Flagging domestic travel casts shadow over US airline earnings
By Rajesh Kumar Singh
CHICAGO (Reuters) — A travel boom has produced bumper earnings for major U.S. carriers this year but signs of softening demand on domestic routes have amplified worries that the bubble is about to burst, sparking a sell-off in airline stocks and prompting analysts to slash their earnings estimates.
As carriers report third-quarter results starting on Thursday, analysts and investors will be looking at how carriers plan to remain profitable once consumer demand softens.
Airline executives say travel remains the topmost priority for consumers. They have been attributing the slowdown in domestic travel demand to a jump in bookings for foreign trips.
But analysts and investors are wondering if it is early signs of waning demand. A drop in international fares in recent weeks after the summer travel rush has only reinforced those concerns.
«Demand is flashing warning signs,» Jefferies analyst Sheila Kahyaoglu said.
The airline industry, which is facing higher fuel and wage bills, has been relying on robust demand to mitigate inflationary pressure with higher fares.
Airline fares, however, have been posting a double-digit decline from a year ago. Ticket prices for holiday travel are also down.
Data from online travel agency Hopper show average domestic round-trip airfare for the Thanksgiving holiday next month is down 14% from last year. Similarly, fares for the Christmas travel season are 12% lower from a year ago.
Ultra-low-cost carrier Spirit Airlines (NYSE:SAVE) last month cut its profit outlook for the third quarter, citing «heightened promotional activity with steep discounting.» Frontier Airlines said it was facing pressure to offer «very, very low» fares to fill up its planes.
Analysts have been
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