United’s check-in area at Washington Dulles International Airport.
Leslie Josephs | CNBC
Cheap airfares are hard to find, and it might not get much easier in 2023.
Between staffing shortages, delays and airlines’ conservative schedules after costly travel meltdowns, available seats are limited. Airlines are also passing along higher fuel prices and other costs to customers, keeping ticket prices elevated. But travelers, at least so far, are willing to pay the price.
“Holiday flights are going to be expensive once again,” said Scott Keyes, founder of flight-deal site Scott’s Cheap Flights. “The pricing power has shifted back to the airlines for winter holiday travel.”
Domestic airfares peaked in May, according to fare-tracker Hopper, but they’re on the rise for the holidays compared with last year. Domestic airfare deals over Thanksgiving are averaging $274, up 19% from 2021, while domestic roundtrips over Christmas are going for $390, up 40% from last year, Hopper says.
Windfall for airlines
The three biggest US airlines — Delta, united and American — each reported profits and record revenue 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 early in the Covid pandemic when travel collapsed and the industry was caring toward record losses. Airlines were propped up by $54 billion in taxpayer aid to weather the crisis and urged workers to take buyouts.
“Demand has not come close to being quenched by a hectic summer travel season,” Delta CEO Ed Bastian said on the carrier’s quarterly call last week.
Bookings have remained resilient despite high inflation and rising interest rates, consumers will refuse to give up getaways, and some even find new ways to travel thanks to more relaxed office attendance policies.
“With hybrid work, every weekend could be a holiday weekend,” United CEO Scott Kirby said on the company’s quarterly call Wednesday. “That’s why September, a normally off-peak month, was the third strongest month in our history.”
Other travel patterns have changed, too. Airlines say they’re maintaining more of their trans-Atlantic schedules as trips to Europe stay popular well into the fall, giving travelers the chance to avoid the crowds at popular tourist destinations. United and Delta recently said they will ramp up spring and summer flying across the Atlantic, a sign they expect demand to continue to recover well into 2023.
Over the holidays, customers appear to be more flexible, too, flying outside of traditional travel days like the Wednesday before Thanksgiving or the Sunday after.
“If you go look at our Thanksgiving schedule right now, there’s less peak-to-trough variability there than certainly I’ve seen in the schedule for a number of years,” Vasu Raja, American’s chief commercial officer, said on an earnings call on Thursday.
Delta doesn’t expect to fully restore its 2019 capacity until next summer. American said Thursday that it would likely get back to between 95% and 100% of its pre-pandemic capacity next year.
For the fourth quarter, American is planning for its capacity to be down as much as 7% compared with 2019, while United and Delta are planning to fly as much as 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 have taken a bite out of profits. Executives said customers are even spending more to upgrade to more spacious seats.
Paid seats in premium classes are running five to 10 percentage points over 2019, American’s CEO Robert Isom said in an interview with CNBC’s “Squawk Box” on Thursday.
“It shows you customers want to treat themselves,” Isom said. “I think that’s a phenomenon that continues not just now … but also if there is any type of stagnation in the economy as well.”
High fares hit Main Street and Wall Street
While demand soars and shifts, aviation industry staff, particularly pilots, remain in short supply, with many still in need of training. Smaller cities had to bear the brunt of the problem as airlines cut service, citing a lack of pilots.
Some aircraft deliveries are delayed, with the biggest manufacturers struggling to increase production because of labor and supply chain problems, limiting airlines’ ability to grow.
“They are constraints that will take years to fully resolve,” said United’s Kirby.
United and American this week said they would receive some of their Boeing aircraft later than expected.
American Airlines CFO Derek Kerr said the carrier expects to take delivery of 19 Boeing 737 Max 8 planes in 2023, compared with 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 a statement. The company reports its quarterly results next Wednesday.
The industry’s combination of challenges is keeping fares firm, a trend that’s rippling through both Main Street and Wall Street.
The latest inflation read showed airfare up nearly 43% from last year and nearly flat from August, generally a busy time for summer vacations.
Meanwhile, the NYSE Arca Airline index of 17 airline stocks is up more 9% so far this month as of midday Thursday, almost three times the gains in the S&P 500. Airline shares are still down sharply this year along with the broader market.
Scott’s Cheap Flights founder Keyes suggests travelers book as early as possible, and even consider snagging deals for summer 2023 in the winter.
“When you are opening your Christmas presents, ideally that’s when you should be thinking about booking those summer flights,” he said.
Large airlines scrapped change fees for standard economy tickets in 2020, so travelers’ plans can be more flexible, though they could be on the hook for a difference in fare.
“You can make your plans in pencil, rather than in pen,” he said.
Airlines have also made many schedule changes this year, so travelers should be aware that flight times could shift before their flight.
While it could be a tough sell to buy next year’s tickets after shelling out for holiday gifts and other expenses, procrastinators beware:
“Last minute fares tend to move in one direction, and it’s not down,” Keyes said.