Record travel hasn’t exactly meant record profits for airlines

The Transportation Security Administration (TSA) has reported record travel numbers on July 7, screening more than 3 million passengers after the extended July 4th weekend. Although travel has bounced back significantly since the COVID-19 pandemic, airlines haven’t seen that translate into record profits.

Citi managing director Steve Trent joins Market Domination to give insight into the airline industry and why record travel numbers may not have equated to record profits for airlines.

Trent outlines what has happened with ticket prices and capacity on planes, which have affected the industry:

“So a little bit of A Tale of Two Cities, so to speak, on that one. So [the] domestic market, relative to last year, you do have some pockets where, you ostensibly have some overcapacity. Florida, for example, which for a long time was the only place people seemed to be going nowadays… you have plenty of capacity there, you have air traffic control limitations, and then [the] lower-end consumer is still under some pressure, interest rates haven’t come down yet. But when we think about international long haul that largely still looks very good with the noted caveat.”

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Nicholas Jacobino

Video Transcript

Airline travel is breaking records.

The TS a screening more than 3 million passengers on July 7th.

That was a new record as summer holiday travel is in full swing, but that sky high demand has not translated to record province for airlines.

The most profitable us.

Airline Delta is set to report results tomorrow.

Analysts are expecting the firm’s quarterly adjusted earnings will be 11% lower than the year prior.

We’re looking at how to navigate the big picture with the Yahoo Finance playbook and joining us now city managing director Steve Trent Steve.

It’s always good to see you here in studio.

Thanks for coming in.

Thanks for having me.

So I know you are a Delta fan from an investment perspective, but maybe you can help us with this puzzle that we have been witnessing all year, which is this huge travel demand that we’re seeing that is not always translating to the bottom line of these airlines.

Yeah.

No, that’s absolutely right.

Um And as we look over this quarter and the coming quarters, uh we have pivots that are are occurring from a seat mile cost perspective.

So certainly, uh you had this honeymoon period, for example, during the pandemic where there was not a lot of maintenance, uh you are now getting into a cycle of some heavy maintenance for some carriers uh that they were, you know, the, the entire group was able to delay for some time.

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Um On top of that, you’ve got uh labor coming in.

Um pilots agreements, mechanics agreements that are uh have fully spooled up and create in some cases modestly difficult year ago, camps, but big picture, broad picture, you know, we’re still constructive.

Uh Delta’s verticals are firing on all cylinders and we like the fact that it gets more than half of its revenue from outside a main cabin and and Steve just your ticket prices like what are we seeing there in terms of trends?

I mean, versus like six months ago or 12 months ago.

Yeah, so a little bit of a tale of two cities, so to speak on that one.

So domestic market uh relative to last year, uh you do have some pockets where uh us sensibly have some over capacity.

So Florida, for example, which for a long time was the only place people seem to be going.

Um Nowadays, of course, uh you have uh plenty of capacity there.

Uh you have air traffic control limitations um and then lower end consumer is still under some pressure.

Uh interest rates haven’t come down yet.

But when we think about international long haul, you know, that largely still looks very good with the noted caveat.

Maybe we look at the transatlantic, we get a little bit of unit revenue with the Paris Olympics because business travel kind of dries up.

Um aside from that one item, you know, the international long haul side still looks very good.

So in general, sounds like demand is still holding up.

It is more on the cost side.

That is an issue, say more if you will about that outside of main cabin comment you made about Delta and our other, what does that mean?

Where does, what does that entail?

And are other airlines also capitalizing on that?

Yeah, absolutely.

So the network airlines absolutely are.

So if you’re at Delta or, or a United, for example, uh you have economy plus uh your business class cabin is doing very well, international long haul is due nicely.

Um And then on top of that uh loyalty program revenue, co branded car remuneration.

Um air cargo hasn’t been so hot lately, but maybe it’s also gonna make a swing back, you know, on the opposite end of the spectrum.

If you’re a domestic airline, it’s a little bit of a tougher ball game if most of your top line is main cabin.

Um and that’s been kind of a piece of the pie relative to those other verticals uh where short term unit revenue is maybe uh not as strong as, as as what you’re gonna see with the, you know, the network majors, Steve a lot of times when people book a flight, of course, they book it.

You know, they want the loyalty programs, right?

Of course.

Are there certain names that do it better than others in your coverage universe?

Yeah, on the loyalty side and co branded card side, uh, you know, Delta, a monster on, on that side of the fence, I say that in a good way.

Um, you know, if one looks at the um uh co branded car remuneration that it receives from American Express or as a partner with American Express, uh they did seven some odd billion dollars last year.

Um And that was uh really represents a very good trajectory versus what they’ve done over the previous years and certainly what this all looked like on a pre penn basis.

Uh United is also doing quite well, names like Alaska Air also doing a pretty good job.

Those network airlines, uh full service airlines that can offer uh global capital to their frequent flyers and their co branded card holders, there’s from the customer standpoint, much better optionality uh from being one of those programs uh versus a domestic low cost that has a relatively limited network, for example.