Travel delays continue as airlines remain understaffed: analyst

Cowen Senior Research Analyst Helane Becker joins Yahoo Finance Live to discuss airline staffing issues, travel delays and cancellations, inflation and the outlook for the travel sector.

video transcript

[MUSIC PLAYING]

BRIAN CHEUNG: Delays, cancellations and high prices. If you’ve flown this bank holiday weekend, chances are you’ve experienced the combination of all three. Let’s enlist Helane Becker, Senior Research Analyst at Cowen, to learn more. Helane, it’s great to have you on the program. Look, anecdotally, people experienced this last weekend. You end up just sitting in the LaGuardia terminal while your flight is delayed hour after hour after hour after hour. What’s going on in the industry? Should we expect more cancellations in this busy summer season?

HELAN BECKER: Yes, more cancellations. Patience will be the watchword for the summer. What’s going on is a combination of many things, also a sort of culmination of many things. First of all, we’ve had tremendous sales growth in the industry. Airlines were in survival mode two years ago. And I think even though we told them it would take two to three years for the industry to get back to normal, they’re still understaffed. So that’s a thing to think about.

Airports are understaffed. That’s another thing to think about. The air traffic control system is understaffed. People don’t know this because it hasn’t been widely reported, but the US government stopped training air traffic controllers in the last two years. And training to become a controller takes two to four years. And the pay is not very high. And the hours are long and stressful. And that’s why we don’t have enough air traffic controllers. And that’s another topic.

So if there’s a weather event, there’s either a thunderstorm – I don’t know. Lately they seem to be closing airspace even within 10 hours from an airport or 1,000 miles. And they go to ground stop programs. It’s just over– I think it’s just gone crazy. But the reality is where we are. And whenever there is weather, particularly looming thunderstorms in the summer months, this causes ground programs, especially on the very congested East Coast, to be canceled for the first time. And the next thing you know, you’re going to be delayed.

BRIAN CHEUNG: I think there’s plenty of reason, based on all of the things you just outlined, to believe that a busy touring season is only going to make this worse. I think what’s alarming about all of this is that demand isn’t far above 2019 levels. I think your recent note pointed out that capacity is still 15% below 2019 levels. And it seems like what you have outlined are things that cannot be resolved in the short term. How are the airlines dealing with this? Do you think there are some airlines that handle this better than others?

HELAN BECKER: Yes, so there are a few things. The reason for this is that the capacity has decreased for two main reasons. The first is not enough staff, not enough pilots, not enough crew members and so on. And then the second reason is that during the pandemic they took out a lot of planes and didn’t bring them back.

And some of them are over 19 or 20 years old at this point. And they never come back. So there are none – and there have been delays in delivery on the part of the manufacturer. So the airlines haven’t been able to replace some of those planes that they might have thought they would. And bringing back retired planes is sometimes not worth the cost.

And then, for the other part of your question about issues related to the price part, right, airline ticket prices have gone up because fuel costs are going up. And then you have other inflationary pressures. And that puts the industry under pressure. And the hope was that it would dampen demand. But leisure travel is up about 35% or 40% from 2019.

And the reason you’re not seeing PSA numbers at the levels they were back then is because international business is still down. The international estimate is down about 50%. And business is down about 50%. Managed travel is probably a little better than that. But the big business trips haven’t come back yet. If we were actually back where we traveled internationally and for business this summer, we would regularly see 2.93 million people pass through TSA checkpoints. And that is not sustainable for the industry. Airports can’t handle that. There aren’t enough TSA agents and the other things I just talked about.

BRIAN CHEUNG: So what about the international perspective? Broadly speaking, we’ve seen some of the rigor around testing requirements ease away as you move from one country to another, particularly here in the United States. We know we’ve seen a lot of international ticket prices – it’s a lot cheaper to fly from New York to London now than, say, New York to Portland. So will there be an imbalance you see there when that international travel comes back online? Will that actually drive prices up even further?

HELAN BECKER: Yeah, so Brian, we thought that was going to happen for the summer. We fully expect a very strong transatlantic. Asia-Pacific won’t be returning for a while as restrictions are mostly still in place there. But we definitely expect a very strong transatlantic time.

But think of the problems that plague US airports, also plague airports in Europe. Over the weekend in London there was a major breakdown with the baggage system at Heathrow. Amsterdam has regular delays. There were industrial action at other airports in Europe. I believe the British railway system went on strike earlier this week. There are problems in Ecuador that I have seen recently with political unrest there. This is not Europe. This is South America, this is a very strong market, South America, Latin America. Very strong last summer, stay strong.

But the same understaffing problems that exist in the US exist elsewhere in the world. So, yes, we expect very strong demand, but everyone has to be patient. I mean I’m supposed to come to the airport three or four hours in advance. And we’re hearing that in some international markets people are arriving at the airport three hours in advance and still missing their flight, which I think – I think it’s unreasonable. I think the industry needs to do a better job of strengthening itself. And it’s not just airlines. I mean, the airlines get the worst of it. But it’s the whole thing – it’s all the infrastructure that goes with it. And there are problems in this area too.

BRIAN CHEUNG: Yes, I was–

HELAN BECKER: Uber drivers, so be patient Brian! Patience!

BRIAN CHEUNG: No, I wanted to say, at least for JFK I always try to be there at least half a day before. Finally, I just want to ask here regarding the oil situation, we know this puts a lot of pressure on ticket prices. But let’s just say, for example, that the war in Ukraine is abating and gas prices are falling again. It sounds like with all the scarcity issues we still shouldn’t expect ticket prices to drop back down to the low levels we experienced at the start of 2021. Is that right?

HELAN BECKER: Yes it is. you said it well So we think we’ll get lower fares, but not as low as people might have hoped. If oil prices go back to 100 or below — back to 90, wherever, I’m not — I’m not the oil person here, so I’m the wrong person to ask. All I know is we’re at $4 a gallon. We are 100% higher than January.

And airlines have no choice but to recoup those costs — trying to recoup as much of those costs as possible. Typically, ticket prices drop after Labor Day. So if you’re thinking of traveling, if you can wait and travel in the fall, you’ll probably do a little better than those traveling in July.

And the other thing travels Tuesday, Wednesday and Saturday. These are, so to speak, the three lowest travel days. So if you’re flexible, you might be able to do a little better there again. But not everyone has that flexibility. Everyone wanted to travel to Memorial Day. Everyone wanted to attend on June 16th, which is a new three-day holiday for us. People want to make the 4th of July, which is another public holiday and a big vacation week in the United States anyway. So, yeah, I don’t know how to think about it anymore. I know it’s very frustrating for everyone, including those of us who travel a lot.

BRIAN CHEUNG: Yes, I was going to say I’m flying to Portland the 4th of July weekend. So I should probably go to the airport now. Helane Becker, Senior Research Analyst at Cowen, thank you very much. Am grateful. Have a nice Wednesday.

Leave a Comment