Business travel usually picks up the slack during leisure travel's slower seasons
As predictable as fall leaves, business air travel would normally be in full swing this month, providing U.S. airlines a reliable revenue bridge between the end of the summer and the start of the holiday season.
With the continuing resurgence of COVID-19 cases and concerns about the delta variant, however, that revenue stream is not materializing, with Wall Street pinning its hopes on January as a possible time frame for a resurgence in business travel.
Business travelers long have been a very profitable subgroup for airlines, as they usually snap up the more expensive, and more profitable, premium and refundable economy seats.
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Business travel usually picks up the slack during leisure travel's slower seasons: the post-summer, pre-holiday September and October months, and dead-of-winter January and February, before the rush to warmer climates and Spring break.
In these months, airlines would typically "rely a little bit more on business travel," said Savanthi Syth, an analyst with Raymond James.
These days, those still traveling for leisure have been able to find more deals into September, including for those premium seats.
When concerns about the delta variant started to emerge in late spring, the hope was that there would be a brief, 30-day pushout on business travel, Syth said.
But plans and activities such as conferences were canceled much sooner than expected, and now it is looking more like a 90-day pushout, she said. Once January's travel and conference season rolls out, "I suspect that things will look a lot more normal."
According to the Global Business Travel Association, spending on corporate trips peaked at $1.4 trillion in 2019.
Coming into 2020, business travel worldwide had grown for 10 straight years, with an average growth rate of 5.1% a year
GBTA estimates that global spending on business travel will be down 52% to $694 billion in 2020, a decline smoothed out somewhat by a relatively strong pre-pandemic first quarter of 2020.
For 2021, spending is expected to come in at $842 billion, and to climb back above $1 trillion next year. A full recovery to pre-pandemic levels is expected "no earlier than" 2025, said Suzanne Neufang, the association's chief executive.
"We're optimistic that we'll continue to see a steady rise in global business travel through the end of this year," Neufang said. Industry players and regions will likely return back to pre-pandemic levels at different paces, she said.
Loss of business-travel revenue was among the reasons several major U.S. airlines cited for lowering their third-quarter expectations earlier this month.
Business travel was a bright spot when the air carriers reported second-quarter earnings earlier this year, the first quarterly profit for most U.S. airlines since the fourth quarter of 2019.
The number of people going through TSA checkpoints at airports, which often went above 2 million in July and August, has been stuck around 1 million in recent weeks, save for the days around the Labor Day holiday.
Hotels are also feeling the pinch: a report Thursday by the American Hotel & Lodging Association and Kalibri Labs said that the industry is projected to end the year down more than $59 billion in business travel revenue compared with 2019, after losing nearly $49 billion in business travel revenue in 2020.
"Business travel is the hotel industry's largest source of revenue and has been slow to return since the onset of the pandemic," and that revenue is expected to reach pre-pandemic levels around 2024, the association said.
Boeing Co. last week rung a hopeful note for commercial jet demand in the long term, but predicted a big jump for air freighters thanks to the growth in e-commerce.
After recent warnings, airline stocks held on to gains. That was because the lowered guidance was better than expected in most cases, and because the shares had pulled back significantly since April, reflecting the pessimism around the resurgence of COVID-19 cases, Syth said.
Ultra low-cost airlines such as Spirit Airlines and others that rely on leisure travel will likely recover faster, Syth said. "As things get better, people will be back to travel," she said. "Those airlines will probably see less of an impact."
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The airlines under the most pressure are the ones relying on international and business travel, she said. Delta Air Lines Inc. (DAL) and United Airlines Holdings Inc. (UAL) have more exposure to international flights than American Airlines Group Inc. (AAL), and all three count 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 likely to recover faster as travelers remain wary of the going too far from home and of the hodge-podge of requirements and recommendations in farther destinations.
Of the big legacy air carriers, American has felt less of the recent sting because in one of its stronger markets, South America, travelers had fewer airline choices and several viewed American as their primary airline connection to family in the U.S. or travel to the U.S., Syth said.
American Airlines recently announced a $200 million investment in Brazilian low-cost airline Gol Linhas Aereas Inteligentes SA (GOLL4.BR) to deepen their codeshare agreement.
American Airlines "has been methodically putting together a team of airline partners to strengthen gaps or weak points in the network," she said. "We see (American) emerging from the pandemic with a stronger network than it had previously."
Shares of American Airlines have gained 26% this year, a top gainer among major U.S. airlines. United stock has added 3%, while Delta Air shares are down less than 1%. That compares with advances of around 15% for the S&P 500 index and less than 1% for the U.S. Global JETS ETF. (JETS)
Besides awaiting the return of business travel, airlines are facing one major operational hurdle at the moment, Syth said. Airlines are facing the same difficulties in finding entry-level workers that hotels and restaurants are having, she said.
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