Business travel

Hopes of a business travel boost fade for U.S. airlines as September bump fails to materialize

As predictable as the fall leaves, business air travel is expected to be in full swing this month, providing U.S. airlines with a reliable revenue bridge between late summer and early flight season. vacation.

With the continuing resurgence of COVID-19 cases and concerns about the delta variant, however, that revenue stream does not materialize, with Wall Street placing its hopes in January as a possible timeline for a resurgence in business travel.

Business travelers have long been a very profitable subgroup for airlines, as they typically grab the most expensive and profitable premium and refundable economy seats.

See also: Biden eases overseas travel restrictions for fully vaccinated passengers from November

Business travel generally takes over during the slower leisure travel seasons: the post-summer months, before the September and October holidays, and the months of January and February, before the holiday season. rush for warmer climates and spring break.

During those months, airlines “would generally rely a bit more on business travel,” said Savanthi Syth, analyst at Raymond James.

These days, those who still travel for their leisure could find more deals in September, including for these premium seats.

When concerns about the Delta variant began to emerge in late spring, the hope was that there would be a brief 30-day suspension on business travel, Syth said.

But plans and activities like lectures were canceled much earlier than expected, and it now feels more like a 90-day suspension, she said. Once January’s travel and conference season kicks off, “I suspect things will look a lot more normal.”

According to the Global Business Travel Association, spending on business travel peaked at $ 1.4 trillion in 2019.

In 2020, global business travel had grown for 10 consecutive years, with an average growth rate of 5.1% per year.

WSJ Headquarters columnist Scott McCartney lists the data for which airlines performed best and worst in 2020 on things like on-time arrivals, complaints and flight cancellations. Photo: Getty Images

GBTA estimates global spending on business travel will be down 52% to $ 694 billion in 2020, a decline somewhat mitigated by a relatively strong pre-pandemic first quarter of 2020.

For 2021, spending is expected to reach $ 842 billion and rise above $ 1,000 billion next year. A full recovery to pre-pandemic levels is expected “at the earliest” in 2025, said Suzanne Neufang, executive director of the association.

“We are optimistic about a continued steady increase in global business travel through the end of this year,” Neufang said. Industry players and regions will likely return to pre-pandemic levels at different rates, she said.

The loss in business travel revenue was one of the reasons cited by several major U.S. airlines for lowering their expectations for the third quarter earlier this month.

Business travel was a silver lining when airlines reported second quarter results earlier this year, the first quarterly profit for most U.S. airlines since the fourth quarter of 2019.

The number of people passing through TSA checkpoints at airports, which often exceeded 2 million in July and August, has been stuck at around 1 million in recent weeks, excluding the days surrounding Labor Day. .

Hotels are also feeling the pinch: A report released Thursday by the American Hotel & Lodging Association and Kalibri Labs said the industry is expected to end the year down more than $ 59 billion in business travel revenue per compared to 2019, after losing nearly $ 49 billion in business. travel income in 2020.

“Business travel is the hospitality industry’s biggest source of revenue and has been slow to return since the start of the pandemic,” and that revenue is expected to reach pre-pandemic levels around 2024, said association.

Last week, Boeing Co. sounded a hopeful note for long-term commercial aircraft demand, but predicted a big jump for air freighters thanks to the growth of e-commerce.

After the recent warnings, airline stocks have held onto their gains. That’s because the lowered forecast was better than expected in most cases, and because stocks had fallen significantly since April, reflecting the pessimism surrounding the resurgence of COVID-19 cases, Syth said.

Ultra-low-cost airlines such as Spirit Airlines and others that rely on leisure travel are likely to recover faster, Syth said. “As things improve, people will come back to travel,” she said. “These airlines are likely to see less of an impact.”

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The airlines most under pressure are those that rely on international and business travel, she said. Delta Air Lines Inc. DAL,
and United Airlines Holdings Inc. UAL,
+ 1.55%
have more exposure to international flights than American Airlines Group Inc. AAL,
and all three rely on business travel, she said.

Alaska Air Group Inc. ALK,
is one of Syth’s top picks. Alaska’s international destinations, such as vacation spots in Mexico and the Caribbean, are expected to recover faster as travelers wary travel too far from home and the mishmash of demands and recommendations. in more distant destinations.

Among the large incumbent airlines, American felt less of the recent sting as in one of its strongest markets, South America, travelers had fewer choices of airlines and many viewed American as their primary airline connection. with their family in the United States or traveling to the United States. , Syth said.

American Airlines recently announced a $ 200 million investment in Brazilian low-cost airline Gol Linhas Aereas Inteligentes SA GOL,
+ 2.39%
to deepen their codeshare agreement.

American Airlines “has methodically assembled a team of airline partners to strengthen gaps or weak points in the network,” she said. “We see (American) coming out of the pandemic with a stronger network than before. “

American Airlines shares have gained 26% this year, one of the best gains among major US airlines. United stock rose 3%, while Delta Air stock fell less than 1%. To be compared with increases of around 15% for the S&P 500 SPX index,
+ 0.39%
and less than 1% for the US Global JETS ETF. JETS,
+ 1.22%

In addition to waiting for business travel to return, airlines are currently facing a major operational hurdle, Syth said. Airlines face the same difficulties finding entry-level workers as hotels and restaurants, she said.

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