Airlines' Growth Plans: Combating Profit-Eating Fare Discounts

Competitive Landscape and Positioning

JetBlue is strategically navigating increased competitive capacity in Latin America, while Southwest is implementing changes to thrive in a higher-cost environment. United Airlines remains adaptable, American Airlines leverages unique advantages, and Delta leads with operational reliability, widening its competitive gap.

"So there's less risk to book further out. But within all those things, we feel really good about the moves we're making about our Latin geography over the long-term as it cycles through this temporary increased competitive capacity and feel that all parts of our network with the moves we're making are going to be contributing meaningfully in the future." --- (JBLU, earning call, 2024/Q1)

"We have a lot to cover today, so let's jump right in. In my comments today, I will touch briefly on our results for the quarter and then provide detail on the plans we announced earlier this morning to implement meaningful changes to our business and better position Southwest Airlines to produce higher returns in a more competitive higher cost environment." --- (LUV, earning call, 2024/Q2)

"I'm encouraged by our strong performance in the second quarter. Our team remains nimble as we've demonstrated our ability to adjust to an evolving environment." --- (UAL, earning call, 2024/Q2)

"These unique advantages have us well positioned to achieve our stated objectives this year and in the years ahead." --- (AAL, earning call, 2024/Q1)

"We are delivering industry-leading operational reliability and have widened the gap to our competition." --- (DAL, earning call, 2024/Q1)

Customer Demand Trends and Adaptation

Airlines are adapting to growing customer demand by enhancing connectivity and offering more choices (AAL), studying customer preferences (LUV), and experiencing positive momentum in bookings across all segments (UAL). Southwest Airlines also reports increased travel demand impacting operating cash flows (LUV).

"And so we're very encouraged by as we bring back the RJs, as we upgauge in those hubs, really what we go and do is not to drive more market share in DFW or Charlotte, but we create a lot more connectivity for customers all across the U.S. And just like I mentioned at Investor Day, in a ton of markets where customer demand is growing, wealth is growing, but frankly, their options are limited and American Airlines gives them really great choices and they want to pay for it." --- (AAL, earning call, 2024/Q1)

"Ryan Green: Look, we're going to study customer -- like we've said, we're going to study customer preferences, but there's strong demand today for Southwest Airlines and the brand that we put and the product that we put in the marketplace today, it has worked for us for over 50 years, and customers understand well who we are and what we bring to the marketplace." --- (LUV, earning call, 2024/Q1)

"On demand, we see continued positive momentum and bookings across all customer segments from the most price sensitive customers to domestic road warriors and up to the premium global customer." --- (UAL, earning call, 2024/Q1)

"The year-over-year increase in other revenue of $13 million, or 9.1%, was principally driven by an increase in TrueBlue ® marketing revenue due to higher customer spend as well as an increase in vacation bookings." --- (JBLU, sec filing, 2024/Q2)

"The operating cash flows for the six months ended June 30, 2023, were largely impacted by the Company's net income (as adjusted for noncash items), an $809 million increase in Air traffic liability driven by higher ticket sales related to an increase in travel demand, and an increase of $140 million in excise tax liabilities due to an increase in sales related to an increase in travel demand. These increases were partially offset by a $243 million" --- (LUV, sec filing, 2024/Q2)

Pricing Strategies to Counter Fare Discounts

Airlines are employing various strategies to counter fare discounts. United Airlines is focusing on a thorough procurement evaluation to secure the best pricing from vendors. American Airlines highlights the ineffectiveness of some strategies in reducing fares or costs. Delta Air Lines notes that Ultra-Low-Cost Carriers must raise base fares to sustain revenue.

"We're also undergoing a significant procurement bottoms-up evaluation. We're going to go through waves going through different vendors to make sure we have best pricing in the industry." --- (UAL, earning call, 2024/Q1)

"It didn't give them cheaper fares. It didn't necessarily give them lower costs." --- (AAL, earning call, 2024/Q1)

"And so as the ULCCs look to make their product more value, they have to increase their base fares just to remain constant in terms of revenue." --- (DAL, earning call, 2024/Q2)

Cost Management Initiatives

Airlines are focusing on reengineering their business models and implementing disciplined cost management strategies. American Airlines emphasizes cost savings initiatives and best-in-class cost management to unlock significant value, while United Airlines highlights disciplined cost management as a key component of their strategy.

"And how it affects what you call our cost savings initiatives just these are initiatives where we are reengineering the business." --- (AAL, earning call, 2024/Q1)

"Coupled with disciplined cost management, we expect United and one other airline to represent the" --- (UAL, earning call, 2024/Q2)

"When we return to the level of revenue generation we know we can achieve, and we couple that with our operational reliability and best-in-class cost management, we will unlock significant value." --- (AAL, press release, 2024/07/25)

Technological Advancements and Innovations

Southwest Airlines is focused on transforming operations and delivering transformative commercial initiatives to enhance efficiency. Meanwhile, American Airlines is accelerating technology development to power the industry and uphold sustainability commitments, ensuring long-term customer service.

"And we had systems, critical systems to the operation affected. So we are fully focused on transforming the company, driving forward, driving forward at pace and having a plan that addresses comprehensively delivering transformative commercial initiatives, improving our operational efficiency and addressing capital allocation discipline. Brandon Oglenski: Thank you. Bob Jordan: You’re welcome." --- (LUV, earning call, 2024/Q2)

"“This announcement will help accelerate the development of technologies needed to power our industry and uphold our commitment to make American a sustainable airline so we can continue to deliver for customers for decades to come,” said CEO Robert Isom. https://t.co/fOa79TsLBs https://t.co/nJ1XuGZqRf" --- (AAL, Twitter post, 2024/07/02)

Partnerships and Alliances

United Airlines leverages the Star Alliance to extend its global reach, while American Airlines emphasizes the growth opportunities and extensive market coverage achieved through its partnerships, serving nearly 90% of the world's O&Ds. Both airlines view alliances as crucial for expanding their networks and enhancing service offerings.

"But when you think about some of your alliance partners, they don't have the same commitment to service and any of the things that you just talked about that you have." --- (UAL, earning call, 2024/Q1)

"We've got partnerships and an international network that fits very well with that." --- (AAL, conference, 2024/05/29)

"The Company serves virtually every major market around the world, either directly or through participation in Star Alliance ® , the world's largest airline alliance." --- (UAL, sec filing, 2024/Q2)

"What I'll say right now is we're working with our partners and the reception that we received is one of tremendous opportunity, one of a desire to partner in ways that we haven't and to really grow." --- (AAL, conference, 2024/05/29)

"And with our partners, we can serve basically, I think, almost 90% of the world's O and Ds." --- (AAL, conference, 2024/05/29)

Future Growth Outlook and Profitability

JetBlue aims for rapid profitability by leveraging East Coast leisure opportunities, while United Airlines expects dominant profitability due to structural changes and solid Atlantic route performance. American Airlines reports double-digit business revenue growth, indicating a positive future growth outlook.

"At the core, our goal is to move to profitability as quickly as we can. And frankly, we're very excited about where we have moved airplanes to take advantage of opportunities right away, especially with our focus on the -- being the best leisure airline in the East Coast." --- (JBLU, earning call, 2024/Q2)

"And it's an industry now that there are 2 airlines that are probably going to be close to 100% of the profitability in the U. S. Airline industry this year when all is said and done that are different in ways that are structural, permanent and irreversible and I'll look forward to talking about why all those things are true." --- (UAL, conference, 2024/05/29)

"So look, we've seen -- first of all, we see total business revenues, which is really a very important thing to look at grow similarly double-digit -- close or approaching double digits, exiting certainly Q1 double-digit rates of growth." --- (AAL, earning call, 2024/Q1)

"I mean profitability, we work with the investors, our job is to make money, these are the changes we need to make." --- (JBLU, conference, 2024/05/15)

"And so we are really happy with Atlantic. The Atlantic continues to look good going forward with extremely solid profitability." --- (UAL, earning call, 2024/Q2)