In which areas are low-cost airlines cutting costs? New aircraft

Airlines that spent years clamoring for new planes are changing their tune.

Cash-strapped low-cost and deep-discount airlines are postponing spending billions of dollars on new planes to save money as they try to return to stable profitability and deal with the impact of engine overhauls.

This year, airlines flooded the United States with flights, driving down fares particularly in the domestic market where low-cost carriers are concentrated, and weighing on airline revenues as costs rose. Spirit Airlines, JetBlue Airlines and Frontier Airlines The last recorded annual profits were in 2019, while the largest airlines have returned to profitability.

The lower prices on airline tickets are noticeable: Fare tracker Hopper estimates that “good deal” airfares in September are $240 for domestic U.S. flights roundtrip, down 8% from last year.

Now, some of those same airlines are scaling back their growth plans and delaying deliveries of new planes. Most of the price of a plane is paid at the time of delivery.

“There's just too much supply, so it's natural for us as an industry to reduce it,” said Frontier Chief Executive Barry Biffle. Earlier this month, Frontier said it would delay delivery of 54 Airbus jets until at least 2029.

Part of the problem is that years of delays in aircraft deliveries mean airlines don't want to add too many planes too quickly, Biffle said.

“Because they took a long time, [the order] “They piled up,” he said. “So we had to smooth it out.”

Frontier's revenue rose 1% from a year ago in the second quarter despite carrying 17% more passengers, and average fare revenue fell 16% to just under $40.

JetBlue Airlines The airline estimates it will save about $3 billion by delaying delivery of 44 Airbus A321 jets until 2029 and opting to extend some aircraft leases. The New York-based airline posted an unexpected profit in the second quarter but is struggling to cut costs through delays and measures such as exiting unprofitable routes — and wants to do so quickly.

The airline and others have also been dealing with grounded aircraft for some time. Pratt and Whitney Engine removal.

Postponing so many planes even as the airline faces a shortage of aircraft due to engine retirements is a “double-edged sword,” JetBlue CEO Joanna Geraghty said in a memo to employees on Aug. 19.

“We need planes to grow, but receiving planes that end up on the ground after we've paid for them makes the problem significantly worse,” he said. “Plus, given our growing debt, we simply can't afford to buy so many planes.”

Spirit Airlines —which had planned to be acquired by JetBlue until a judge blocked the deal in January—has also put off buying planes as it struggles to reverse the company's deep losses.

Earlier this month, Spirit reported an 11% drop in revenue and a loss of $192 million, compared with a loss of about $2 million a year earlier, and said it would temporarily furlough about 240 pilots in the coming weeks. The airline has been hit particularly hard by the Pratt & Whitney engine recall.

The airline said it was deferring all Airbus aircraft it has on order from the second quarter of next year through the end of 2026 to at least 2030.

Aircraft leasing company AerCap announced earlier this month that it will take over 36 of Spirit’s Airbus A320neo family aircraft from the airline’s order book. CEO Gus Kelly called the deal “a win-win transaction” for both the airline and AerCap.

Even with the measures taken by low-cost airlines, much of the global airline industry remains in a scarcity mentality, and there is a shortage of new, fuel-efficient aircraft.

Lease rates for the new Airbus A320s and larger A321s hit new average records in July of $385,000 per month and $430,000 per month, respectively, according to Eddy Pieniazek, director of consulting at aviation consultancy Ishka. Meanwhile, leases for the new A320s and larger A321s hit new average records in July of $385,000 per month and $430,000 per month, respectively, according to Eddy Pieniazek, director of consulting at aviation consultancy Ishka. Boeing The 737 Max 8 jets, the most common model, are close to hitting a record $375,000 a month, Pieniazek said.

Airlines can buy aircraft directly from suppliers or lease them from companies such as Air Leasing either Aerobic Cappaying a monthly lease. Some airlines, such as Frontier, have been actively involved in sale-leaseback operations, in which they sell aircraft to generate cash and then lease them back.

Boeing and Airbus, the world’s top two suppliers of commercial aircraft, are struggling to ramp up production as the post-COVID-19 hangover persists in the form of shortages of skilled workers and supplies. Airbus has recently lowered its delivery target for the year, while Boeing is constrained in ramping up production as it tries to overcome a safety crisis.

Despite the delays from budget carriers, an Airbus spokeswoman said the company is not seeing any slowdown in demand for A320 family aircraft, for which it has more than 7,000 orders pending. Boeing has nearly 4,200 orders for its competing 737 Max jets.

“We offer a full range of aircraft to meet our customers' needs and maximise their flexibility with fleet decisions,” an Airbus spokeswoman said in a statement.

But airlines are feeling the pressure. Executives have said delays in deliveries of new planes have forced them to scale back, or even halt, hiring and other growth plans.

“We are urgently and deliberately seeking opportunities to mitigate cost pressures, including the burden of excess staffing related to previously reported Boeing delivery delays.” Southwest Airlines Chief Financial Officer Tammy Romo said on an earnings call last month that the airline, which uses only Boeing 737 aircraft, has offered some employees voluntary leave programs.

Asked about Southwest's fleet plans, Romo said the airline has “a lot of flexibility with our Boeing order book.” Boeing did not comment for this article.

“We're not ready to present all of our plans yet,” Romo said, adding that the company would provide more details at an investor day on Sept. 26. “But we have ample flexibility to redeploy the order book to meet our needs.”