US airlines just had one of the most lucrative quarters in history. Passengers are suffering for it.
The record revenue many airlines reported in April, May and June came via very high airfares and packed airplanes. A series of service disruptions caused by staffing shortages has made flying even worse.
In the second quarter, American Airlines (AAL), United (UAL), Delta (DAL) and Southwest (LUV), which account for 80% of US air travel, earned a combined $2.8 billion. Sales jumped 10% from the same quarter of 2019, before the pandemic, to $46 billion, as demand for leisure travel surged.
The airlines reported record bookings in June for travel during the rest of the summer. But carriers are flying with fewer seats available than before the pandemic: capacity at the four largest airlines is down about 13% from three years ago.
That combination of very strong demand and limited availability sent fares soaring.
Soaring fares, canceled flights
The amount passengers paid to fly each mile on the big four carriers was up 19.3% in the second quarter compared to 2019. Another measure of fares that compares passenger revenue to capacity rose 22%.
But those increases don’t tell the whole story. Business and international travel hasn’t returned to pre-pandemic levels. Those tickets typically cost much more than domestic airfare. Unlike previous years, when airlines could avoid some fare hikes for leisure travelers by jacking up tickets for business and international passengers, this year the bulk of fare increases are hitting domestic fliers.
“The leisure traveler is taking it on the chin right now and they’re willing to do so,” said Jim Corridore, senior insights manager for research firm Similarweb.
Service has become a massive problem as well.
About 134,000 US flights have been canceled so far this year, according to tracking service Flight Aware, more than twice as many as were canceled in the same period last year. That represents 2.6% of all scheduled flights so far this year.
Staffing shortage also hitting passengers
Airlines don’t have sufficient staff to recover when events like bad weather cause delays or flight crews max out the hours they’re allowed to work under federal safety regulations.
The shortage of pilots has also prompted airlines to stop or slash service to dozens of smaller markets, greatly limiting or even ending air service for many communities.
During the pandemic, carriers offered early retirement and other buyout packages to make voluntary reductions in staffing. All of them are still struggling to get operations back to normal as they scramble to hire and train the staff necessary to restore capacity.
“A lot of pilots retired. It’s not easy to replace them,” said Corridore. “It’s a long process, it’s still going to be a year or so to have the airlines have a full schedule that this level of demand will dictate.”
Complaints also soar
Passenger complaints to the Department of Transportation have soared to more than triple pre-pandemic levels.
Senators Elizabeth Warren and Alex Padilla urged Transportation Secretary Pete Buttigieg last month to crack down on the airline industry.
The Department of Transportation announced new rules Wednesday that would require refunds if a flight is canceled or disrupted, including three-hour or longer delays on domestic flights, six-hour delays on international flights, a change in aircraft type or an increase in the number of connections on a trip.
But in a deregulated industry, there’s little Buttigieg can do about the fares themselves.
Mergers mean fewer choices
Many blame the consolidation in the industry over the last 20 years for the current state of travel. Today’s four dominant carriers were created from 10 airlines through a series of mergers. And another merger was just announced last week that many fear will once again lead to higher prices.
Spirit (SAVE), a pioneer in offering very low base fares which are then supplemented by fees for all manner of extras, had put pressure on the bigger airlines to offer similar frill-free seats at a lower price.
But Spirit recently agreed to be purchased by JetBlue Airways (JBLU) for $3.8 billion in cash. The combination will form the country’s fifth largest airline, which JetBlue says will create more competition among its four larger rivals. But other experts say the loss of Spirit, if the merger is approved, can only mean higher fares down the road.
“Fares are likely to rise if a disruptive price competitor is going away,” Corridore said.