Airlines got too confident, and now they are paying the price despite record-breaking travel
Taylor Rains Jun 29, 2024, 3:53 PM GMT+5

American Airlines and Southwest Airlines planed lines at gates at an airport.Southwest and American have recently announced profit outlook adjustments despite travel booming. Smith Collection/Gado/Getty ImagesDespite booming travel, airlines are struggling to turn a profit.Southwest expects seat-mile revenue will decline up to 4.5%, while American predicts up to 6%.Experts blame fewer last-minute business travelers, overcapacity, Boeing delays, and inflated costs.

Today Breaking News Sign up to get the inside scoop on today’s biggest stories in markets, tech, and business — delivered daily. Read preview By clicking “Sign Up”, you accept our Terms of Service and Privacy Policy. You can opt-out at any time by visiting our Preferences page or by clicking "unsubscribe" at the bottom of the email. Bull Making money in the airline industry has never been easy.It's a capital-heavy business with the constant need to expand and innovate while simultaneously managing ever-changing demand and costs.

Expensive fuel, maintenance, and labor don't help, nor do unpredictable setbacks outside the airline's control, like pandemic travel bans and production slowdowns at planemaker Boeing.Despite the challenging environment, 2024 is still set to see record-breaking passenger numbers, according to the International Air Transport Association, or IATA, With so many people traveling, US airlines were poised for success. Some, like Delta, have found it. But across the industry, many airlines are struggling to turn profits thanks to issues like overcapacity, unrelenting competition, and unexpectedly high costs, according to experts.

Take Southwest, for example, which in June cut its forecasts and now expects revenue per seat mile — a key financial metric for airlines — to fall by up to 4.5% where it had previously expected 1.5% to 3.5%. Before that, American in May warned it expected the same metric to fall by 5% to 6% compared to last year. Its earlier prediction was 1% to 3%. Across the board, airlines have trailed the benchmark S&P 500 index with more debt than the average publicly traded company and thinner margins. Airlines got overambitious with their expansion plans Travel analyst Henry Harteveldt told TODAY BREAKIING NEWS that thining margins are, in part, because airlines added too much to the market too fast amid confidence in the soaring demand and now can't sell all of those seats.

Passengers check in for an American Airlines flights at O'Hare International Airport on October 11, 2022 in Chicago, Illinois. American drove customers away earlier this year when it forced people to book directly through the airline to earn status rather than through third parties. Scott Olson/Getty Images Reuters reported American hurt its pricing power after aggressive growth in its domestic market. The airline also missed out on revenue from corporate customers due to a flawed ticket sale strategy it has since admitted was a mistake to adopt.

"We're seeing softness in customer bookings relative to our expectations that we believe is in part due to the changes that we have made to our sales and distribution strategy," American CEO Robert Isom said during a May conference.

Southwest also cited its struggle to predict demand as part of its revenue problem. And, unlike ultra-low-cost carriers, Southwest doesn't charge extra for ancillaries like bags or seats — another missed revenue opportunity.

In fact, activist firm Elliott Investment Management recently pumped nearly $2 billion into Southwest, questioning strategies like its lack of add-on fees and calling for a board shake-up and the firing of Southwest CEO Bob Jordan. Business travelers are booking fewer last-minute premium-priced ticketsPart of the industry's overcapacity problem is because lucrative business travel still hasn't completely rebounded since the pandemic, Harry Kraemer, former CFO and CEO of healthcare firm Baxter International, told TODAY BREAKING NEWS.

Corporations aren't spending as much on last-minute business travel since the pandemic made Zoom and Google Meet more convenient.