By Callum Keown
It isn't just airline bosses who will be left frustrated by Boeing's delivery problems -- those intending to travel over the summer are likely to be irked, too.
Travelers are already facing higher airline baggage fees this summer but capacity cuts due to Boeing's troubles mean elevated airfares are also likely to hit passengers' pockets.
Airline capacity, or the number of flights taking to the skies, is a reliable driver of ticket prices. The more flights people have to choose from, the lower the price and vice versa. Higher maintenance costs, as a result of more older planes remaining in fleets, also have the potential to add upward pressure to fares.
Several carriers, including Southwest Airlines, Ryanair, and Alaska Air are set to cut capacity growth because of uncertainty over deliveries from Boeing. The Federal Aviation Administration has increased its oversight of United Airlines following several safety incidents and the carrier faces potential restrictions on new routes and new planes.
The industry's previously aggressive capacity growth plans for the year pointed to some relief for passengers on fares but that may not now be the case.
Alaska Air said Thursday that its capacity growth will likely be below the lower end of its 4% to 8% target range, with part of that stemming from the temporary grounding of the 737 MAX 9. "The entire industry is growing domestic capacity at a much slower rate," it added in an annual report to shareholders.
The airline said earlier this month its full-year capacity plans were in "flux" due to Boeing's delivery problems. In January the carrier said it may miss its earlier annual target for 3% to 5% capacity growth.
Fares Under Fire
Airlines fares fell 6.1% in February compared with the previous year, according to the latest consumer price index $(CPI.UK)$, but they rose 3.6% from January. The average cost of round-trip ticket flying domestically in February was $573, up from $546 in January, and the highest in a year, according to Airlines Reporting Corporation. Its data differ from CPI and puts February's average fare at the same levels as February 2023.
The summer travel period, which is typically booked several months in advance, will be the real test for fares as that's when the industry's capacity changes are likely to take effect.
Irish low-cost carrier Ryanair has been more explicit about the impact of Boeing's delivery delays on ticket prices -- passengers could be paying up to 10% more. The airline, a major Boeing customer, said earlier this month it expects to receive just 40 of the 57 planned 737 MAX 8-200 that were due to be delivered by the end of June.
As the carrier's schedule was predicated on obtaining at least 50 of the 737 MAX jets, it has been forced to cut capacity over the summer months.
"We expect these latest Boeing delivery delays, which regrettably are beyond Ryanair's control, combined with the grounding of up to 20% of our Airbus competitors' A320 fleets in Europe, will lead to more constrained capacity and slightly higher airfares for consumer in Europe in summer 2023," CEO Michael O'Leary said in early March.
Closer to home, Southwest Airlines is also cutting capacity this year by at least one percentage point from 2023 due to Boeing's challenges. The airline said Boeing told it to expect 46 deliveries of the 737 MAX-8 plane in 2024, compared with the 79 previously expected.
With most U.S. airlines also hiking baggage fees by around $5 per bag, it isn't going to be a cheap summer of travel.
Write to Callum Keown at callum.keown@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
March 29, 2024 07:56 ET (11:56 GMT)
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