Demand, costs in focus as US airlines report earnings

Major US airlines are poised to post their strongest earnings since the start of the pandemic when they report quarterly results starting on Wednesday.<br/>But mounting economic worries are unsettling their investors, who are looking for clues to gauge the strength of consumer demand beyond the busy summer travel season. Inflation at a 40-year high and rising interest rates have raised the specter of an economic recession in the United States. With air fares also surging, some analysts are warning of a slowdown in travel spending in the second half of the year. Those worries have battered airline shares even as booming travel demand is driving up the industry’s revenue. The NYSE Arca Airline index has fallen 25% since late May. In contrast, US passenger traffic is up 18% this summer from a year ago and has been averaging about 89% of the pre-pandemic levels since the Memorial Day holiday weekend in May, according to TSA data. Analysts at Jefferies are not sure if the demand will remain as strong in the fall. In a note, they said airline revenue is expected to “materially weaken” in September following a moderation in leisure travel demand. Airline chiefs, however, have played down those concerns. They are betting healthy U.S. household savings as well as strong pent-up demand will help fill flights. Frontier Airlines CE Barry Biffle said his company has not seen any “degradation” in the bookings. If anything, he said the travel demand is only getting stronger. “It’s the best environment we’ve ever had in the industry,” Biffle told Reuters. The industry is counting on an increase in international traffic and corporate bookings to offset any slowdown in leisure bookings, which have been trending above 2019 levels. Online searches by consumers for international travel from the United States, including to Europe, have gone up following the White House’s decision to scrap COVID-19 testing requirements.<br/>