Passengers have been more than willing to pay high fares for air travel, but the industry is cutting flights to improve reliability amid widespread complaints about delays and cancellations. United Airlines Holdings Inc. said late Wednesday that it will increase capacity next year to no more than 8% above 2019 levels, a significant adjustment from earlier forecasts of up to 20% growth. The airline will offer 13% fewer seats this year than before the pandemic. “We’re probably still in the sixth or seventh round of the Covid recovery,” United chief executive Scott Kirby said in an earnings call on Thursday. For now, “the Covid recovery trend is at least negating – arguably exceeding – economic headwinds.” But despite this strong demand, an 8% growth next year is the greatest that we are “physically possible to fly” due to the limitations of regional partners, a slower recovery of long-haul travel in from Asia, delays in aircraft deliveries and extensive infrastructure. issues across the industry, Kirby said. Challenges recruiting, retaining and training pilots are other “real constraints”, said chief commercial officer Andrew Nocella.
Read more: Airline chaos makes high fares harder to bear: Brooke Sutherland At CSX Corp., labor — not terminals, train cars or shipping demand — is the most severe limitation in its ability to offer customers the type of service they enjoyed before the pandemic and grow its business. The railroad has hired 2,000 employees over the past two years, but its transportation and engineering workforces have actually shrunk in the past quarter after adjusting for acquisitions, CSX CEO James Foote said Wednesday. , during the company’s earnings call. Measurements of train speeds and the time locomotives spend in terminals are also going in the wrong direction. The problem isn’t getting people to apply for jobs and go through the training process; it forces them to stay afterwards. “Unfortunately, once we got them through the classroom training part and the on-the-job training part, and they actually go to work in the outside operating environment, we saw a significantly higher attrition rate. higher than we had normally experienced or than we had anticipated,” Foote said.
To some extent, these are good issues to have when financial markets are particularly concerned about the risk of an economic downturn. Whether airlines, railways or manufacturing, demand is not yet a problem. Elsewhere in earnings updates this week, Dover Corp. CEO Rich Tobin took umbrage at Wall Street’s obsession with the trajectory of order rates and the idea that a decline after a year record high in 2021 would cause problems for the underlying health of the industrial economy. Order books are still near record highs after bookings outpaced revenue growth. “Make no mistake, we remain concerned about the path of inflation and the broader macroeconomic backdrop,” Tobin said. While skyrocketing growth rates cannot last forever and the pace of orders is expected to slow as supply chains firm up and lead times return to normal, “we have a significant portion of the portfolio that is depleted. for the year,” he said. .
Read more: Industrial downturn doesn’t look too scary: Brooke Sutherland
But persistent supply constraints weigh on profitability and quality of service throughout the industrial sector. United’s capacity cuts mean it has fewer seats to spread rising labor and fuel costs over. The reduced schedule also increases the likelihood that customers will have to pay to get a flight to their desired destination. Margins at Dover were weighed down by input shortages and Covid-related lockdowns in China, while work-in-progress inventory awaiting final components and assembly ate away at cash flow. At CSX, only 59% of its loads arrive on time, compared to 69% in the second quarter of last year. “Don’t you think that’s starting to affect your ability to win business on the railroad with the service levels here?” Bank of America Corp. analyst Ken Hoexter interviewed CSX executives during the company’s earnings call.
“It’s clearly not like everyone in the world is doing fantastically,” Foote said in response. “It’s an issue that affects everyone in the supply chain: it affects truckers, it affects shipping lines, it affects terminal operators. It affects everyone. Everyone is slowed down, everyone is struggling, and it’s not just the rail industry.
CSX is trying to develop better psychological assessment tools to ensure it hires the kind of people who actually want to work in the railroad industry and doesn’t waste money training those who don’t plan to stay. He is also considering different compensation plans that could better incentivize new hires to pursue careers with the company, though executives say the railroad’s ability to offer wage increases is limited by union negotiations that have dragged on for decades. years. President Joe Biden created an emergency labor board last week to try to resolve the standoff between the largest US carriers and some 115,000 railroad workers.
CSX still believes it can achieve its goal of building a workforce of 7,000 active transportation employees by the end of the current quarter, but the company is also losing 80-90 employees per day due to the recent spike in Covid cases. , and a higher than normal percentage are taking vacations this summer. Only about 80% of the workforce has been available for work in recent months, compared to about 85% typically on a seasonal basis, CSX chief operating officer Jamie Boychuk said on the earnings call.
“We don’t have a silver bullet,” Foote said. “We are catching up to a large extent as we go along, because these are all uncertain times and experiences that we have never had before.”
More other writers at Bloomberg Opinion:
• Biden’s Covid diagnosis is a wake-up call for the US: Tyler Cowen
• The labor market will help, not hinder, the fight against inflation: Conor Sen
• Americans prepare for a recession: Jared Dillian
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Brooke Sutherland is a Bloomberg Opinion columnist covering transactions and industrial companies. A former M&A reporter for Bloomberg News, she writes the newsletter Industrial Strength.
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