Air travel demand is breaking records. Airline profits are not

Record summer air travel demand isn't translating to record U.S. airline profits. Carriers will have to answer for that disconnect when they report quarterly results this month.

Some airlines have forecast record demand, and in some cases, revenue. On Sunday, the Transportation Security Administration screened more than 3 million people, a one-day record.

But higher labor and other costs have eaten into airlines' bottom lines. To adapt to slower demand growth and other challenges, some carriers have slowed if not halted hiring compared with hiring sprees when they rebuilt after the pandemic.

And some airlines are facing delays of new, more fuel-efficient aircraft from Airbus and Boeing at the same time that a Pratt & Whitney engine recall has grounded dozens of jets.

Yet U.S. airlines have increased capacity, flying about 6% more seats in July than they did in July 2023, according to aviation data firm OAG. The expansion is keeping airfare in check, and stocks in the sector have fallen behind the broader market.

The NYSE Arca Airline Index, which tracks 16 mostly U.S. airlines, is down almost 19% this year, while the S&P 500 has advanced more than 16%.

What the third quarter will look like for airlines is "clear as mud," Raymond James analyst Savanthi Syth said in a note Friday, citing headwinds such as potentially weaker spending from coach-class clientele, the Paris Olympics' impact on some Europe bookings, and possible changes in corporate travel demand.

Also, some travelers have been opting for trips in late spring and early summer, raising questions about late-summer demand.

Investors will get more insight into the traditionally slower tail end of summer and the rest of the year when airlines report quarterly results,