Low cost carriers affect US travel demand

Of Rajesh Kumar Singh

Chicago (Reuters): A fall in travel demand due to the trade war of President Donald Trump has left all the airlines in the United States, but the pain is more acute to budget carriers.

Southwest, Frontier, and Jetblue decreased strongly on their operational margins in the first quarter. In comparison, the margins of Delta and United Airlines remained, despite the demand of the consumer.

As the odds of economic growth and higher inflation increase, the margin gap between the budget and the full service airlines are expected to expand even more. This can mark a change of previous falls, when the low-cost airlines led by the southwest beat the market.

Analysts say that an increase in premium travel demand and the growing value of customer loyalty programs have given a full service airlines an advantage.

Meanwhile, budget carriers have been struggling to return to sustained profitability after pandemic.

The national flight schedules for the current quarter reflect the changing industry panorama. Low -cost airlines are the capacity for reduction or available seats, to protect their margins. However, United and Delta have added flights and are making reservations to lower rates.

Industry analysts and officials say that full service airlines are working on a two -pointed strategy: to avoid loss of customers due to a shortage of seats and stealing customers from budget rivals.

“Like the south,” it used to be stronger through the falls, this time we basically think that it is United’s turn, it is Delta’s turn, “said Jamie Baker, an analyst at JPMORGAN.

Demand for high-end travel has been booming and Delta, United and Alaska Airlines have made great investments to take advantage of it.

Premium income accounts for 41% of Delta passenger revenue, up to 35% in 2019.

With airlines that generate the highest income for high -end leisure travelers, their confidence in business traffic has been reduced. Last month, United said that the corporate travel share in its passenger revenue is well below pre-pandemic levels.

Responsible for the prospects, the data of the Bank of America show that the expenses and gains of the highest income households continue to grow.

“The premium orientation change that has happened in the industry … will be lasting,” Alaska’s financial manager Shane Tackett told Reuters.

Pullback on discretionary travel

Budget airlines have sought to deepen the high -end travel market, but their investments and offers are pale compared to those of full service rivals.

Low cost carriers are mainly based on price -sensitive leisure customers and serve in the United States National Market. But consumer spending is weaker among homes with lower income and the United States is currently the softer travel market.