Airline CEOs issue major warning to travelers

The future of domestic airline travel is looking bleak, according to the CEOs of two major airlines. Both shared a pessimistic prognosis of the industry in their second quarter earnings calls and explained what it means for consumers.

Changes are coming

“There’s going to continue to be reductions in capacity in this industry,” Frontier Airlines CEO Barry Biffle warned during the company’s second-quarter earnings call, predicting that some carriers would likely have to reduce their number of flights and routes since many have become unprofitable. What that ultimately means for travelers, he explained, is fewer budget ticket prices and flight options. He clarified that he’s specifically talking about domestic fares. “We believe that the entire industry is not making money. … The domestic [side] is not making money. And that’s because there is too much supply relative to demand,” Biffle said.

Financial picture

According to Frontier’s publicly available financial data, its total second quarter revenue was $929 million. But with total operating expenses of $1 billion, it still suffered a net loss of $70 million. However, CEO Biffle said, “There is a significant part of the United States — and near-international [market] — that is still untapped, if you will. There’s more than enough, we believe, for our growth, and we don’t think that anyone else in our space is going to be growing to fill that void.”

Similar prediction

United Airlines CEO Scott Kirby’s sentiments echoed what Frontier’s Biffle had to say about reductions. Kirby believes his company as well as Delta will have an opening to earn more because the airlines that are losing money on domestic routes will have to start cutting them. “If I dig deeper into it and I look at every airline that’s not named United or Delta, I can find at every single one of them, a double-digit percentage of their route network that loses money,” Kirby said on United’s second-quarter earnings call. “And the only way for them to get margins that are anywhere close to their [wholesale acquisition cost] is to stop flying places that lose money. And that is going to ultimately happen,” he said, though he didn’t seem to think that would be “in the near term.” Still, he explained, “I can look at how much money is being lost route by route and know that economic gravity is ultimately going to win. So I think actually, the results are going to — in total, the industry is going to go in the same place for supply, but the results for the two winning airlines are going to be outsized in that environment.” As Kirby sees it, he said on United’s earnings call, “two brand loyal airlines [are] really winning and everybody else [is] losing,” referring to United and Delta.

American Airlines responds

Another major carrier’s leader, American Airlines CEO Robert Isom, hit back at Kirby’s comments. “We don’t run our airline based on other airlines’ perception of our business,” Isom said on his company’s second-quarter earnings call.

The post Airline CEOs issue major warning to travelers appeared first on Knewz.