Low-cost carrier JetBlue JBLU said airline fares are heading back towards pre-pandemic levels as pent-up Covid demand for domestic travel normalizes and travelers opt for longer, international destinations.
On Tuesday, JetBlue cut its annual earnings forecast and issued third-quarter guidance below Wall Street expectations. The stock fell 8% during the trading session. Shares are up about 9% on the year-on-year basis, up about 9% from a year ago.
As we enter the third quarter, we continue to see many of the same trends, including strong demand during peak periods. However, during off-peak periods, we are now seeing demand trends normalize, said Joanna Geraghty, JetBlue's chief operating officer.
We have seen fares normalizing back to 2019 levels, she said.
The airline also highlighted a higher-than-expected shift of pent-up Covid demand to long-haul international markets, which is pushing demand for domestic travel during the peak summer travel period. Alasak Air ALK echoed similar commentary last week, noting domestic leisure airfares coming off their peaks along with traveler preferences for longer flights to international destinations.
This summer, as a primarily domestic leisure carrier, this summer presents a unique situation with the unprecedented surge in international demand, not dissimilar to the domestic surge last year, said Ben Minicucci, CEO of Alaska Airlines.
We believe pent-up international demand has had the effect of a larger pull from would-be domestic travelers than has historically been the case, he said.
Alaska Air's stock has surged about 10 percent for the first time in nearly a year. On Tuesday shares fell 1% on Tuesday in simpatico with JetBlue.
Airlines with more international reach have outperformed their domestic peers year-on-year. The UAL Delta DAL and American Airlines AAL are up 40 percent, 36%, and 26% respectively.
The preference for longer international flights bodes well for carriers such as UAL, AAL, and DAL who devote a larger percentage of their fleet routes to international flights, said Christopher Raite, senior analyst at Third Bridge.
Declining domestic fares hurt all U.S. carriers, but those more domestically focused are likely to be disproportionately impacted given the resurgence in international travel and lagging business travel recovery, he said.
The airline is facing Near-Term Headwinds from a challenging operating environment in the Northeast, including the discontinuation of a revenue-sharing agreement with American Airlines AAL as it looks to close on the purchase of Spirit Airlines.
Ines Ferre, a senior business reporter at Yahoo Finance, is a senior analyst at Yahoo Finance.