US airlines see no letup in travel demand despite broader economic concerns

A rush among travelers to make up for lost time during the pandemic is producing bumper airline earnings. And executives at US carriers don't see a letup in demand even as rising living costs stretch household budgets and add to worries about the industry's pricing power.

American Airlines on Thursday raised its earnings forecast for 2023 after profit in the second quarter topped Wall Street estimates.

The Texas-based carrier is the latest to offer an upbeat outlook. United Airlines and Delta Air Lines have also raised their earnings estimates as consumers cut spending on goods in favor of experiences.

"It's indicative of our belief that the economy is strong, demand is strong," American CEO Robert Isom said on an earnings call.

The number of passengers moving through airport checkpoints has been averaging above pre-pandemic levels since mid-May and hit a four-year high last month, US Transportation Security Administration data showed.

International bookings are especially strong after the lifting of pandemic-related restrictions. Data from travel website Kayak, for example, shows searches by US-based customers for summer travel to Europe are up 55% from last year.

Airlines say travel has become the topmost priority for consumers, but capacity constraints at airlines will not let them catch up with demand for anytime soon, helping sustain the post-pandemic travel boom.

These "very constraints and challenges are going to set the table for improved financial results for the airline industry," said United CEO Scott Kirby.

But with the US central bank aggressively trying to tamp down inflation, airlines continue to face questions about travel spending.

Those concerns have not allowed airline shares to bounce back to pre-pandemic levels despite a rebound in the industry's revenue.

Pricing power weakening?

Strong demand has bolstered airfares, allowing carriers to offset higher costs.

But inflation data shows airline ticket prices have peaked. American's earnings report reinforced that view as its total revenue per available seat mile, a proxy for pricing power, in the September quarter is forecast to be down about 4.5% to 6.5% from last year.

Shares of American and Delta were down 6% and 1.5%, respectively. United's shares were up 1%.

Airline executives say the drop in ticket prices is primarily a reflection of cooling fuel prices and higher capacity and not a result of waning demand. They point to frequent upgrades to airline earnings forecasts as an evidence of strong travel spending.