Where are low-cost airlines cutting back now? New planes

Airlines that spent years asking for new jets are changing their tune.

Low-cost and deep-discount airlines are delaying spending billions of dollars on new planes to save money as they try to return to solid profitability and deal with the impact of engine overhauls.

Airlines have flooded the U.S. with flights this year, slashing fares particularly in the domestic market where low-cost carriers are concentrated and weighing on carrier revenue while costs have risen. Spirit Airlines, JetBlue Airways and Frontier Airlines annual profits were last recorded in 2019, while major carriers returned to profitability.

Lower airfares are felt: Fare tracker Hopper estimates a “good deal” on September airfares will cost $240 for round-trip domestic US flights, down 8% from last year.

Now, some of those same airlines are withdrawing their expansion plans and postponing deliveries of new aircraft. Most of the price of an airplane is paid on delivery.

“You have too much supply, so it’s natural for us as an industry to reduce supply,” said Frontier CEO Barry Biffle. Frontier earlier this month said it was deferring 54 Airbus planes until at least 2029.

Part of the problem is that years of aircraft delivery delays mean carriers don’t want to add too many planes too quickly, Biffle said.

“Because they delayed a bunch, [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, with average fare revenue falling 16% to just $40.

JetBlue Airways estimates it will save about $3 billion by deferring 44 Airbus A321 planes until 2029, opting to extend some aircraft leases. The New York carrier posted a profit surprise in the second quarter, but is trying to cut costs through postponements and steps like exiting unprofitable routes — and it wants to do it fast.

The airline and others are also fighting grounded jets from a Pratt & Whitney engine recall.

Grounding so many planes even when the carrier has a shortage of planes due to the engine recall is a “double-edged sword,” JetBlue Chief Executive Joanna Geraghty said in an Aug. 19 memo to employees.

“We need planes to grow, but delivering planes that end up sitting on the ground after we’ve paid for them makes the problem much worse,” he said. “Plus, given our mounting debt, we simply can’t afford to buy that many planes.”

Spirit Airlines — which planned to be acquired by JetBlue until a judge blocked the deal in January — has also been shelving planes as it struggles to reverse the company’s deep losses.

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

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

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

Even with the move from low-cost carriers, most of the global airline industry is still in a scarcity mindset, with new fuel-efficient planes in short supply.

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

Airlines can purchase aircraft directly from suppliers or lease them from companies such as Air Lease or AirCappaying monthly rent. Some airlines, such as Frontier, engage in leasebacks, in which they sell planes to generate cash and lease them out.

Boeing and Airbus, the world’s two main suppliers of commercial aircraft, are struggling to ramp up production as the post-Covid hangover persists in the form of skilled worker shortages and supply shortages. Airbus recently cut its delivery target for the year, while Boeing is constrained from increasing production as it tries to deal with a safety crisis.

Despite the postponements by budget airlines, an Airbus spokeswoman said the company does not see any slowdown in demand for the A320 family of planes, for which it has more than 7,000 backlogs. Boeing has nearly 4,200 orders for its rival 737 Max planes.

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

But airlines are feeling the pressure. Executives have said delayed deliveries of new planes have forced them to slow, if not halt, hiring and other growth plans.

“We are urgently and purposefully pursuing opportunities to mitigate cost pressures, including pulling out of excess staffing related to previously reported Boeing delivery delays.” Southwest Airlines CFO Tammy Romo said on an earnings call last month. The Boeing 737-only airline has offered some voluntary leave schemes to staff.

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

“We’re not ready to lay out all of our plans yet,” Romo said, adding that the company will provide more details at an investor day on Sept. 26. “But we have enough flexibility to renew the order book to eventually meet our needs.”