Airlines say domestic fares are sliding and threatening to chill record revenue growth

Sky-high airfare was a boon for US airlines coming out of the Covid-19 pandemic. But airline executives are now seeing lower domestic fares as carriers’ schedules swell and customers opt for trips abroad over closer destinations that were popular during the pandemic. Southwest Airlines, Alaska Airlines and American Airlines are among the carriers that have forecast slower revenue growth or weakness for the third quarter, despite strong demand. The NYSE Arca Airline Index is down more than 6% this week, slimming its gains to 37% so far this year. Airline shares have largely outpaced the S&P 500 this year, which is up marginally this week and has advanced 18% in 2023. Domestic US airfare is currently averaging $258 for a round-trip ticket, down 11% from last year and 9% from 2019, according to fare-tracking company Hopper. International tickets, in comparison, are up 8% from 2022 and are 23% more expensive than 2019, averaging $958. The latest US inflation report showed a sharp drop in airfare. The shift marks a new chapter in airlines’ recovery from the pandemic and a potential challenge to domestic-focused airlines after the peak summer travel season, which traditionally fades in mid-August when schools reopen. That’s happening while corporate travel demand still hasn’t recovered to pre-pandemic levels. Southwest on Thursday said it expects unit revenue to drop as much as 7% in the current quarter from a year ago on a 12% increase in capacity. An airline’s revenue per available seat mile is a measure of how much a carrier generates compared with how much capacity it is offering. The Dallas-based airline blamed its forecast on faster-than-usual capacity growth. Overall, Southwest still expects record revenue for the quarter, but estimated unit costs, excluding fuel, would rise between 3.5% and 6.5% from the same period in 2022.<br/>