Airlines’ big debt points to fare hikes

Large U.S. airlines are carrying about $20 more debt per passenger than before the pandemic, according to the chief executive officer of Frontier Group Holdings Inc., who predicts the carriers will start addressing those obligations with higher fares.

“How long can that last?” asked Barry Biffle, CEO of ultra-low-cost Frontier Airlines. “They either have to raise their leisure fares or you reduce capacity so you can raise prices.”

U.S. carriers amassed roughly $60 billion in new debt last year to contend with the collapse in business from the pandemic. Their interest expense is likely to reach $20.7 billion through 2025, according to the trade group Airlines for America. Frontier’s debt rose about $1 billion, or $1 a passenger, by the same accounting, according to the company.

U.S. airlines also face higher costs now and into next year from crew training, pricier jet fuel, and rising airport and aircraft-maintenance expenses.

“Cost issues remain topical and continue to run hot with our view that pressures will be more elevated into 2022 than Street estimates suggest,” MKM Partners analyst Conor Cunningham wrote in a Nov. 18 note to clients.

Fares are expected to rise 3.3 percent next year and 3.4 percent in 2023, according to a business travel forecast released Nov. 17 by travel manager CWT and the Global Business Travel Association.

Because airline capacity remains constrained compared with 2019, business and leisure travelers are competing for seats, the pair said.

In 2020, large airlines like United Airlines and American Airlines pivoted their networks to attract more leisure travelers in the absence of business traffic. They also deployed international wide-body jets on several domestic routes as many countries’ borders closed.

Analysts have begun to wonder whether leisure-focused carriers like Frontier and Spirit Airlines will reap a benefit from the potential return of corporate travelers next year as the majors retreat from leisure flying.