Where are low-cost airlines cutting now? New aircraft

Airlines that have been clamoring for new jets for years are changing their tune.

Cash-strapped low-cost and ultra-low-cost airlines are postponing billions of dollars of investment in new aircraft to save money as they struggle to return to stable profitability and face the impact of engine repairs.

Airlines have been operating a large number of flights to the U.S. this year, driving down fares, especially in the domestic market where low-cost carriers dominate, squeezing airline profits while driving up costs. Spirit Airlines, JetBlue and Frontier Airlines While some airlines last posted an annual profit in 2019, major airlines are back in the black.

The drop in airfares is notable: fare-tracking firm Hopper estimates that a “good deal” airfare for a domestic US flight in September was $240 round-trip, down 8% from last year.

Now, some of those same airlines are scaling back growth plans and postponing deliveries of new planes, most of which are paid for at the time of delivery.

“We have an oversupply, so it makes sense for the industry to reduce capacity,” said Barry Biffle, CEO of Frontier Airlines, which said this month it would delay deliveries of 54 Airbus planes until at least 2029.

Biffle said part of the problem is that airlines don’t want to add too many planes in too much of a hurry because aircraft deliveries are years behind schedule.

“They were quite late, [the order] “It was piling up,” he said, “so I had to level it out.”

Frontier Airlines’ second-quarter revenue rose 1% from a year ago despite a 17% increase in the number of passengers it carried, but average fare revenue fell 16% to just under $40.

JetBlue The airline estimates it can save about $3 billion by delaying deliveries of 44 Airbus A321 planes until 2029 and extending some aircraft leases. The New York-based airline, which posted a surprise profit in the second quarter, is committed to cutting costs through measures such as delivery delays and exiting unprofitable routes, and it wants to do so quickly.

The airline and other airlines Pratt & Whitney Engine recall.

JetBlue CEO Joanna Geraghty said in a memo to employees on August 19 that grounding so many planes while the airline is facing a plane shortage due to engine recalls is a “double-edged sword.”

“We need aircraft to grow, but receiving aircraft that we’ve paid for and then left sitting on the ground makes the problem significantly worse,” she said. “Furthermore, given our growing debt, we simply can’t afford to buy so many aircraft.”

Spirit Airlines The company had been planning to be acquired by JetBlue until a court blocked the deal in January, but has delayed aircraft deliveries as it struggles to recoup heavy losses.

Spirit Airlines said earlier this month that its revenue fell 11% to a loss of $192 million, compared with a loss of about $2 million a year earlier. It also said it would lay off about 240 pilots in the coming weeks. The airline has been hit particularly hard by the recall of Pratt & Whitney engines.

The airline said it would postpone deliveries of Airbus planes ordered between the second quarter of next year and the end of 2026 until at least 2030.

Aircraft leasing company AerCap announced earlier this month that it would take over 36 Airbus A320neo Series aircraft from Spirit Airlines’ order book, in a deal that CEO Gus Kelly called a “win-win” for both the airline and AerCap.

Despite the moves from low-cost carriers, much of the global aviation industry remains in a state of shortage, with new, fuel-efficient aircraft in short supply.

Lease rates for Airbus A320s and larger A321s hit new average records of $385,000 and $430,000 per month in July, respectively, according to Eddy Pieniazek, head of advisory at aviation consulting firm Ishka. Boeing The most common model, the 737 Max 8, is at a near record high of $375,000 per month, Pieniazek said.

Airlines can purchase aircraft directly from suppliers or lease them from companies such as: Air Lease or Air CapThe airlines, which own planes on the premises, pay monthly rent. Some airlines, such as Frontier Airlines, are actively pursuing sale-leasebacks, where they sell planes for cash and then lease them back.

Boeing and Airbus, the world’s two biggest suppliers of commercial aircraft, are struggling to ramp up production amid lingering post-COVID fallout in the form of skilled labor shortages and supply shortfalls. Airbus recently slashed its delivery targets for this year, while Boeing has been limited in its ramp-up as it tries to weather a safety crisis.

Despite the deferrals from low-cost airlines, an Airbus spokesman said the company has not seen a slowdown in demand for its A320 family of planes, with more than 7,000 orders remaining for the aircraft. Boeing has nearly 4,200 orders for the rival 737 Max.

“We offer a wide range of aircraft to meet our customers’ needs and give them maximum flexibility in their aircraft selection,” an Airbus spokesman said in a statement.

But airlines are beginning to feel the strain, with executives saying delays to deliveries of new planes have forced them to slow, if not cancel, hiring and other growth plans.

“We are urgently and carefully pursuing opportunities to mitigate cost pressures, including the impact of staffing overages related to previously reported Boeing delivery delays.” Southwest Airlines “We’re pleased to announce that we’re taking the time off work,” Chief Financial Officer Tammy Romo said during an earnings call last month. The airline, which only has Boeing 737 planes, is offering a voluntary leave program to some employees.

Asked about Southwest’s fleet plans, Romo said the airline has “a lot of flexibility in terms of ordering from Boeing.” Boeing declined to comment for this article.

“We’re not ready to reveal all of our plans yet,” Romo said, adding that the company would provide more details at an investor conference on Sept. 26. “But we have enough flexibility to restructure our backlog to ultimately meet our needs.”