US airlines cut growth plans for second half of year

U.S. airlines are cutting capacity through the end of the year in an attempt to cool an oversupplied domestic market that has led to lower fares and lower profits despite strong demand for summer travel. For passengers, that could mean higher fares are on the way.

Over the past week, U.S. airlines suffered “one of the industry’s largest single-week capacity reductions,” cutting nearly 1% of their planned capacity for the fourth quarter, Deutsche Bank said in a note Sunday. Airlines now expect flights to grow about 4% year-over-year during the final three months of the year.

“Despite the significant overall reduction, we expect to see further cuts in the coming weeks as airlines are expected to continue fine-tuning their schedules,” Deutsche Bank airline analyst Michael Linenberg wrote in the note.

U.S. airline executives have noted strong demand but a domestic market flooded with flights, forcing them to scale back their growth plans, which could push up fares. The latest U.S. inflation report, released earlier this month, showed airfares in June fell 5.1% from a year earlier and 5.7% from May.

Reduced capacity could push up fares for consumers and improve airlines' bottom lines, if travel demand holds up. Getting fares into the market that are profitable for airlines but acceptable to consumers is crucial for the industry, as consumers have cut back on spending in other areas.

Outlook for the third quarter of Delta and United Investors were disappointed earlier this month, but CEOs said they expected U.S. industry-wide capacity cuts to materialize in August, helping results. Southwest Airlines forecast a possible drop in third-quarter unit revenue, a measure of how much money an airline makes from the number of flights it operates. The airline said last week that it will finally abandon its iconic open-seat model and introduce seats with extra legroom to boost revenue.

American Airlines On Thursday, it reported a 46% decline in second-quarter profit and said it plans to slow capacity growth in coming months, expanding less than 1% in September from a year ago.

“That excess capacity led to a higher level of discounting activity than we had anticipated in the quarter,” Chief Executive Robert Isom said on an earnings call last week. Overall, American plans to grow 3.5% in the second half of the year after expanding about 8% in the first six months of the year.

Low-cost and budget airlines have been more aggressive in cutting unprofitable routes and capacity. Those airlines plan to contract 2.2% in the fourth quarter from the same period in 2023, Deutsche Bank reported.

JetBlue AirlinesFor example, this year it has eliminated loss-making routes and deployed aircraft to more popular city pairs. The airline is scheduled to report its results before the market opens on Tuesday.

Spirit AirlinesMeanwhile, it warned of a bigger-than-expected loss for the second quarter after non-ticket revenue, which accounts for fees such as checked bags and seat assignments, came in lower than expected.