Low-cost airlines are delaying new aircraft purchases to cut costs amid lower fares, rising expenses, and engine repair challenges.
Airlines, particularly low-cost and ultra-low-cost carriers, are rethinking their plans to buy new aircraft as they seek to cut costs and return to stable profitability. Financially strained, these airlines are deferring billions of dollars in spending on new planes, especially as they deal with the impact of engine repair issues.
An influx of flights in the U.S. market this year has led to lower fares, particularly for domestic routes where budget airlines are concentrated. This increase in supply has put pressure on revenues while operating costs have risen. Spirit Airlines, JetBlue Airways, and Frontier Airlines, for instance, last recorded annual profits in 2019, while larger carriers have recently returned to profitability.
Ticket prices have noticeably dropped, with airfare tracking service Hopper estimating "good deal" roundtrip U.S. domestic flights at around $240 in September, an 8% decline from last year.
Consequently, several airlines are scaling back their growth strategies and postponing the delivery of new aircraft, for which the majority of costs are incurred upon delivery. “With too much supply, it’s natural for us as an industry to reduce the supply,” said Frontier CEO Barry Biffle. Frontier recently announced it is deferring the delivery of 54 Airbus planes until at least 2029, partly due to cumulative delays in aircraft deliveries over the years.
JetBlue Airways expects to save about $3 billion by deferring 44 Airbus A321 deliveries through 2029 and extending some aircraft leases. While JetBlue posted a surprise profit in the second quarter, it is focused on cost reduction through these deferrals and by exiting unprofitable routes.
Airlines like JetBlue are also facing challenges due to grounded jets from a Pratt & Whitney engine recall. JetBlue CEO Joanna Geraghty called this a “double-edged sword,” noting that while the airline needs planes to grow, taking delivery of new aircraft that end up grounded worsens their financial position.
Spirit Airlines, which saw its acquisition by JetBlue blocked by a judge in January, is also deferring aircraft deliveries in an effort to manage significant losses. The airline reported an 11% drop in revenue and a $192 million loss recently, compared to a roughly $2 million loss a year earlier, and announced plans to furlough 240 pilots. Spirit has deferred all its Airbus orders from the second quarter of next year through the end of 2026 to at least 2030.
Meanwhile, AerCap, an aircraft leasing company, will take over 36 of Spirit’s Airbus A320neo planes, a deal described by AerCap CEO Gus Kelly as a “win-win” for both parties.
Despite these moves by low-cost carriers, demand for new, fuel-efficient jets remains high in the broader airline industry. Lease rates for new Airbus A320s and A321s hit record highs in July, with monthly rates of $385,000 and $430,000 respectively, and new Boeing 737 Max 8 leases nearing a record $375,000 per month, according to Eddy Pieniazek of aviation consultancy Ishka.
Airlines can purchase planes directly or lease them from companies such as Air Lease or AerCap, and some, like Frontier, are engaging in sale-leaseback arrangements to generate cash by selling aircraft and leasing them back.
Consequently, several airlines are scaling back their growth strategies and postponing the delivery of new aircraft, for which the majority of costs are incurred upon delivery. “With too much supply, it’s natural for us as an industry to reduce the supply,” said Frontier CEO Barry Biffle. Frontier recently announced it is deferring the delivery of 54 Airbus planes until at least 2029, partly due to cumulative delays in aircraft deliveries over the years.
JetBlue Airways expects to save about $3 billion by deferring 44 Airbus A321 deliveries through 2029 and extending some aircraft leases. While JetBlue posted a surprise profit in the second quarter, it is focused on cost reduction through these deferrals and by exiting unprofitable routes.
Airlines like JetBlue are also facing challenges due to grounded jets from a Pratt & Whitney engine recall. JetBlue CEO Joanna Geraghty called this a “double-edged sword,” noting that while the airline needs planes to grow, taking delivery of new aircraft that end up grounded worsens their financial position.
Spirit Airlines, which saw its acquisition by JetBlue blocked by a judge in January, is also deferring aircraft deliveries in an effort to manage significant losses. The airline reported an 11% drop in revenue and a $192 million loss recently, compared to a roughly $2 million loss a year earlier, and announced plans to furlough 240 pilots. Spirit has deferred all its Airbus orders from the second quarter of next year through the end of 2026 to at least 2030.
Meanwhile, AerCap, an aircraft leasing company, will take over 36 of Spirit’s Airbus A320neo planes, a deal described by AerCap CEO Gus Kelly as a “win-win” for both parties.
Despite these moves by low-cost carriers, demand for new, fuel-efficient jets remains high in the broader airline industry. Lease rates for new Airbus A320s and A321s hit record highs in July, with monthly rates of $385,000 and $430,000 respectively, and new Boeing 737 Max 8 leases nearing a record $375,000 per month, according to Eddy Pieniazek of aviation consultancy Ishka.
Airlines can purchase planes directly or lease them from companies such as Air Lease or AerCap, and some, like Frontier, are engaging in sale-leaseback arrangements to generate cash by selling aircraft and leasing them back.