Budget Airlines Face Challenges as Post-Pandemic Travel Boom Slows

A two-year, post-pandemic boom in travel is reportedly showing signs of slowing down.

This new trend is having a mixed impact on airlines, with budget airlines bearing the brunt of the slowdown, The Wall Street Journal (WSJ) reported Wednesday (Oct. 11).

The indicators of a return to normal, pre-pandemic travel demand come after a period in which some airlines enjoyed record-breaking sales and profits amid a surge in travel that followed nearly two years of pandemic-related restrictions, according to the report. The surge has commonly been referred to as “revenge travel.”

While major airlines continue to experience steady demand, budget airlines are encountering obstacles, the report said. Frontier Airlines, for instance, has had to slash fares to maintain seat occupancy. Frontier Airlines CEO Barry Biffle said in the report that fuel costs, capacity and demand are all heading in the wrong direction for budget airlines. Biffle said he views budget airlines as the “canary in the coal mine” for the overall state of the airline industry.

Airlines such as Delta, catering to premium and international travelers, have witnessed continuing strong demand for their luxurious seating options, with sales in premium cabins outpacing coach, per the report. According to United Airlines Chief Financial Officer Mike Leskinen, that airline has not seen any dramatic changes in bookings.

Delta and United remain optimistic about the future, stating that demand has not shown any significant decline, according to the report. However, they acknowledge that higher costs may impact their profitability. Rising fuel prices and other increasing expenses have led Delta to lower its profit projections for the quarter. This concern over rising costs and waning demand has also affected airline stocks, with an NYSE index of airline stocks falling over 33% in the past three months.

The emerging gap between major airlines and budget carriers marks a change from previous dynamics, the report said. Discount airlines, which typically seize opportunities for growth and market share during downturns, are now facing more significant challenges. The return to pre-pandemic travel patterns, including the post-summer slump for leisure trips, has led to an excess of capacity during off-peak periods.

It was reported Aug. 3 that the travel boom saw travelers preferring international trips, leading domestic airlines to slash prices. JetBlue lowered its outlook for the year, and Southwest indicated it’s feeling pressure, Bloomberg News reported.

“If you don’t cater to premium, if you can’t bank on loyalty and if you don’t fly internationally, this year’s third quarter is likely to disappoint,” Jamie Baker, a JPMorgan Chase analyst, said in the report.