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Airlines: 'Costs are going up and fares are going up,' analyst says

Cowen Senior Research Analyst Helane Becker discusses the impact of inflation on airlines, JetBlue and Alaska Airlines cutting summer schedules, the shortage of pilots, and the outlook for air travel.

Video Transcript

ROBIN HAYES: Everywhere you look at the moment, there's a lot of stress in the system. There's some staffing issues. And by just bringing capacity down, we can take some we can take some pressure off and give us a better chance of operating reliably through the summer.

- Well, JetBlue's CEO Robin Hayes speaking to us last week talking about the airline's plans for capacity cuts. The airline telling staff this weekend those cuts planned to remain in place. We're talking about 8% to 10% cut in May and the airline not the only one cutting back capacity. We also heard from Alaska Airlines saying they're going to be cutting back about 2% of their routes. It was a result of a shortage in pilots. Let's bring in Helane Becker, she's Cowan senior research analyst. And Helane, you know, I have to say I was looking for a flight over the weekend and was really surprised how much more it costs than where things were just a few months ago. When you listen to these capacity cuts that are going into effect because a number of shortages, what does that ultimately mean from a cost perspective?

HELANE BECKER: Well, thanks for the question. Costs are going up and fares are going up, that's the bottom line. Not only are jet fuel costs going up, New York Harbor is over $7 a gallon and it's the highest in the country. Everywhere else in the country, it's about $3.50 a gallon. And obviously, or maybe not so obvious but JetBlue gets a significant percentage of its jet fuel in this market. 80% of their flights or thereabouts touch New York and Boston. So, they're here, they're being affected, specifically then.

But, we also have an issue with pilots and not only pilots, but, an overall labor shortage. Almost any airline not named American, Delta or United is losing pilots, and, the attrition rate that we've heard ranges from a low of high single digits to as much as 25% for some of the smallest airlines and that is putting pressure on route networks and it's causing airlines to have to cut back in order to deliver reliable product to the consumer.

BRIAN CHEUNG: Helane, it's Brian Cheung here. So, having said that, it sounds like the outlook is not going to improve any time soon on the availability of cheaper fares but also avoiding a cancellation of your flights. So, when do these pressures alleviate in your view?

HELANE BECKER: Well, thanks for the question, Brian, I hope-- so, here's what we're hoping. We're hoping that the schedule reductions will enable the industry to deliver a product that's reliable. The summer months are always difficult because of pop up thunderstorms and that's what hurts schedule reliability more than almost anything else. And then, second to that, I guess I'll put different variants of the coronavirus that causes not only us to get sick but crew members to get sick and that causes some unreliability. But, our thought is that on the labor side itself, especially with respect to pilots, we are in a multiyear shortage of pilots for now, and we think it's going to last to the end at least till the middle or end of this decade. We just don't have enough to replace those retiring. We estimate that between the passenger airlines and the freight airlines, including FedEx, UPS, Amazon Air, we probably need to hire between 7 and 8,000 pilots a year for at least the next four to five years and there aren't that many people who are qualified to be a commercial airline pilot. And so this shortage of pilots is going to last for a long time and it's a limitation on growth. And then the other issue-- I'm sorry, go ahead.

- Well, what's the other issue?

HELANE BECKER: Oh, the other issue is capacity availability getting aircraft. Boeing is behind deliveries on 787s, they've had issues with the 737 Max and then you have the Airbus A320 Neos that are behind schedule and deliveries too. So, not only do you have a shortage of labor, but you have a shortage of aircraft as well.

- So Helane, really quickly, we're talking about this just a few months out from one of the busiest travel months of the year. We've heard so much about Americans wanting to go out and travel again because of what's played out over the last few years. What does it ultimately mean for those travel plans if we're hearing about airlines cutting back on capacity months before that?

HELANE BECKER: Well, two things. The first issue is going to be rising airfares. We think airfares are going up on average about 7% a month for the next three or four months. And then, of course, on the other side is the consumer, with not only airfares going up but everything is going up. We have this huge inflationary problem in the United States right now with gasoline at the pump going up, with food inflation and so on, rent and so on. We're really worried about demand destruction as we get through the summer so maybe July and August will have a really good summer, and then we'll start to see that impact, the higher fares impact demand as we go into the fall.

BRIAN CHEUNG: All right, Helane Becker Cowan, senior research analyst. Thanks so much for the outlook. We'll be hunting for hopefully cheaper fares soon. Thanks so much. We're right back with more right here on Yahoo Finance.