United Airlines CEO Scott Kirby said a series of ongoing supply constraints will keep a lid on airline capacity growth rates for the foreseeable future.
Speaking on United’s third-quarter earnings call, Kirby identified three trends he believes will drive the air travel industry through a period of high inflation and global macroeconomic uncertainty. In addition to the supply constraints, those trends include a shift to hybrid-work schedules, changing how people travel for business and leisure, and the ongoing reopening of many international destinations from pandemic-driven lockdowns.
United’s operating revenue in the third quarter was roughly 13% higher than the same period in 2019—despite 10% less capacity—while unit revenue was up nearly 26%.
“These three trends are why all airline revenues keep surprising to the upside,” Kirby said. “But they’re also real and durable, which is why we’re still optimistic about 2023 and the longer term despite the economic challenges.”
Kirby said pilot shortages, chronic aircraft delivery delays, air traffic control staffing shortfalls, airport infrastructure constraints and higher jet fuel prices all will artificially restrict capacity and elevate fares for years to come.
Those constraints will make it particularly hard for ULCCs to maintain high growth rates over the next decade, Kirby said, predicting that it will “take years to resolve” the pilot shortage, while Boeing and Airbus “are probably two-to-three years away from getting back to producing planes at their old rates.”
He added: “That [ULCC] business model is predicated on growing 15-20% per year, and that is now going to be impossible.”
In addition to supply constraints that will boost yields, Kirby said the air travel sector is being boosted by hybrid-work schedules that have untethered workers from traditional office settings and allowed them to take more flexible, off-peak trips, many of which appear to be blended with elements of both work and vacation.
“With hybrid-work, every weekend can be a holiday weekend,” Kirby said, observing that the flexibility of remote work has led travel volumes to become more evenly spread across peak and off-peak days. “This is not pent-up demand–it’s the new normal.”
Lastly, the ongoing, phased reopening of many international markets—particularly in the Asia-Pacific region, excluding China—will serve as a continued tailwind for full-service airlines through most of next year, Kirby added.
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