After delta-variant setback, AA says business travel is ramping up again

Domestic corporate travel revenue for American Airlines improved to 64% of 2019 levels in July, but as companies pulled back on return-to-office plans due to the rapidly spreading Covid-19 delta variant, that recovery dropped to 47% by September. 

American Airlines chairman and CEO Doug Parker still called those numbers “encouraging.”

“The spike in business revenue in the month of July shows that business travel does want to return,” Parker said during the carrier’s third-quarter earnings call. “There is enormous pent-up demand, and once this pandemic is behind us, it should resume its prior rapid trajectory to recovery.”

Similar to what Delta and United each reported in their respective earnings calls, corporate business has begun picking up again in recent weeks for American and now is “accelerating like earlier in the year,” American Airlines president Robert Isom said. 

Travel in the industrial, healthcare and professional-services industries has recovered the most, but American said it expects the overall recovery will be broader.

“At this point, all industry verticals are improving; they’re just at different points in the improvement curve,” chief revenue officer Vasu Raja said. “Even in sectors where travel is less back, the rate of progress we are seeing is mirroring those sectors where travel has relatively returned more.”

Waiting on the large companies

When domestic corporate travel revenue reached its pre-delta variant peak in July, it was disproportionately slanted toward small and midsized customers, Parker said. Large, contracted corporate business still was down by almost two-thirds compared with 2019 at that point, while small and midsize business had recovered to 83% of 2019 volume, he said.

American recently hosted its largest corporate buyers at an advisory board meeting, and they indicated that they planned to resume travel once their employees were back in the office, Isom said. As such, while executives said they expect corporate revenue will remain a drag on total revenue in the fourth quarter, it will be a “short-term” issue, with corporate revenue largely recovered by the end of 2022.

“It’s less about sectors and more about people just getting comfortable in bringing people back to the office,” Parker said. “Those companies that don’t have large headquarters and large HR departments are out flying because they need to across all sectors. Those companies that are large organizations and need to worry about those things more aren’t yet back, but they’re starting to come back, and they’ll get up into those same ranges. That’s where business wants to be.”

Long-haul international corporate travel also has begun to show some signs of life, with nearly two-thirds of American’s corporate customers now traveling internationally on at least essential business, Isom said. 

Pent-up demand for international travel

Executives said the same pent-up demand is there for international travel, as indicated by a spike in bookings following the U.S. government’s announcement that it would allow fully vaccinated international travelers to visit as of Nov. 8.

Within 24 hours of the initial White House announcement, American saw a 66% increase in bookings to the U.K., a 40% increase in bookings to Europe and a 74% increase in bookings to Brazil, Isom said.

Domestic leisure revenue, meanwhile, is back to pre-pandemic levels, he said. Total passenger revenues for the third quarter were just under $8 billion, about 72% of what they were in the third quarter of 2019. 

The carrier projects its total revenue in the fourth quarter will be down about 20% compared with the same period in 2019, with capacity down between 11% and 13%.

Smallest loss since the pandemic

American Airlines reported a net profit of $169 million for the third quarter, which included more than $1 billion in special credits largely from federal payroll support. Adjusted for that and other special items, the carrier reported a loss of $641 million for the quarter, compared with an adjusted loss of $2.8 billion for the third quarter of 2020.

Parker noted that the loss was American’s smallest since the pandemic began and that it had been profitable in July, when business travel was at its highest rate of return.

Source: Business Travel News

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