American Airlines: Business Travel Recovering As Leisure Lines Blur

Robert Roffulo

American Airlines’ bookings are “recovering quickly” after the Covid-19 omicron variant triggered a drop-off in December, incoming CEO Robert Isom said Thursday during an American earnings call.  The small and midsize business segment remained strong in the fourth quarter and was roughly 80 percent recovered compared with the same period […]

American Airlines’ bookings are “recovering quickly” after the Covid-19 omicron variant triggered a drop-off in December, incoming CEO Robert Isom said Thursday during an American earnings call. 

The small and midsize business segment remained strong in the fourth quarter and was roughly 80 percent recovered compared with the same period in 2019, while the larger corporate travel segment was only about 40 percent recovered, said Isom and American chief revenue officer Vasu Raja. 

That imbalance means there’s been a shift in revenue share. Historically, 40 percent of revenues came from business travel, with large companies’ share representing about 15 percentage points of that piece and the balance from small and midsize companies. Now, less than 10 points of that 40 percent are from managed corporate, and SMEs have closer to 30 points, Raja explained. 

American remains optimistic that overall corporate travel will return this year in a significant way as companies come back more fully to the office and get back on the road. However, “as we are developing our plan to forecast for this year, we are working to build an airline that can be profitable even without the full return of managed corporate travel,” Isom said. 

He did not elaborate on what that would mean for corporate travelers or travel managers, but he noted that the company was refocusing its network around the “most profitable flying,” which is in line with one of his main goals for 2022: to return the carrier to profitability.

The Changing Business Traveler

Leisure, particularly in the United States and short-haul international markets “remains very strong and is approaching 100 percent recovery,” Isom said. But American is seeing leisure travelers flying for reasons beyond just a vacation. “They may fly to a beach or mountain destination, but they are going to work remotely for a week,” he said. “The lines between leisure and business travel are definitely blurring. … Business travel will come back in a different way, and by that I mean the overall mix of the business customer, how they travel and how we serve them.”

Additionally, the SME segment’s growing share of business travel volume compared with managed corporate is reflected in changing traveler behavior, Raja said. 

“It’s an opportunity we look upon favorably,” Raja said, noting SME travelers often originate in markets in the center of the U.S., are willing to stay over on a Saturday night and often fly on flights with lower load factors, all in contrast to travelers from larger corporates.

“Importantly, [SME bookings] come in at the same level of yield as large corporate businesses, but at a fraction of the cost of sales,” Raja said. “The cost of sales looks a lot more like what leisure is. As we see small businesses traveling, there are more people traveling for a blend of  business/leisure purposes. More people are willing to go buy themselves a premium fare product when a cheaper one is available. We have seen a lot of opportunity as the world changes, and we are going to position ourselves to execute on that.”

Metrics and Outlook

American reported a fourth-quarter net loss of $931 million on revenue of $9.4 billion, down 17 percent compared with the same period in 2019 on a 13 percent reduction in total available seat miles. Full-year 2021 net loss was $2 billion. Excluding net special items, the fourth-quarter net loss was $921 million, with a full-year net loss of $5.4 billion. 

Passenger revenue was $8.4 billion for the quarter—down from $10.3 billion reported in the fourth quarter of 2019— and $26.1 billion for the full year. American transported more than 165 million passengers in 2021, up from the nearly 156 million reported for 2019.

The company anticipates total capacity to be down 8 percent to 10 percent for the first quarter compared with Q1 2019 and down about 5 percent for the full year versus 2019. It expects revenues for the first quarter to be down 20 percent to 22 percent compared with the same period in 2019.

Executives on the call noted the challenging labor environment that has affected the entire industry. American hired 16,000 employees last year and has plans to hire another 18,000 in 2022, said outgoing CEO Doug Parker.

RELATED: American Airlines Q3 earnings

https://www.businesstravelnews.com/Procurement/American-Airlines-Business-Travel-Recovering-As-Leisure-Lines-Blur

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