planes to spare parts.
Additionally, renewed concerns about outdated aviation infrastructure due to the recent collapse of the Federal Aviation Administration system has some airlines wary of even more disruption.
United CEO Scott Kirby made headlines last week for saying it was difficult for airlines to operate like they did in 2019, given the tensions that have plagued the industry since the pandemic.
Many airlines have only recently returned to adequate staffing levels after many employees retired or took buyouts during the pandemic. There have been months of speculation among financial forecasters about the possibility of a recession in the United States, which could derail the industry’s recovery.
For now, however, airlines remain relatively optimistic about 2023.
“We overcame many challenges together over the past year and have made tremendous progress in restoring business as we emerge from the pandemic,” said JetBlue CEO Robin Hayes. “And we’re ready to continue to build on that success here in 2023, with a disciplined plan to continue to strengthen our foundations, both operationally and financially.”