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Airlines Cash In as Flexible Work Changes Travel Patterns

enpassant by enpassant
October 21, 2022
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Markets are convulsing, and inflation is squeezing consumers. But people are still flying. A lot.

Travel didn’t slow much after summer ended, and airline executives now say they expect changing and recovering travel patterns to keep them busy through the holidays and into next year.

“Many of the demand trends we saw emerge during the pandemic are becoming more consistent and shaping our commercial focus for 2023 and beyond,” Robert Isom, the chief executive of American Airlines, told reporters and analysts on a call on Thursday to discuss the carrier’s quarterly financial results.

The airline is feeling “very bullish about overall demand, even in an uncertain economic environment,” he added. Executives at United Airlines and Delta Air Lines share that optimism.

One big reason is that the ability to work remotely, full or part time, has allowed Americans to travel more and to combine personal and professional trips — a transformation that appears to be enduring, and one that carriers are planning around, executives say.

“There’s been a permanent structural change in leisure demand because of the flexibility that hybrid work allows,” United’s chief executive, Scott Kirby, said Wednesday on a call with reporters and analysts. “This is not pent-up demand. It’s the new normal.”

Other trends also contributed to strong financial results for the three airlines in the quarter that ended in September. Lucrative corporate travel and international travel continue to rebound. And even setbacks have a silver lining: Limits on airline growth have kept flights full.

United reported a $942 million profit, compared with $695 million for Delta and $483 million for American. All expect revenue and profits in the last three months of the year to be higher than during the same period in 2019, even though they will offer fewer flights.

The benefits to the industry of travelers’ newfound flexibility extend beyond revenue. Passengers have started to spread out travel, reducing swings in demand between busy weekends and slower days midweek. Holiday travel is spreading out, too, the executives said.

Traditionally, Labor Day weekend marks the end of the busy summer season, with travel slow until it picks up for Thanksgiving and Christmas. But flexibility from remote work encouraged people to keep flying last month, United said.

The airline had as much revenue on some September days as during peak summer travel, helping to make September the third best month ever for United in revenue per seat per mile flown, a standard industry measure. And October is on track to outperform September.

Inflation F.A.Q.

Card 1 of 5

What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.

What causes inflation? It can be the result of rising consumer demand. But inflation can also rise and fall based on developments that have little to do with economic conditions, such as limited oil production and supply chain problems.

Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains can lead to higher wages and job growth.

Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better.

Even intraday travel is changing in ways that ease pressure on airlines. At American, travelers long preferred flights that left before 8 a.m. or after 4 p.m., so the airline focused flights at either end of the weekday. But American said it had started to see a small yet notable shift toward travel in the middle of the day.

Customers who combine leisure and business travel also tend to have a closer relationship with the airline, Vasu Raja, American’s chief commercial officer, said on the Thursday call. Those customers are twice as likely as a typical business customer to enroll in American’s loyalty program and three times as likely to sign up for an American-branded credit card if they don’t already have one.

“We’re seeing people travel with a lot more intentionality,” he said. “And when that happens, those same customers are much more willing to go and earn miles so they can go and take their family on vacation, for example.”

What’s good news for airlines may be bad news for bargain-hunting travelers. Fares have fallen from their peaks over the spring and summer, but prices for holiday flights are likely to start rising rapidly, according to Hopper, the travel booking site.

Fares for Thanksgiving are expected to peak at more than $450 for an average round-trip domestic flight. Prices for Christmas flights have reached five-year highs and could rise above $580 on average, according to Hopper’s lead economist, Hayley Berg.

“We know that travelers, many of them, have not traveled either home for the holidays or for traditional vacations for three years now, and we know that demand is going to be incredibly high,” she said.

United said this week that even demand between Thanksgiving and Christmas was growing, with sales for flights during the first two weeks of December ahead of where they were in 2019.

Deals may still be available, if travelers are flexible on when and where they fly. Some flights abroad are notably cheap around Thanksgiving, for example. But even those flights are selling fast.

While the recovery in international travel and corporate travel, two profitable parts of the business, has lagged behind that of domestic travel over the past two years, airlines say both are rebounding steadily.

In some cases, the two are intertwined: At United, corporate travel is recovering faster on flights across the Atlantic Ocean than within the United States, the airline’s chief commercial officer, Andrew Nocella, said on Wednesday’s call.

Understand Inflation and How It Affects You

“A Zoom meeting is simply less practical in a global setting,” he said.

The international rebound is driven by a strong U.S. dollar and a continued reopening of borders around the world. Delta said last week that it had more flights scheduled across the Atlantic this month than in October 2019, leading the rebound in other regions. Delta and United said they expected a rapid rise in demand for travel to Japan after its recent reopening.

At American, the rise of blended trips and travel by small and medium-size businesses has more than offset a slower rebound in travel by typically larger corporations. That’s because the people flying those blended and small-business trips are increasingly buying tickets that yield higher profits for the airline or are interested in valuable perks, like premium seats, branded credit cards or the airline’s loyalty program.

While demand is up, limits on supply are also driving higher fares and revenues — and frustrating executives.

The mainline carriers went on a pilot-hiring spree this year after making deep cuts to staffing early in the pandemic, but are still struggling to catch up on training those new hires. Delta has said it aims to get much of that training done by summer.

Mr. Isom said Thursday that American was close to achieving its goal of hiring 2,000 pilots this year and expected to catch up on training over the next year. But while American, Delta and United have mainly staffed up, the regional airlines that they rely on or own outright are struggling to recruit pilots.

Airlines have also had difficulty expanding their fleets as Boeing and Airbus struggle to overcome delays in delivering new aircraft. American said Thursday that it expected to receive 19 Boeing 737 Max 8 planes next year, down from the 27 previously foreseen. United plans to take 179 aircraft deliveries next year, but acknowledged a risk of delays.

Both carriers argued that the federal government had limited growth, too. United said air traffic controllers were stretched too thin, and American said delays in visa approvals for foreigners visiting the United States, compared with 2019, had hampered the recovery.

The constraints on the industry contributed to operational meltdowns over the past two years, including some over the summer, as airlines tried to overcome disruptions caused by weather and other factors. But airlines have made some positive changes.

About 1.4 percent of flights were canceled last month, compared with 2 percent in August, according to FlightAware, a flight-tracking website. Just over 17 percent of flights in September were delayed, compared with more than 22 percent in August.

“It’s apparent that U.S. airlines have robust demand and have improved on execution after struggles earlier this summer,” said Christopher Raite, a senior analyst at Third Bridge, a research firm.

After all the industry’s difficulties in the early stages of the pandemic, it is a moment for executives to savor, at least for now.

“We currently see no signs of demand slowing as we move into the new year,” Mr. Isom said. “But as always, we will continue to keep a close eye on the macroeconomic environment.”



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