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Airlines measure revenue per unit to compare with competitors and over different time periods. This fall… [+] the largest US airlines will likely face a lower RASM.

US airlines have had a busy summer, not without disruptions to operations. This summer has also seen surprisingly high prices, partly reflecting the inflation consumers are seeing on all products. The industry typically has high price elasticity, meaning higher fares typically mean fewer people travel. But this summer, despite the high tariffs, demand was high. Most U.S. airlines made money in the second quarter, and some think high airfares could be here to stay.

But now it’s the end of August and that means the summer travel season is officially over. The leaves may not have changed color yet, but it’s fall for US airlines. Airlines measure revenue not just in absolute terms, but on a unit basis. The most common is “RASM” or Revenue Per ASM. This measures the amount of money the airline collects for each seat mile it operates. This one-size-fits-all metric makes it easy to compare different companies or different time periods, even if the number of flights changes. The largest US airlines are facing lower RASM due to five specific realities, meaning revenue weakness this fall:

Fewer Leisure Travelers

With the end of summer travel, the rush of leisure travelers also ends. But it’s more than just a regular seasonal drop, as this summer has been marked by what some have dubbed “revenge travel. This may interest you : Reconnecting with Old Friends can improve your mental health, and they.” The idea behind this is that after two summers in which many stayed at home or close to home, this summer had an unusual one with a large number of travelers ready to take to the skies. The fact that high fares did not deter demand supports this view.

The industry will get a better view of what normal leisure demand might be this Thanksgiving or in December. Much of the last summer and fall demand has been to see families as hotel bookings have not been as strong and people have been willing to meet up with family even if they have not been willing to be with many strangers. So the ‘revenge’ aspect of the summer leisure rush is unlikely to be repeated when typically family-oriented demand coincides with the end-of-the-year holidays.

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Price Sensitivity Returns

Airlines are often used in economics classes as an example of a very price-sensitive industry. Low-cost airlines have used this reality to lower fares and create new demand, rather than just stealing shares from others. On the same subject : 20 summer travel destinations without the crowds. Airlines have seen customers swap destinations when fares to one location are lower than another that is considered similar. For example, if fares to Cancun are higher than to Punta Cana, more people will come to the Dominican Republic.

There has been a pause in this resilience this summer, but price sensitivity is expected to return to normal once summer travel is over. In the earnings reports for the second quarter, most airlines spoke of lower volumes than 2019 but higher revenues due to higher fares. The likelihood that leisure fares will be able to maintain high summer levels is very slim, requiring airlines to cut fares to attract the volume that may still exist during this seasonally weak period. Fewer leisure travelers, each paying less, is putting a lot of pressure on the unit revenue metric.

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Business Travelers Won’t Fill All the Gap

The biggest U.S. airlines got fall rolling earlier because while vacation travel was always canceled at the end of summer, business travelers filled the gap until the late-year holidays. Business travelers couldn’t handle the leisure base’s volume, but would pay three to five times as much for their tickets. To see also : Song of the summer 2022: Our authors choose their favorite songs. This means that industry load factors would drop slightly and airlines would fly slightly less and use that time for needed aircraft maintenance and crew vacations.

Along with lower volumes at higher fares, the major US airlines each reported 70% to 80% of business travel volume for 2019. Like the leisure base, some airlines reported higher business revenues at even higher-than-normal fares for this group. A major revenue concern for the largest U.S. airlines is how much of the revenue gap business travelers will fill this fall. The pre-pandemic focus on trade shows and conventions during this period suggests that fall 2022 travel will not be as big as trade show volume has yet to recover to 2019 levels. Other things that are dampening business travel, including increased convenience with video services and companies focusing on sustainability, will also impact business travel this fall. The bottom line is that business travelers like 2019 can’t be counted on to get fall rolling, meaning airlines will have to either fly even less or accept a lower RASM for the flights they choose.

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Operational Pullbacks Making Some Travelers Wait Until Spring 2023

In addition to all these macroeconomic effects, US airlines have also continued to operate unreliably, mainly due to labor shortages. The likelihood of your flight being canceled has increased significantly and airlines have pushed back fall schedules to operate more reliably. Domestic flights saw this in the summer, but the higher fares allowed airlines to do so with less risk. This is particularly risky for businesses, which may choose to use video rather than fly given the increased cancellation rate this fall. Some companies have already said they will continue to hold back employee travel until the airline industry’s reliability returns.

Adding this reality to the other topics mentioned suggests that the biggest US airlines are in for a real RASM shocker this fall. Airlines may be looking to spring 2023 before they can see what a new normal for air travel demand looks like. These likely include a leisure base that’s not unusually larger than seasonal norms and a return to high price sensitivity, and business travel, which settles at about 80% of 2019’s volume.

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