The Transportation Security Administration (TSA) reported record travel numbers on July 7, with more than 3 million passengers screened after the July 4 extended weekend. While travel has picked up significantly since the COVID-19 pandemic, airlines haven’t seen that translate into record profits.
Citi CEO Steve Trent joins Market Domination to provide insight into the airline industry and why record travel may not have meant record profits for airlines.
Trent describes what happened with ticket prices and aircraft capacity, which affected the industry:
“It’s kind of a tale of two cities, so to speak. The domestic market, compared to last year, has a few pockets where there seems to be overcapacity. Florida, for example, which has long been the only place people seemed to be going these days… you’ve got plenty of capacity there, you’ve got air traffic control limitations, and then the low-end consumer is still under some pressure, interest rates haven’t come down yet. But when you think about long-haul international, it still looks pretty good, with the caveat that was mentioned.”
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This post was written by Nicolas Jacobino
Video Transcript
Air travel is breaking records.
The TS screened more than 3 million passengers on July 7.
It’s a new record as summer holiday travel is in full swing, but the sky-high demand hasn’t translated into a record for airlines.
The most profitable among us.
Delta Airlines is expected to report earnings tomorrow.
Analysts expect the company’s adjusted quarterly profit to be 11% lower than a year earlier.
We look at how to navigate the big picture with the Yahoo Finance playbook and now join City CEO Steve Trent Steve.
It’s always good to see you here in the studio.
Thanks for coming.
Thank you for.
So I know you’re a fan of Delta from an investment perspective, but maybe you can help us solve this puzzle that we face all year long, which is this huge demand for travel that we see that doesn’t always translate into financial results for these airlines.
Yeah.
No, that’s absolutely true.
And as we look at this quarter and the quarters ahead, we see some pivots happening from a seat mile cost perspective.
So certainly, you had this honeymoon period, for example, during the pandemic where there wasn’t a lot of maintenance, you’re now entering a heavy maintenance cycle for some carriers, you know, the, the whole group may have delayed for a while.
On top of that, you have work coming up.
Um, the agreements with the drivers, the agreements with the mechanics that are fully operational and that create in some cases modestly difficult camps a year ago, but overall, in a broad perspective, you know, we are still constructive.
Delta’s verticals are firing on all cylinders and we like the fact that they’re generating over half of their revenue from outside of a main cabin and Steve, what are your ticket prices? What are we seeing there in terms of trends?
I mean, compared to six months ago or twelve months ago.
Yeah, so a bit of a tale of two cities, so to speak, on that.
So, in the domestic market, compared to last year, we have some pockets where we have reasonable overcapacity.
So Florida, for example, which for a long time was the only place people seemed to go.
Nowadays, of course, you have a lot of capacity there.
Um, you have air traffic control limitations and there’s always some pressure on the low-end consumers.
Interest rates have not yet fallen.
But when you think about long-haul international flights, you know, it still looks pretty good, with the caveat that was mentioned.
Maybe we look at the transatlantic, we get a little bit of unit revenue with the Paris Olympics because business travel is kind of drying up.
Aside from that element, you know, the long-haul international side still looks very good.
So, in general, it seems that demand is still strong.
It’s more a question of cost.
This is a problem, say more if you want about this other than the comment you made on the main cabin about Delta and our others, what does this mean?
Where does that imply what?
And are other airlines also taking advantage of this?
Yes, absolutely.
So the network airlines absolutely are.
So if you’re with Delta or United, for example, you have economy class plus your business class is doing really well, long haul international flights are great.
And then, on top of that, the revenue from the loyalty program, the remuneration from co-branded cars.
Air freight hasn’t been very popular lately, but maybe it’s also going to make a comeback, you know, at the opposite end of the spectrum.
If you’re a domestic airline, it’s a little more difficult if most of your top row is devoted to the main cabin.
And that’s kind of a piece of the pie versus these other verticals, where the near-term unit revenues are maybe not as strong as what you’re going to see with the big networks, Steve, most of the time when people book a flight, of course, they book it.
You know, they want loyalty programs, right?
Of course.
Are there certain names that do this better than others in your cover universe?
Yeah, on the loyalty side and the co-branded cards, uh, you know, Delta, a monster on that side of the fence, I mean that in a good way.
Um, you know, if you look at the co-branded car compensation that they get from American Express or as a partner with American Express, they made $7 billion last year.
And that really represented a very good trajectory from what they’ve done in previous years and certainly what it all looked like before Penn.
United is also doing pretty well, names like Alaska Air are also doing very well.
These network airlines, that is, full-service airlines that can offer global capital to their frequent flyers and co-branded cardholders, offer, from a customer perspective, much better options by being one of these programs versus a domestic low-cost airline that has a relatively limited network, for example.
