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American Airlines is bullish on the business travel recovery. The carrier expects revenue from the lucrative segment to fully recover by the end of 2022, joining the likes of Emirates in taking an overtly optimistic stance on the return of corporate flyers.
“We remain very bullish on the return of demand,” said American President Robert Isom during a third quarter earnings call on Thursday. Business travel revenues stood at about half of 2019 levels at the end of September after peaking close to 60 percent of levels seen two years ago in July before the Delta variant set back the recovery, he added.
Business travel has lagged leisure flyers in the Covid-19 recovery. While the latter segment has shown a willingness to fly during the pandemic, whether it was to escape to outdoors-oriented destinations in 2020 or make postponed trips to see family this year, the former has lagged. Most corporates face a duty of care burden that has made travel managers hesitant to send road warriors back out on the road while the risk of catching Covid-19 remained high.
“I hear over and over again that we’ve got to get back to the office, and once we’re back to the office travel will come,” said Isom citing comments at a meeting of American’s top 50 corporate customers earlier in October. Expectations are that many businesses will return staff to offices by January.
American stands alone among U.S. carriers anticipating a full business recovery next year. Both Delta Air Lines and United Airlines have forecast an inflection point early in the year coupled with returns-to-the-office but neither have gone as far as to say the segment will return to 2019 levels in 2022. Both do expect a full recovery over the medium- to long-term.
And the Covid-19 virus has proven again and again to be a wily adversary. Drops in case numbers have repeatedly ended in surges with the Delta variant driving a slowdown in demand in August and September. American was among the many carriers that walked back their third quarter outlooks in September with Isom citing at the time significant “uncertainty” in the market.
Driven in part by its business travel forecast and continued strong leisure demand, American plans to fly “very near” its 2019 capacity next year. Overall booking rates for November and December, as well as into 2022, are above 2019 levels, executives said.
Accommodations For Unvaccinated Staff
American is walking a fine line on Covid-19 vaccines for staff. The carrier declined to mandate them until an executive order from President Biden required the shots for all government contractors, airlines included. But the debate has continued with its pilots union objecting to a mandate and, in comments Thursday, Isom said they “don’t expect anyone to leave” the airline.
But therein lies the rub: American does not expect all staff to get their jabs and that those who do not will seek exemptions and be accommodated, as Parker put it. However, he also acknowledged that not everyone who seeks an exemption will receive one. And what happens to those employees? “ We fully expect them to get vaccinated,” he said talking around the unvaccinated and unexempted elephant in the room.
Given the controversy over Covid-19 vaccines and the public statements against the jabs by some American employees, there is a high likelihood of at least several hundred staff falling into the unvaccinated and unexempted category. The lack of a firm position from Parker and his team could embolden some staff to try and skirt the rule if they do not believe the penalties will be harsh.
United, which was the first U.S. airline to mandate the jabs, is moving to terminate more than 200 staff who have refused to get vaccinated and did not receive exemptions.
Asked about United CEO Scott Kirby’s warning Wednesday that airlines without vaccine mandates could face operational disruptions this winter, Parker said he does not anticipate any such issues. Accommodations for exempted employees will not be “cumbersome on the operation,” he said.
Parker declined to provide a percentage of American staff who are vaccinated. Delta executives said on October 13 that 90 percent of the carrier’s staff had received their inoculations and United’s workforce is more than 99.7 percent vaccinated.
American’s regional affiliates that operate American Eagle flights are not subject to the federal contractor vaccine mandate and have no corporate mandates, added Parker.
And The Numbers
American reported a $641 million net loss excluding the benefit of federal Covid-19 aid during the third quarter. Both revenues and expenses decreased by roughly 25 percent to nearly $9 billion and $8.4 billion, respectively, versus 2019. As at its competitors, other key metrics were down as well: passenger traffic by 26 percent, capacity by 19.4 percent, and total unit revenues by 6.6 percent. Unit costs excluding fuel and special items increased 10.6 percent.
Looking forward, Parker was optimistic for the fourth quarter but said that weak business demand and rising oil prices will present challenges. American forecasts paying an average of $2.43-2.48 per gallon for fuel in the fourth quarter, which is an at least 17 percent increase from the third quarter. In addition, delivery delays to at least eight — and potentially 11 — Boeing 787-8 aircraft that were due in 2021 will drive up unit costs for the period.
American expects revenues at roughly 80 percent of 2019 levels on capacity at 87-89 percent of two years ago in the fourth quarter.
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