The largest US carriers continue to see strong domestic demand even as some of their smaller peers cite pockets of weakness.
American Airlines, Delta Air Lines, Southwest Airlines and United Airlines executives said this week that demand is solid to strong, with none seeing any threat to the larger US economy, which has grown for the past 10 years.
"Demand is strong, it's not just for air travel – when I was at this conference for bankers and investors, everyone says it's chugging along nicely," said Doug Parker, chairman and chief executive of Fort Worth, Texas-based American, at the US Chamber of Commerce Aviation summit on 7 March.
Parker adds that the airline sees nothing "on the horizon" that give them any concern for the wider economy.
American forecasts flat to up 2% total unit revenue (TRASM) growth in the first quarter.
Delta chief executive Ed Bastian and United chief executive Oscar Munoz painted similarly positive economic pictures at separate times this week. Speaking at a JP Morgan investor conference on 5 March, Bastian called demand "solid", adding that corporate traffic was strong while leisure was "choppy".
Atlanta-based Delta forecasts flat to up 2% TRASM, while Chicago-based United expects to hit the midpoint of its flat to up 3% passenger unit revenue (PRASM) growth guide for the first quarter.
Southwest president Tom Nealon told an Evercore analyst at an event this week that the economy was holding up well. The Dallas-based airline maintains its forecast of 3-4% unit revenue (RASM) growth in the first quarter.
Alaska and JetBlue paint a different story, with executives from both carriers citing weakness on transcontinental routes, particularly to and from California, in separate presentations at the JP Morgan event. The airlines lowered their revenue guidance by 1.5 percentage points for the first quarter, with Alaska expecting a RASM increase of 1-2% year-over-year and JetBlue forecasting a RASM decrease of 1.5-3.5%.
"There's just too much capacity in that market right and we're seeing some fares that are extraordinarily low," said Brandon Pedersen, chief financial officer of Alaska, on the transcontinental market from California.
United chief Munoz, asked about the transcontinental market at the US Chamber summit, said the carrier did not see weakness in the market and was maintaining its revenue guidance for the period.
United is the largest carrier on transcontinental routes from California to the major East Coast cities of Boston, New York, Philadelphia and Washington DC, Cirium schedules data shows. The airline operated 31.4% of capacity in the market compared to 17.7% at JetBlue, 16.2% at American, 15.5% at Alaska and 13.2% at Delta during the year ending in March.
One possible explanation for the weakness cited by Alaska and JetBlue is their greater exposure to leisure, or at least fare-conscious travellers, than the big three. JP Morgan analyst Jamie Baker asked Pedersen this question, citing the airline's move away from the premium-focused model of Virgin America after its takeover of the latter in 2016.
"I don't think it's fair to say it's just isolated to leisure," says Pedersen. "I think we play in a little different space where we're still appealing to business travellers who want to travel across the country but perhaps at a lower price point."
However, he did acknowledge the shift in Alaska's transcontinental strategy since the Virgin America merger towards one with more affordable fares and what they see as an improved loyalty programme.
"In recent weeks we've seen some general softness in most geographies, which we believe is related to a general deceleration in the economic environment," said JetBlue chief executive Robin Hayes in what was the most dire warning on the state of the US economy among the airline executives that spoke this week.
No other executive, including Pedersen, cited broader economic weakness beyond a few select markets. However, JetBlue is arguably the most exposed to leisure traffic with large amounts of its capacity deployed to the Caribbean and Florida, both of which Hayes said were under pressure from competitive capacity.
Source: Cirium Dashboard
