Airlines signal fares on the rise
Prices jump as demand for travel takes off
Rock-bottom airfares were a silver lining for air travelers over a year that smothered nearly every other joy about traveling, but airlines are indicating that prices are on the rise as pent-up demand for flying picks up heading into the summer.
Leisure travelers dominated 2020 and early this year, buoyed by airlines dropping fares to record-low levels in order to fill empty airplanes. Executives at Fort Worth-based American Airlines and Dallas-based Southwest shared their outlook Thursday on airfares after a year of turmoil, saying that prices should go up this summer.
But the longer-term outlook is cloudier.
“When we came into the first quarter of this year, our selling fares were roughly half of what they were a year ago,” American Airlines chief revenue officer Vasu Raja said during the company’s earnings call. “As we go out into the summer, they’re something like 90% of where they were” in 2019.
Southwest Airlines executives said prices have been going up with demand in recent weeks. Delta CEO Ed Bastian said last week that airfares for peak summer travel season could return to prepandemic levels seen in summer 2019.
Since the rollout of COVID-19 vaccines gained traction in February, passenger levels on airplanes have been rising and airports have gotten more crowded. That will naturally drive up prices, which had been steadily dropping for nearly a year.
The average fare for a Southwest Airlines ticket was only $120 in the first
three months of this year, compared to $155 for the same period a year ago.
Fares are heading back up and people seem to be traveling despite worries about a spike in COVID-19 cases in some regions.
Still, airlines will have a lot of planes in the air this year and not nearly as many passengers as they had in 2019.
Airline Reporting Corp. data released this week showed that sales for the week ending April 18 were still down 47% from 2019, just based on the number of tickets sold. Ticket sales in dollars are down 65%.
How fast fares go up will be hard to predict. Airlines said sales will still be significantly lower this year than last.
“The industry has more seats than it does passengers and economics 101 tells you that pricing will settle that, but at a softer level,” Southwest CEO Gary Kelly said. “So we’re down 20% this quarter, and what we’ll be prepared for is a very low fare environment for a long time.”
Low fares have been driven by a lack of business travelers during the pandemic. With white-collar employees largely working from home, few companies wanted to risk the liability of putting people on planes for cross-country travel and face-to-face interaction.
But business customers are key to airlines because they buy premium seats, pay premiums for flexible fares and tend to purchase tickets closer to travel.
“There are early signs of recovery for business,” American Airlines President Robert Isom said. “Small business demand, which was roughly 17% of our system revenue, has been improving steadily as vaccination rates have increased. And as markets reopened, an increasing number of our largest corporate accounts are coming back to the office and indicating that they’ll be traveling in the third quarter, and confirming in-person board meetings, conferences and events this year.”
Still, it could be a long recovery for business travel. “From what we’re seeing and hearing from our corporate customers, it continues to be very clear that domestic business travel will certainly continue to significantly lag leisure recovery,” Southwest Airlines President Tom Nealon said. “And for now, we are planning for a scenario where travelers will still be down 50% to 60% by the end of this year.”
International travel will continue to lag because of entry restrictions and uncertainty about being able to travel and explore the world’s most popular tourism spots.
A U.S. State Department advisory this week cautioned against traveling to 80 countries worldwide because of issues with the COVID-19 pandemic. Countries like India and Brazil have seen major spikes in new coronavirus cases, and areas of the world such as Europe have been slow to distribute vaccines.
American’s peak summer schedule for trans-Pacific, trans-Atlantic and South America flights will be down about 60% this year compared to 2019, but short-haul international flights to Mexico, Central America and the Caribbean could be even higher than pre-COVID-19 days.
“So a lot of what you see in our international numbers is more capacity to go into the short-haul network, which for us has proven to be the most resilient part of the whole system,” Raja said. “Ever since the pandemic started, no matter what the headlines have been, no matter how markets turn, we always tend to find bookings rebounding fastest, strongest and greatest in those markets.”