Three U.S. airlines on Wednesday warned of higher fuel costs in the third quarter due to a jump in crude prices, adding to pressures the industry faces from expensive labor contracts.
25.08.2023 - 13:05 / skift.com / Delta Air Lines / Shane Tackett / Bob Jordan
U.S. airlines are enjoying strong leisure travel demand, but corporate travelers are still not back in full force, compelling airlines to restructure their networks to account for fewer people flying for business purposes.
Before the pandemic hit in 2020, corporate travel was the travel industry’s cash cow. But now, with U.S. companies still seeking to persuade employees to return to offices, bookings have stagnated. Investors in travel companies are concerned that the spending from vacationers cannot make up the shortfall.
Business trips generated as much as half of passenger revenue at U.S. airlines before the global health crisis, according to industry group Airlines for America. This helped airlines sell high-margin premium seats and fill weekday flights.
For months, Alaska Air’s business bookings have been 25% below pre-pandemic levels. The Seattle-based carrier said it is hopeful of finally breaking through “the 75% recovered ceiling” next year when companies finalize new travel budgets, but it is wary of factoring that assumption into network planning.
“We are still waiting for the market to fully normalize,” Alaska Air’s chief financial officer, Shane Tackett, told Reuters. The company has been investing in leisure destinations like Mexico and Costa Rica, while its network in California remains 25% below 2019 levels.
JetBlue Airways said on Tuesday it will redeploy capacity away from New York to high-margin leisure destinations with business travel demand 20% below pre-pandemic levels.
Southwest Airlines is shifting the frequency of its flights from mostly short-haul business routes to medium- and long-haul routes. It will also move flights from early morning or late-night hours and cut flights on Tuesdays and Wednesdays by up to 10% compared with Mondays, Thursdays and Fridays.
“I expect business to continue to come back, but it’s going to trail the restoration of leisure here for a while,” Southwest CEO Bob Jordan said on an earnings call last week.
Hotels are also grappling with weak corporate demand. Marriott on Tuesday said U.S. bookings from technology and accounting firms are still down significantly compared with 2019 levels, and room bookings by large companies are recovering more slowly.
Corporate travel’s recovery has been led by countries in Asia-Pacific and Europe, where more people returned to offices, compared with countries like the U.S. where companies are more amenable to remote-work arrangements, according to a MasterCard report on business travel trends.
Airline executives say hybrid work arrangements are allowing people to combine business and leisure trips, helping carriers fill high-margin seats previously booked by corporate travelers.
Delta Air Lines said revenue
Three U.S. airlines on Wednesday warned of higher fuel costs in the third quarter due to a jump in crude prices, adding to pressures the industry faces from expensive labor contracts.
There are problems at two of the nation’s top five airlines. Labor problems.
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