Airlines aren’t OPEC: Don’t count on supply discipline

Want to keep prices high? The textbook strategy is to keep a firm grip on supply, just like major oil producers regularly try to do. Much to travellers’ delight and investors’ dismay, however, airlines are likely to be even less successful at it. Restrictions on short-haul travel are being eased first, raising hopes of a faster recovery for low-cost operators: Their stock prices are down about 30% this year compared with a much larger 55% drop for legacy airlines. Cash is finally starting to flow in as households emerge from lockdowns eager to spend and travel. On Monday, eurozone retail-sales data showed a record rebound in May, mirroring similar readings in the US. Michael O’Leary, CE at Ryanair, said that the first July planes taking Britons to their summer spots in Spain and Italy were more than two-thirds full. But selling plane tickets isn’t enough. The big question for investors is whether, amid pressing health concerns, airlines can sell them at a price that makes them money. The data so far are preliminary, but there is little to suggest that this notoriously cutthroat industry will stop being cutthroat. In theory, low-cost carriers should have the flexibility to carefully bring back just the right number of seats to service those desperate for a sunny holiday and still keep airfares high. Unlike hub-and-spoke strategies, which need the network to be profitable as a whole, these airlines can decide not to restore those specific point-to-point routes that look unlikely to break even. In practice, however, periods of recovery can end up being even more competitive than boom times. Story has more.<br/>