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Business travel picks up, bolstering outlook for US airlines

Published 04/19/2024, 01:09 AM
Updated 04/19/2024, 01:50 AM
© Reuters. American Airlines planes are seen at gates at LaGuardia Airport ahead of the Thanksgiving holiday, in New York City, U.S., November 21, 2023.  REUTERS/Shannon Stapleton/File photo

By Rajesh Kumar Singh

CHICAGO (Reuters) - U.S. airlines have enjoyed a travel boom for the past three years, but until this past quarter, big-spending corporate travelers had been largely missing.

Those customers are now back in full force, boosting profits for carriers in what is normally a weak quarter for results. The U.S. airlines that have so far released results - including Delta, United and Alaska Air (NYSE:ALK) - all reported a sharp rebound in flying for business purposes.

On Thursday, Alaska Air said increased spending by technology companies like Amazon.com (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT) in the March quarter increased revenue from corporate travel to pre-pandemic levels. For most of the last year, the carrier's business bookings were stuck around 75% of the 2019 levels.

The corporate travel increase helped the Seattle-based carrier post a strong performance in the March quarter, traditionally its weakest period of the year.

In an interview, Alaska's chief financial officer, Shane Tackett, said demand would keep growing, as spending by technology companies has not fully recovered.

"Technology companies on the West Coast are the most valuable companies in the world," he said. "They are going to travel to see their customers and to sell software."

Similarly, United said it recorded some of the biggest corporate bookings in its history this year, thanks to demand from professional services, tech and industrial companies.

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.

But the sluggish recovery forced carriers dependent on business traffic to rework their network and chase vacationers. Pricing power fell due to excess industry capacity in key leisure markets.

United shifted more seats to markets like Florida and Las Vegas in the first quarter following losses in the same quarter last year, while American Airlines (NASDAQ:AAL) reset the terms of its contract with big corporate customers.

While the pickup in business travel is largely linked to people returning to offices, airline executives say corporate clients are loosening their purse strings due to the improved economic outlook.

Delta last week said 90% of its corporate customers are planning to either maintain or increase travel volumes in the current quarter. The Atlanta-based airline, which saw a double-digit year-on-year increase in corporate sales in the first quarter, expects to deliver record corporate revenue in the second half of this year.

© Reuters. American Airlines planes are seen at gates at LaGuardia Airport ahead of the Thanksgiving holiday, in New York City, U.S., November 21, 2023.  REUTERS/Shannon Stapleton/File photo

Alaska raised its 2024 earnings forecast as it expects profit from business travelers to offset higher fuel costs.

United's chief financial officer, Michael Leskinen, on Wednesday said the recovery in business traffic was "wind in our sails," saying that while current trends were strong, "the future is even brighter."

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