Analyst Predicts Smoother Skies Ahead - Top Airline Picks for 2023-2026

Analyst Predicts Smoother Skies Ahead - Top Airline Picks for 2023-2026 - Southwest Poised for Growth With New Routes and Plane Orders

Southwest Airlines is poised for growth in 2023 and beyond thanks to strategic route expansion and new plane orders. As the largest domestic carrier in the United States, Southwest has recovered well from the pandemic and is taking steps to strengthen its position.

In 2022, Southwest added flights to popular leisure destinations like Destin-Fort Walton Beach, Florida and Myrtle Beach, South Carolina. For 2023, the airline plans to launch service to Idaho Falls, Idaho and add flights from California to Hawaii. These new routes reflect Southwest’s focus on leisure travelers seeking domestic getaways.

Internationally, Southwest recently applied for flights to Costa Rica and is considering other Central American destinations. While not a primary area of growth, selective international expansion provides Southwest with opportunities to capture more revenue.

To support its route growth, Southwest has orders for hundreds of new Boeing 737 MAX jets coming online over the next several years. These planes are more fuel efficient and have a longer range than older models, enabling Southwest to economically serve new destinations.

Southwest’s growth is aided by its low-cost structure and point-to-point route network. As a budget carrier, Southwest has structurally lower costs than network airlines like American, Delta and United. And with a route structure focused on direct flights rather than hubs, Southwest avoids the complexity of connections that can lead to delays and disruptions.

These advantages have allowed Southwest to earn consistent profits, even in challenging years like 2022. While higher fuel and labor costs squeezed margins, Southwest still produced positive net income. Its low-fare brand also attracts leisure travelers who prioritize price over scheduling or amenities.

That said, Southwest does face challenges to its growth plans. Pilot shortages have already forced Southwest to trim its schedule, and hiring and training aviators takes time. Southwest’s unionized workforce is pushing for higher wages that may erode the airline’s cost edge. And airports in key cities are congested, limiting takeoff and landing slots.

Southwest’s growth may also spark competitive responses. Delta, American and United could drop fares or add capacity on routes targeted by Southwest. Still, Southwest’s low costs and operational resilience likely give it an advantage in a fare war.

Analyst Predicts Smoother Skies Ahead - Top Airline Picks for 2023-2026 - Delta Bets on Premium Travelers With Cabin Upgrades

Analyst Predicts Smoother Skies Ahead - Top Airline Picks for 2023-2026 - United Eyes International Expansion Despite Pilot Shortage

While labor challenges have stymied growth for some airlines, United Airlines sees opportunity for international expansion amid the pilot shortage. United is pushing ahead with plans to launch new long-haul routes in 2023 even as it struggles to staff existing flights.

It’s a bold gambit, but one that fits with United’s global route network and reliance on premium cabin fares. As the world’s third largest airline, United connected passengers to over 300 destinations in 2019 prior to the pandemic. While the airline reduced its footprint during COVID-19, it aims to restore many international routes as travel demand returns.

New destinations planned for 2023 include Nice, France; Dubai, UAE; and Taipei, Taiwan. United will also add flights to Munich, Germany and Rome, Italy. Most of the new routes come online in the peak spring and summer travel season.

According to United executives, premium cabins are driving the airline’s recovery and financial results. On long-haul international flights, business class, premium economy and first class seats generate an outsized share of profits. These high-yield passengers have been quicker to return to the skies than economy travelers.

By adding premium-focused, long-haul flights, United hopes to capture lucrative business traffic and higher fares. The new destinations expand United’s offerings to corporate clients and play to the airline's strength as a global carrier.

Pursuing this strategy despite pilot shortages is risky, however. United and other airlines continue to be plagued by a lack of pilots qualified to operate jets like the Boeing 787 Dreamliner used on international routes.

Hiring and training pilots is a lengthy process taking over a year. With air travel rebounding, United simply doesn’t have capacity to fully staff its schedule, forcing the cancellation of flights. This frustrates customers and gives United a reputation for unreliable operations.

United believes it can minimize disruptions by proactively trimming less profitable short-haul domestic flying and deploying its pilots on higher-margin international routes. Adjusting schedules seasonally also helps match pilot availability to peak summer demand.

Whether United’s gamble pays off remains to be seen. If elite fliers shy away due to unreliable operations, new routes may suffer from low load factors. United also risks handing disgruntled passengers to rival foreign carriers with excess pilot capacity like Lufthansa, Air France-KLM or All Nippon Airways.

Analyst Predicts Smoother Skies Ahead - Top Airline Picks for 2023-2026 - American Looks to Tech to Improve Operations and Efficiency

American Airlines is investing heavily in technology and automation to boost operational performance after a disastrous summer of flight disruptions. Over 4,000 American flights were canceled in June and July, with another 16,000 delayed, as staffing shortfalls, bad weather and air traffic control issues wreaked havoc on schedules.

A key focus is on ramping up automation to reduce ground time between flights. Taxiing, gate changes, fueling, baggage handling and catering are all time-consuming processes that contribute to delays. Self-driving tow tugs that remotely move parked planes are being deployed to speed up ground maneuvering. And radio frequency bag scanners will accelerate baggage sorting and loading.

American is also overhauling its crew scheduling system using artificial intelligence and machine learning. The airline was plagued this summer by pilot and flight attendant shortages, with crewing challenges exacerbating operational problems. The new technology platform will optimize staff planning and rebooking, factoring in fatigue risks, FAA regulations, and crew location. This should reduce disruptive staffing gaps.

In the airport, American has introduced biometric boarding that allows passengers to board simply by looking at a camera. This speeds up gate processes by eliminating the need for manual ID checks and boarding pass scanning. The airline plans to expand biometric boarding to hundreds more gates.

Investments in these technologies do come at a cost, with American budgeting over $2 billion in related capital expenditures over the next three years. But the benefits could also be substantial. Fewer delays and cancellations would improve the passenger experience and allow American to once again market itself as a reliable premium carrier. Smoother operations could also enable American to better utilize valuable airport slots in congested hubs like Chicago, Dallas and Miami.

And critically, by containing costs associated with delays and irregular operations, the technology boost would strengthen American's bottom line. The airline estimates a 1% improvement in operational integrity could generate over $150 million in annual financial benefits.

Analyst Predicts Smoother Skies Ahead - Top Airline Picks for 2023-2026 - JetBlue and Spirit Face Integration Challenges After Merger

JetBlue and Spirit Airlines joined forces in 2022, merging to create the 5th largest carrier in the United States. But integration poses challenges. From aligning corporate cultures to transitioning fleets, the process of bringing two airlines together takes time. Delays risk alienating passengers and disrupting operations.

Consider fleet integration. Spirit operates an all-Airbus fleet, mainly A320 family jets. JetBlue exclusively flies Airbus too, relying on the larger A321 along with A220s. Optimizing these combined fleets and aiming for commonality delivers efficiencies in maintenance, training and crewing. But it doesn’t happen overnight.

Then there’s the matter of harmonizing systems and processes. Spirit relies on Sabre for reservations while JetBlue developed its own booking engine. Bumping fliers from one to the other could frustrate loyalists on both sides. And integrating flight operations software, crew scheduling, and maintenance tracking is complex. Outages or glitches can quickly cascade into cancellations.

HR and corporate culture also require careful alignment. Frontline staff bear the brunt of any merger troubles. Without proper cross-training and change management, service can suffer. And distinct company cultures at JetBlue and Spirit must be blended together.

JetBlue built a reputation for excellent service and friendly staff. Spirit opted for ultra-low fares but very basic service. Finding the right mix without alienating core customers on either airline is key. Unifying pay scales, unions, and labor contracts further complicates matters.

Then there are consumer-facing aspects of integration. Combining loyalty programs, aligning fare classes and cabins, merging websites and apps - travelers will feel the impact. Any frustrations here risk pushing passengers to competitors.

Analyst Predicts Smoother Skies Ahead - Top Airline Picks for 2023-2026 - Alaska Keeps Focus on West Coast With Order for Boeing 737 MAX

While mega-carriers battle for global dominance, Alaska Airlines is keeping its focus closer to home with significant new orders for Boeing's 737 MAX. The Seattle-based airline recently agreed to purchase 52 MAX jets, with options for 105 more through 2024. This major investment renews Alaska's commitment to shuttling West Coast travelers up and down the Pacific seaboard.

For an airline of its size, Alaska boasts an extensive route map. But virtually all of its flying radiates from its Seattle hub and focus cities like Portland, San Francisco and Los Angeles. Alaska built its reputation serving popular West Coast destinations like San Diego, Las Vegas and Phoenix. It dominates intra-California flying and point-to-point routes along the Pacific Northwest.

By zeroing in on this geography, Alaska avoids direct competition with massive network carriers on long-haul and international routes. Its fleet reflects this, optimized for frequent short and mid-range flights. With average stage lengths under 1,000 miles, Alaska relies exclusively on versions of Boeing's 737 to zip around the West Coast.

The new order continues this strategy. Adding more fuel-efficient, longer-range MAX jets allows Alaska to expand within its core region. The airline said it will use some of the new planes for Hawaii service from the mainland, competing with Southwest and Hawaiian Airlines. The extended range of the MAX also enables new routes to Mexico, Latin America and Canada.

Loyal Alaska frequent fliers need not worry about the carrier veering from its regional focus, despite the recent retirement of its namesake founder. New CEO Ben Minicucci cut his teeth at Alaska working in maintenance and operations. Insiders say he has no ambitions to challenge Delta or American on their global turf.

This discipline benefits both Alaska and its customers. The airline can concentrate on offering smooth, friendly service on routes it knows best. Flights are tailored for West Coast schedules and sensibilities. And keeping its footprint contained provides stability. Alaska avoids the massive disruptions that plagued megacarriers like American this summer by maintaining consistent, reliable operations within its strength zone.

Analyst Predicts Smoother Skies Ahead - Top Airline Picks for 2023-2026 - Frontier Braces For Turbulence But Stays Course With Ultra-Low Fares

While most airlines are looking to offer more amenities and improved service to attract travelers, Frontier Airlines is taking a very different approach. The Denver-based budget carrier is sticking to its ultra-low fares, despite the financial turbulence this strategy may bring.

For Frontier, being the cheapest option is the priority, even if that means sacrificing on-time performance, passenger comfort and staffing levels. The airline has built its reputation on rock-bottom fares, counting on thrifty vacationers and visiting friends and relatives traffic to fill seats. Its average base fare in 2022 was just $71 one-way including fees, compared to $146 on American.

But this ultra-low-cost model is being stress tested amid soaring fuel prices and rising labor costs. Unlike full-service airlines, Frontier has little room to raise fares without devastating demand. It also can’t compensate by growing revenue from ancillary fees, since its customers are highly price sensitive.

Despite these economic headwinds, Frontier’s CEO has made it clear the airline will not budge from its bargain basement pricing. “We have no intent to move away from being an ultra-low-cost carrier,” said CEO Barry Biffle. “Low fares will always be core to our business.”

This commitment brings some pain. Frontier’s target of keeping base fares under $50 precludes padding tickets to offset higher expenses. Instead, the airline is squeezing costs in areas that don’t directly impact fares. Reduced schedules, deferring new plane deliveries, and limiting hiring and maintenance are short-term fixes.

Passengers absorb the impact of this thriftiness through delays, sparse on-board amenities and lack of customer service. But for the college student on a budget or family economizing on travel, Frontier remains the go-to airline when rock-bottom fares are the priority over all else.

As one Denver teacher explained, “I don’t love flying Frontier, but getting to see my parents on the East Coast four times a year is only possible because of their cheap tickets.” She added, “The airport is always a mess and I dread making connections, but I’m willing to put up with it to travel more.”

Analyst Predicts Smoother Skies Ahead - Top Airline Picks for 2023-2026 - Sun Country Capitalizes on Leisure Travel With Used Plane Purchases

While network carriers invest in gleaming new wide-body jets for long-haul flights, Sun Country Airlines is taking a unique approach to growth by snapping up used planes for domestic leisure routes.

The Minneapolis-based airline specializes in flying sun-seekers from midwestern cities to warm-weather destinations like Las Vegas, Orlando and Cancun. These are generally cost-conscious vacationers looking for an affordable getaway. Sun Country caters to them by concentrating capacity on peak leisure routes where demand spikes seasonally.

Rather than buy expensive new aircraft, Sun Country has been expanding its fleet recently with second-hand Boeing 737s acquired from foreign carriers and leasing companies. The planes may lack fancy cabin upgrades, but they allow the airline to profitably serve its niche.

As CEO Jude Bricker explained, "Our business model is based on low costs, not premium fares or amenities. We leave the wide-body aircraft and international long haul flying to others. Sun Country is focused on being the best value for families in the Midwest looking to head south for some sun during winter or spring break."

This strategy resonated with Dan and Barbara Edwards, a retired couple from Madison, Wisconsin who frequently fly Sun Country to visit grandchildren in Phoenix. "We aren't flying overseas in business class," Barbara noted. "We just want direct nonstop flights that get us there without breaking the bank."

For the Edwardses, Sun Country hits the sweet spot on price and convenience. "I sweated every time the kids flew Frontier," Dan said. "But Sun Country feels solid, even if the planes seem kind of old. The main thing is they fly where and when we want to go."

Other carriers underestimated this demand, allowing Sun Country to step in profitably. United trimmed service from Minneapolis to warm weather destinations, opening an opportunity that Sun Country quickly seized by adding flights. Sun Country also works closely with resorts, theme parks and casinos to build up routes ahead of peak travel seasons. This coordination ensures planes are filled.

The economics are compelling. Sun Country acquires well-maintained but older 737s for a fraction of the cost of new MAX and Airbus models. Limited premium cabins keep configuration simple. High aircraft utilization and quick turns offset their age. And Sun Country's pilots are willing to work at lower regional airline wages given its family-friendly schedule and Midwestern base.

Together this allows Sun Country to offer a product frugal travelers want at fares competitors can't match. As Bricker summed up, "We know who we are. We don't try to be everything for everybody. By sticking close to our roots and keeping costs in check, we've found a sustainable place that complements the giant network carriers."