Is U.S. Airline Demand Sputtering? Depends on Whom You Ask

Frontier and Spirit issued awful third-quarter guidance on Wednesday. American's wasn't great either. But two other U.S. airlines say business is OK.

Dear readers,

We journalists look for trends. When most airlines agree on a narrative, I can reasonably conclude where the industry is going and can it share it with you. But after spending Tuesday and Wednesday following an investor conference, I’m more confused than ever about how U.S. airlines, as a group, are faring.

Three airlines have so far presented at the Morgan Stanley 11th Annual Laguna Conference, and I read updates from another two that did not participate. They’re all facing higher fuel prices, but some report the situation as more dire than others. This week, American, Spirit, and Frontier significantly slashed third-quarter profit expectations, with Frontier’s CEO going further and warning of fall demand trouble. Yet, Alaska and United reported no material changes — other than higher fuel costs — with executives from both carriers saying demand is holding up fine.

"We have not seen any dramatic change in the bookings," Mike Leskinen, United’s vice president of corporate development and investor relations, told Morgan Stanley’s Ravi Shanker on Wednesday. "We have seen all the reports that came out today. The magnitude of what we have seen from peers was as shocking to us as it was to all of you."

It’s hard to draw many conclusions about broader industry trends — other than on fuel — from this week’s updates. But there is one obvious one: Judging by Frontier’s and Spirit's expectations, ultra-low-cost airlines are underperforming. That makes sense, because these airlines don't benefit much from key macro trends that buoy upscale airlines, including strong demand for premium products, long-haul flights, and co-branded credit cards. But this answer only gets us so far: Alaska is a low-cost airline, albeit not a ULCC, with a limited geographical footprint and a smaller credit card portfolio, and it's holding up OK.¹

I suspect over the coming weeks we will see more trends solidify. But for now, I'll simply share what airlines reported this week. Paid subscribers should read on for all the details from Frontier, Alaska, United, American, and Spirit.