Record summer travel demand was tipped to translate into bumper earnings for airlines - but quarterly reports are looking less than stellar. While plenty of customers are flocking to travel destinations worldwide, airlines are finding an excess supply of seats in the price-sensitive end of the market has forced them to discount fares to fill their planes. This week, earnings from American and Southwest Airlines are expected to deliver more bad news following downbeat outlooks for the quarter from United (UAL), Delta (DAL), Alaska Airlines (ALK), and Ryanair (RYAAY).
In addition to the discounting pressure, new labor contracts and higher lease rates and maintenance costs have driven up the industry's operating expenses. In May, American slashed its second-quarter profit forecast, citing weaker pricing power in the domestic market, and while the Texas-based carrier has vowed a reboot, analysts say reversing course will be time-consuming and costly. Southwest has been hit hard by Boeing's (BA) jet delivery delays, and it is under pressure from an activist investor to oust its CEO, overhaul the board, and shake up its business. Both American and Southwest (LUV) will report earnings on Thursday.
Market Overview:
- Record summer travel demand tipped for strong airline earnings.
- Excess supply of seats forces fare discounts.
- Airlines like American and Southwest expected to report disappointing earnings.
Key Points:
- Higher operating expenses due to new labor contracts and costs.
- American Airlines slashed its profit forecast in May.
- Southwest hit by Boeing’s jet delivery delays and activist investor pressure.
Looking Ahead:
- Earnings reports from European airlines like easyJet and Air France-KLM will provide further clarity.
- U.S. airlines moderating capacity to boost pricing power.
- United hopes rivals reduce unprofitable flying to lift profits.
Record summer travel demand was tipped to translate into bumper earnings for airlines - but quarterly reports are looking less than stellar. While plenty of customers are flocking to travel destinations worldwide, airlines are finding an excess supply of seats in the price-sensitive end of the market has forced them to discount fares to fill their planes. This week, earnings from American and Southwest Airlines are expected to deliver more bad news following downbeat outlooks for the quarter from United, Delta, Alaska Airlines, and Ryanair.
In addition to the discounting pressure, new labor contracts and higher lease rates and maintenance costs have driven up the industry's operating expenses. In May, American slashed its second-quarter profit forecast, citing weaker pricing power in the domestic market, and while the Texas-based carrier has vowed a reboot, analysts say reversing course will be time-consuming and costly. Southwest has been hit hard by Boeing's jet delivery delays, and it is under pressure from an activist investor to oust its CEO, overhaul the board, and shake up its business. Both American and Southwest will report earnings on Thursday.
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