The airline industry's capacity problem is producing 'fare pressure', as the carrier euphemised it
Frontier Airlines just released its second-quarter earnings. It posted $31 million in net income on $973 million in revenue. The former number was above expectations but down from the same time last year, and the latter was up from last year but below expectations.
Still, one of the most pressing problems emerging from the earnings release is an increasingly common problem in the industry: There are too many seats on too many planes and not enough people sitting in them. The airline’s capacity was up 13% from a year ago, but the revenue it received for every available seats on its flights was down 11% because emptier flights to fly are cheaper tickets to book.
“The Company, along with other domestic carriers, is currently experiencing fare pressure caused by excess domestic capacity growth,” is how the carrier euphemised it in a statement accompanying its earnings release.
The “overcapacity” problem is the same issue that United Airlines warned the industry about and Deutsche Bank has been shining a light on. To fix it, Frontier is already cutting back on its growth plans. The Points Guy noted that last week the company just cut more than 40 of its routes after adding more than 50 earlier this year.
In appraising of Frontier’s financials, DB analyst Michael Linenberg and his team noted that among the “primary drivers” of its demand softness in particular was “domestic seat growth which outpaced seasonal demand trends.”
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