Air travellers to keep ‘paying the price’ of industry constraints

The chief executive of United Airlines warned that air travellers can expect continued chaos this year and that competitors have sold more flights than they can realistically operate.

The airline industry is dealing with constraints that will limit flying this year, Scott Kirby told investors on an earnings call. The winter storm that precipitated a meltdown at Southwest Airlines caused problems at other airlines too, and structural changes in the industry mean problems are likely to continue, particularly at low-cost carriers.

Airlines that try to fly as much as they did in 2019 will be forced to cancel flights, Kirby said Wednesday. The reasons include shortages of both pilots and new aircraft, to higher levels of staff felled by sickness, and outdated technology at airlines and their main regulator, the US Federal Aviation Administration.

“Any airline that tries to run with the same staffing level that it had pre-pandemic is bound to fail and likely to tip over to meltdown anytime there or weather or air traffic control stresses,” Kirby said. “There are a number of airlines who cannot fly their schedules and their customers are paying the price.”

There is “a new math for airlines” that means carrying higher costs to run a more reliable operation, Kirby said. United forecast that for 2023 its cost to fly one seat one mile, excluding the expense of jet fuel, would total about 12 cents — 15 per cent higher than in 2019.

The company is spending more because it needs to allot for more pilots and more aircraft to generate the same amount of flight capacity as it did prior to the pandemic.

“It’s a new world,” he said. “You can’t run the airline like you did in 2019.”

But customers’ demand for air travel, combined with the constrained supply of flights, “may drive structurally higher industry margins”, the Chicago airline said. The company said it expects to earn $10 to $12 a share this year, well above the Wall Street consensus of $6.64 a share.

United reported fourth-quarter net income of $843mn — nearly a third higher compared to the same period in 2019, even as it flew less than before the pandemic. It earned $2.55 a share, beating Wall Street’s expectation of $2.11.

“We remain excited by the earnings power of United in this environment,” said Cowen analyst Helane Becker.

United shares were down 3.4 per cent in afternoon trading in New York on Wednesday.