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Travel demand strong, but U.S. carriers fret over aircraft delivery delays

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An American Airlines Airbus A321 plane takes off from Los Angeles International airport (LAX) in Los Angeles, California, U.S. March 28, 2018. REUTERS/Mike Blake

U.S. carriers expect strong profit in the current quarter as travel spending remains strong, but delays in aircraft deliveries and staffing shortages are hampering their efforts to fully capitalize on consumer demand.

Several U.S. operators including American Airlines (AAL.O) and Southwest Airlines (LUV.N) noted that delays in Boeing’s <BA.N> aircraft deliveries could hurt in coming months. Travel has remained robust even as rising inflation is making leisure activities more expensive.

American Airlines, which forecast a higher-than-expected profit for the second quarter, expects to receive 20 planes from Boeing in the remainder of this year. CEO Robert Isom said the carrier is concerned about potential delays impacting its summer schedule.

“I communicate very frequently with the Boeing senior management team,” he said. “And we need them to get their act together.”

Southwest Airlines on Thursday trimmed its capacity growth plans due to Boeing’s aircraft delivery delays. It now expects 70 deliveries of the 737-8 jet this year instead of the planned 90 after the U.S. planemaker disclosed a manufacturing issue with some of the workhorse aircraft.

The Dallas-based airline, which reported a wider-than-expected first-quarter loss due to mass flight cancellations in December, said fewer aircraft deliveries will slowdown its plan to reduce non-fuel operating costs this year.

“Overall, the results and guide look a little soft,” said Citi analyst Stephen Trent. Southwest’s shares were down nearly 5% in midday trade.

Boeing did not respond to a request for comment. The company said on Wednesday that it expects deliveries of its 737 aircraft to slow down in the second quarter. Boeing CEO Dave Calhoun said that the timing of the shortfalls “will impact summer capacities for many of our customers. We feel terrible about that.”

Similarly, ultra-low-cost carrier Spirit Airlines (SAVE.N) on Wednesday said issues related to jet engine availability and pilot attrition are not letting it add more flights.

Filling up planes with passengers, however, is not a problem for now. Southwest said it expects solid profit in the June quarter on strong summer bookings.

“While we are mindful of the uncertain economic environment, demand for domestic air travel remains strong, thus far,” Southwest’s CEO Bob Jordan said.

Rivals Delta Air Lines (DAL.N) and United Airlines (UAL.O) have also offered an upbeat outlook for summer travel.

Rising interest rates, high inflation, mounting job losses and turmoil in the banking industry have fueled concern about the strength of consumer spending, which has allowed carriers to mitigate higher labor and fuel costs.

Some analysts are not sure the travel boom will last long. But airlines say demand remains resilient, with bookings for international trips outpacing those for domestic travel.

American plans to ramp up its long-haul international capacity by 82% in the current quarter from a year ago.

“We have a strong demand environment this summer, and we’re highly confident that, that will continue going forward,” American’s CEO Isom told analysts.

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