US airline investors worry travel boom coming in for a landing

Investors are nervous demand may soften as the economy falters, making it harder to protect profits from soaring costs

Strong demand from travelers has so far allowed carriers to mitigate inflationary pressure with higher fares. While both United and Delta said travel demand is holding up, double-digit declines in airfares year-over-year suggest airline pricing power has peaked.

Key takeaways

• Falling ticket prices are raising questions as to how airlines will hedge against cost increases. Delta said the industry would be able to pass along increased operating costs to consumers;
• But that's easier said than done as analysts say a depletion of pandemic savings as well as high interest rates have crimped consumers' tolerance for high fares;
• Airlines are likely to see "a more dramatic negative effect" than in the past if there is any downturn in demand because their cost of doing business has gone up materially;
• While airlines have acknowledged the higher costs, including rising fuel prices, they say passenger revenue points to a healthy demand trend.

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