Where are low-cost airlines saving money now? New aircraft

Airlines which have been clamoring for brand spanking new jets for years at the moment are changing their minds.

For cost reasons, low-cost airlines and enormous discounters are postponing the billions spent on latest aircraft with a purpose to return to stable profitability and take care of the results of engine repairs.

Airlines have flooded the United States with flights this 12 months, resulting in price declines, particularly within the domestic market where low-cost carriers are concentrated, and weighing on airline revenues while costs have risen. Spirit Airlines, JetBlue Airways And Border airlines The last time the airlines posted an annual profit was in 2019, while the larger carriers have grow to be profitable again.

The lower prices for airline tickets are noticeable: Fare tracker Hopper estimates that a “cheap” flight in September will cost $240 for round-trip flights throughout the US, 8% lower than last 12 months.

Now a few of these airlines are scaling back their growth plans and delaying the delivery of latest aircraft. The majority of the value of an aircraft is paid upon delivery.

“There is too much supply, so it's natural for us as an industry to reduce supply,” said Frontier CEO Barry Biffle. Frontier said earlier this month that it might delay delivery of 54 Airbus aircraft until no less than 2029.

Part of the issue is that airlines have been reluctant so as to add too many planes to their fleets too quickly as a consequence of years of delays in aircraft deliveries, Biffle said.

“Because they delayed a lot, [the order] “It was piling up,” he said. “So we had to smooth it out.”

Frontier's revenue rose 1% year over year in the second quarter, despite carrying 17% more passengers. Average fare revenue fell 16% to just under $40.

JetBlue Airways estimates it will save about $3 billion by delaying the delivery of 44 Airbus A321 aircraft until 2029, while opting to extend some leases. The New York-based carrier posted a surprise profit in the second quarter, but is trying to cut its costs through the postponements and measures such as exiting unprofitable routes – and fast.

The airline and others are also struggling with grounded planes. Pratt & Whitney Engine recall.

Putting so many planes on hold when the airline is facing a shortage of aircraft due to the engine recall is a “double-edged sword,” JetBlue CEO Joanna Geraghty said in a memo to employees on August 19.

“We need aircraft to grow, but if we take delivery of aircraft that end up being grounded after we pay for them, that makes the problem much worse,” she said. “Also, given our growing debt, we simply cannot afford to buy that many aircraft.”

Spirit Airlines — which had planned a takeover by JetBlue until a judge blocked the deal in January — has also been putting planes on hold as it struggles to get a handle on the company's steep losses.

Spirit reported an 11% drop in revenue and a loss of $192 million earlier this month, compared to a loss of about $2 million a year earlier. The airline also announced that it would furlough around 240 pilots in the coming weeks. The airline has been hit particularly hard by the recall of Pratt & Whitney engines.

The airline said it was postponing delivery of all Airbus aircraft it has ordered from the second quarter of next year until the end of 2026, or at least until 2030.

Aircraft leasing company AerCap announced earlier this month that it would take delivery of 36 of Spirit's Airbus A320neo family aircraft from the airline's order book. CEO Gus Kelly called the transaction a “win-win” for the airline and AerCap.

Despite the advances of low-cost airlines, a scarcity mentality continues to prevail in much of the global aviation industry; new, fuel-efficient aircraft are in short supply.

Leasing rates for new Airbus A320s and the larger A321s reached new average records of $385,000 per month and $430,000 per month, respectively, in July, according to Eddy Pieniazek, head of consulting at aviation consultancy Ishka. Meanwhile, leasing rates for new Boeing The price of 737 Max 8 aircraft, the most popular model, is near a record high of $375,000 a month, Pieniazek said.

Airlines can buy aircraft directly from suppliers or lease them from companies such as Air leasing or AerCappay the monthly rent. Some airlines, like Frontier, are involved in the sale-leaseback business, where they sell aircraft to make money and then lease them back.

Boeing and Airbus, the world's two largest suppliers of commercial aircraft, are struggling to increase production as the effects of the Covid pandemic continue to be felt in the form of skills shortages and supply bottlenecks. Airbus recently lowered its delivery target for the year, and Boeing is limited in its ability to increase production due to the safety crisis.

Despite the delivery delays by low-cost airlines, Airbus does not see any weakening in demand for aircraft in the A320 family, according to a spokeswoman. The company has more than 7,000 open orders for these. Boeing has almost 4,200 orders for its rival aircraft, the 737 Max.

“We offer a wide range of aircraft to meet the needs of our customers and maximize their flexibility in fleet decisions,” the Airbus spokeswoman said in a press release.

But airlines are feeling the pressure, with executives saying delayed deliveries of latest aircraft are forcing them to slow and even halt hiring and growth plans.

“We are urgently and specifically looking for ways to mitigate cost pressures, including the burden of overstaffing related to the previously reported delivery delays at Boeing,” Southwest Airlines CFO Tammy Romo said this last month during a conference call on quarterly results. The airline, which flies exclusively with Boeing 737s, has offered voluntary vacation programs to some employees.

When asked about Southwest's fleet plans, Romo said the airline has “a lot of flexibility with our backlog at Boeing.” Boeing didn’t provide comment for this text.

“We are not yet ready to lay out all of our plans,” Romo said, adding that the corporate will provide more details at an investor day on Sept. 26. “But we have enough room to restructure the order book to ultimately meet our needs.”