US airlines cut growth plans for the second half of the year

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

Last week, U.S. airlines had “one of the industry’s largest weekly capacity reductions,” cutting nearly 1 percent of capacity planned for the fourth quarter, Deutsche Bank said in a note on Sunday. Airlines now expect flights to increase by around 4% year-on-year in the final three months of the year.

“Despite the significant overall reduction, we expect to see further cuts in the coming weeks as carriers are expected to continue to improve their routes,” Deutsche Bank analyst Michael Linenberg wrote in a note.

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

A reduction in capacity could raise fares for consumers and boost airline bottom lines if demand for travel persists. Getting fares into the market that are profitable for airlines but pleasing to consumers is critical for the industry as consumers have pulled back from spending in other areas.

Third quarter outlook from Delta and United earlier this month disappointed investors, but their CEOs said they expected capacity cuts across the U.S. industry in August to help results. Southwest Airlines they predict a possible drop in third-quarter unit revenue, a measure of how much money an airline brings in for the amount it flies. The airline said last week it would eventually abandon its flagship open-seat model and introduce seats with extra legroom to boost revenue.

American Airlines On Thursday it reported a 46 percent drop in second-quarter profit and said it planned to halt its capacity expansion in coming months, growing less than 1 percent in September from a year ago.

“This excess capacity led to a higher level of discount activity in the quarter than we expected,” CEO Robert Isom said on an earnings conference call last week. Overall, Americans plan to grow by 3.5% in the second half of the year after growing by about 8% in the first six months of the year.

Low-cost and discount airlines have been more aggressive in cutting unprofitable routes and reducing capacity. Those carriers plan to shrink 2.2 percent in the fourth quarter from the same period in 2023, Deutsche Bank said.

JetBlue Airways, for example, has eliminated money-losing routes this year and deployed aircraft to more popular city pairs. The carrier is scheduled to report 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, was lighter than expected.