Airlines Struggle to Keep Pace With Shifting Travel Patterns
25.08.2023 - 13:12
/ skift.com
/ Delta Air Lines
/ Henry Harteveldt
/ Devon May
/ Andrew Nocella
Consumers continue to splurge on air tickets. But travel patterns are shifting so often, partly due to work-life changes wrought by the pandemic, that airlines must constantly adapt on booking plane seats and remain cautious in forecasting demand and revenue.
That situation can result in lost revenue for the carriers if they guess wrong on the best time to sell seats, while their caution in estimating revenue is taking a toll on their shares as Wall Street interprets that as a sign of slowing consumer demand.
American Airlines Chief Financial Officer Devon May attributed the challenge to the difficulty in forecasting demand. For investors, this has raised the risk of confusion.
“We’re getting better at it, but demand trends are still a little bit different today than they were back in 2019,” he told Reuters.
Worries about future demand were a reason American Airlines’ stock fell 6% on Thursday even after it raised its full-year earnings forecast. Investors were concerned the hike was modest following the company’s performance in the second quarter, analysts said.
American is not alone in this struggle. In March, United Airlines had to change its earnings forecast for the first quarter from a profit to a loss because it overestimated demand for business travel in January and February.
In the June quarter, United held back seats for summer travel and made them available closer to the peak travel dates at higher fares in a bid to maximize revenue. It was a risky bet as booking data from the previous quarter had shown customers were booking trips well in advance.
United’s move paid off, helping it generate record quarterly revenue. The company’s chief commercial officer, Andrew Nocella, said that was another sign that seasonal travel patterns have changed.
“The summer peak period is more spread out relative to the past,” he said on Thursday on a conference call.
Airlines can no longer afford to rely on historical booking data because hybrid or remote work arrangements have allowed customers more flexibility to plan travel, said Henry Harteveldt, founder of travel consultancy Atmosphere Research Group.
As a result, airlines are leaning more on artificial intelligence and are hiring data scientists to better align seat sales, ticket pricing and flight scheduling with changing booking trends, he said.
Yet airlines face the risk of failing to keep pace with ever-shifting travel patterns and missing financial forecasts.
“This is a very difficult path to walk,” Harteveldt said. “Airlines are going to take a more conservative view of things.”
Investor Caution
That caution is stoking worries among investors, who are not sure travel spending will hold up.
Rahul Sen Sharma, co-CEO at financial services firm