Leadership1 publisher3 min readPublished
United is cutting December flights it had planned to fly
United, Southwest and American told Morgan Stanley's Laguna Conference that high fuel means fewer flights and higher fares this winter. Their own CFOs say fuel reaches fares with a lag, so the increase lands on first-quarter bookings.
The Board Room · Leadership desk
What happened
- Major airline executives told Morgan Stanley's Laguna Conference on Wednesday that they are cutting flights planned for this holiday season and are likely to raise fares to offset the oil spike.
- Oil prices passed $100 a barrel this month, after surging in the spring when the war in Iran began and surging again over the summer.
- The Bureau of Labor Statistics' latest consumer price index showed airfares up more than 23% year over year in August.
- United CFO Mike Leskinen said there will be flights in December that the airline now will not fly, having expected to operate them.
- Spirit Airlines shut down in May, so this is the first holiday season without the low fares it used to put in the market.
Compiled by The Board RoomSomething wrong?How this is made
Why it matters
- constraint A travel budget built on August fare data prices the wrong quarter. By the CFOs' own account of the lag, the fuel now in the market reaches tickets bought this autumn for first-quarter trips.
- decision The call on first-quarter field travel is between locking a fare before the pass-through and holding cash in case fuel falls; French's refundable-fare route keeps both open at a price.
- exposure Trips into thin markets on Saturdays and at off-peak times sit where schedule cuts have historically landed, while trunk routes into corporate cities are the ones carriers protect.
- cost A fare quote understates the spend when checked-bag and seat-selection fees have risen alongside it, and the gap falls on whoever approves the expense claim.
A fuel spike does not reach a fare on the day it happens. "Jet fuel price gets passed through with a lag," United CFO Mike Leskinen said, and added: "Period." [9] Southwest CFO Tom Doxey said "both from the booking curve and just kind of a natural lag, it takes a while for that to come," and said Southwest has the "ability to recover a good portion" of the added cost [10]. Jet fuel was $4.53 a gallon as of Thursday [3]. The 23% year-over-year airfare increase the Bureau of Labor Statistics recorded for August therefore predates the fuel now in the market, and the increase the CFOs describe arrives in tickets bought this autumn for travel in the first quarter [4][22].
The capacity comes out of the weakest flights first. Leskinen said United has already cut routes at the low end of profitability that "don't make sense in a higher fuel environment" [5]. Airlines trimming schedules have historically looked at markets that are already oversaturated, flights on less-busy days such as Saturday, and departures at less desirable times [14]. With premium demand at record levels, they may also concentrate aircraft on business-heavy markets and long-haul international routes [15]. Business Insider reported that it is not yet clear which flights will go, or how the airlines will rebook the passengers on them [13].
A skeptic would say none of this is committed yet, and for the first quarter that is right. Leskinen said, "If fuel remains high, we'll make some adjustments into the first quarter and beyond into 2027" [7]. Doxey and American CFO Devon May attached the same condition to trimming capacity and raising fares [8]. December is the part already decided. "As you look into the fourth quarter, there'll be some flights in December that we won't fly that we thought we were going to fly," Leskinen said [6].
All three CFOs said demand is strong [8][11]. Leskinen said United's customers are "incredibly, incredibly resilient" [11]. Delta CEO Ed Bastian said on an April earnings call that "as difficult as it is to see what's going on with the conflict in the Middle East, I'm not sure that our premium customers are feeling affected by that" [16]. If the airlines are right about that, the buyers who fly most are the ones least likely to trade down, and they absorb the increase. NerdWallet's Sally French said airlines have also increased checked-bag and seat-selection fees. "The true cost of flying is higher than ever," she said [12].
"Generally speaking, booking now to lock in a good price is best practice, particularly if we're talking winter travel," French said, putting the window at one to three months ahead for domestic travel and two to eight months for international [18]. From September, that covers domestic trips through December and international trips through May, and a February domestic booking does not enter the window until around November [21]. French also said booking refundable fares that can be cancelled and rebooked if prices drop is a smart move [19].
What to watch
- Whether oil holds above $100 through October; all three CFOs attached their first-quarter plans to that condition.
- United's published December schedule changes, and whether cancelled passengers are rebooked on the same day.
- The next CPI airfare print, the first reading that could carry the pass-through Leskinen and Doxey described.