Despite the looming concerns of a recession, people still want to spend on travel.
That was the big takeaway from the U.S. airline industry’s fourth-quarter earnings season, where the last of the nation’s big carriers reported their results this past week.
American Airlines was the latest to say it’s been earning record revenue as demand has continued to soar since the depth of the pandemic. This trend seems to show little sign of slowing — for now.
The latest results came on Thursday as four big airlines reported earnings for the fourth quarter of 2022.
American raked in a net income of $803 million, handily topping Wall Street expectations Thursday by saying it earned record revenue during the fourth quarter. The Fort Worth-based carrier said it earned 16.6% more during the quarter than in the same one in 2019, despite flying at 6.1% less capacity.
“This is our best ever post-holiday booking period with broad strength across all entities and travel periods,” American Airlines CEO Robert Isom said on the company’s quarterly financial results call. “Demand for domestic and short-haul international travel continues to lead the way. We expect a strong demand environment to continue in 2023 and anticipate further improvements in demand for long haul international travel this year.”
American’s fourth-quarter result mirrored that of competitors, Delta Air Lines and United Airlines, which each also reported record profits and promising 2023 forecasts.
The other major Dallas-Fort Worth area carrier, Southwest Airlines, didn’t have such rosy earnings.
Southwest said it anticipated demand to pick back up after its holiday meltdown. However, the airline reported a fourth-quarter loss of $220 million. Much of the carrier’s earnings call centered around the cataclysmic meltdown that occurred around Christmas and bled into the New Year. Executives repeatedly apologized for the operational failure.
“First and foremost, I want to apologize again to our customers and our employees for the impact the operational disruption had on them and on their holiday plans,” Southwest CEO Bob Jordan said on the call. “We are intensely focused on reducing the risk of repeating that type of operational event again.”
The episode, which caused the airline to cancel nearly 17,000 flights, cost it approximately $390 million in operating expenses. Most of those expenses went toward reimbursing customers, according to Southwest CFO Tammy Romo. Jordan said the airline is close to completing approximately 95% of those reimbursement requests.
The Department of Transportation also launched an investigation into the Southwest meltdown to see whether the airline’s schedule was unrealistic. Southwest said that it is cooperating with the DOT in the investigation.
Jordan added that 25% of customers who received 25,000 Rapid Rewards points due to the fiasco have already booked future travel with the airline. Some used points and others booked with cash.
“I take that as a sign of confidence that customers understand that we messed up there,” Jordan said on the call. “We did everything that we could to make it right.”
However, Southwest is still reeling from its holiday mess as executives said bookings have softened in January. Southwest CCO Ryan Green said the slowdown in bookings was just isolated to January and the first half of February, as part of a “hangover” effect from the incident.
Alaska Airlines and JetBlue — the two other big airlines to report quarterly earnings on Thursday — also said demand trends for 2023 were promising. Both companies bested analysts’ forecasts.
Robust demand from leisure travelers seems to drive the trend. Post-pandemic, leisure travel has returned much quicker than business travel.
“Looking further ahead, we are excited to continue building on last year’s record performance as we expect another strong year of revenue growth ahead of us, underpinned by robust leisure demand and multiple network and commercial initiatives,” shared JetBlue COO Joanna Geraghty.
The public’s continued appetite for travel has been good for airlines. It’s likely to spur higher fares as travelers keep booking flights.
That’s not to say there aren’t some dark clouds on the horizon for the industry.
A pilot shortage has squeezed the industry — especially at regional carriers, which have responded by hiking pay and labor costs. Supply chain issues have slowed the delivery of everything from new airplanes to spare parts.
Also, renewed concerns over outdated aviation infrastructure due to the recent Federal Aviation Administration system meltdown have some airlines wary of even more disruptions.
United CEO Scott Kirby made headlines last week for saying it’s difficult for airlines to operate like it’s 2019, given the strains that have afflicted the industry since the pandemic.
Many airlines have only recently returned to adequate staffing levels after many employees retired or took buyouts during the pandemic. There have been months of speculation among financial forecasters about the possibility of a U.S. recession — something that could derail the industry’s recovery.
For now, though, airlines remain relatively optimistic about 2023.
“We overcame many challenges together throughout this past year, and we made tremendous progress in restoring the business coming out of the pandemic,” JetBlue CEO Robin Hayes said. “And we’re set up to further build on that success here in 2023, with a disciplined plan to continue strengthening our foundations, both operationally and financially.”