Business travel is finally back in business. That doesn’t necessarily mean it will end up being as big as it was before the pandemic.
The Omicron variant of Covid-19 made what has traditionally been an off-season that much worse. On Thursday, American Airlines AAL 5.67%
said it lost $1.6 billion in the first quarter, similar to the $1.4 billion loss reported by United Airlines late Wednesday.
Still, airline stocks rose as the market opened as investors caught signs of a strong summer season. Based on data for March and April, all three major US legacy airlines, including Delta Air Lines,
expect to be profitable in the second quarter and to beat pre-pandemic sales. United is forecasting unit sales to be 17% higher than for the same period in 2019 — the strongest second-quarter sales forecast in the company’s history.
Considering that higher fuel prices have pushed airfares higher suggests the recovery is no longer based on discounted last-minute flights to sunny locations. US officials confirmed on Monday that travelers on planes will no longer be required to wear masks, and while airlines are cautious, it should make it easier for people to travel to work. This is essential for airlines like United, Delta and American, who often make their margins on premium cabins and only then try to fill the rest of the plane with cheap seats. Before the pandemic, corporate airlines accounted for 15% of passengers but 40% of revenue and three-quarters of profits on some flights.
While transpacific travel is still weak, American expects total company revenue to rise to 90% of 2019 levels in the second quarter from the current 50%. On long-haul flights, “not only are we seeing more customers simply checking out for flights, but we’re seeing premium cabins fulfilled at an increasingly better price,” chief commercial officer Vasu Raja told analysts on Thursday.
United appears to be gaining even more than its peers: With its main hub in Chicago, it relies on large corporate customers, while most of its pandemic business travel has involved small businesses traveling domestically. On Thursday, United’s CCO Andrew Nocella said that “big companies are now traveling faster again” and that business travel unit revenues are near 2019 levels. United is also very exposed to transatlantic routes, which should benefit greatly after US officials lifted their “Do Not Travel” recommendation for several international destinations last Monday.
Unfortunately for airlines, the latest trend hasn’t allayed fears that video conferencing will permanently reduce business travel.
Polls by the Global Business Travel Association appear to confirm that Omicron has hurt travel primarily by prompting companies to reschedule New Year’s events, which are now all happening at the same time. Some hotels say companies are suddenly booking rooms two weeks in advance, instead of the usual 30 days. However, this seems to be the result of conferences and client meetings, and not what is really threatening to reduce: flights to other offices of the same company. Surveys show that these accounted for around a third of pre-pandemic travel.
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A quick rebound suggests ultra-pessimists like former Spirit Airlines chief executive Ben Baldanza, who believes 40% of business travel won’t return, are wrong. But investors should still be cautious about assuming there won’t be a major impact due to today’s massive release of pent-up corporate demand.
After two years of Zoom fatigue, a surge in in-person corporate events was to be expected. As the saying goes, one swallow doesn’t make a summer.
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https://www.wsj.com/articles/zoom-fatigue-boosts-the-recovery-in-corporate-flyingfor-now-11650561759?mod=rss_markets_main Zoom fatigue boosts corporate flying recovery — for now