In recent times, we’ve seen the cost of airfare increase massively — according to data, in the United States, the average increase has been around 30% over five months. Admittedly a major reason for the fare increases is how much jet fuel has gone up in cost, due to the war with Iran, which doesn’t seem to be ending any time soon.
However, one thing has become clear — airlines are using this as an opportunity to try to improve their long term prospects, by permanently introducing fare hikes… well as, permanent as anything in the industry is. Delta executives have today directly acknowledged that.
In this post:
Comparing results to the same quarter last year, revenue grew by a staggering 14%, while capacity only increased by 1%. Seeing year-over-year double digit revenue increases is pretty impressive in an industry like this, especially when it’s not due to growth.
To break that down a bit more, we saw a 17% increase in premium revenue, and even an 8% increase in economy revenue. Economy revenue growth has otherwise been a struggle in recent times, so that’s a reflection of how airlines have been able to sustain fare increases, even among more price sensitive customers.
But I think what’s even more interesting is what Delta CEO Ed Bastian said during the earnings call. He said that increased fuel costs have “proven to be the most powerful catalyst for change in our industry,” and he means that in a positive way.
He pointed out how most airlines in the United States “were already struggling to earn their cost of capital against a backdrop where industry airfares have meaningfully trailed inflation, costs have reset higher, and consumer preferences have evolved.”
But he added how “structural change has accelerated, enabling the industry to recapture this year’s fuel cost inflation at the fastest pace of any recent cycle,” indicating that “we believe current revenue momentum should remain sustainable even if fuel prices moderate.” He referred to this as “an important step towards improving the industry’s financial health and earning sustainable returns over time.”
Are airlines being overly optimistic with higher fares?
In fairness, what Bastian said here wasn’t surprising. In early April I already covered how he said that fares may not decrease even if oil prices go down, but now we have more data to actually back up how performance has evolved. For that matter, this matches exactly the narrative we’ve heard from United executives as well.
A great solo travel tip spotted this week on One Mile at a Time.
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