The One Thing Holding Back Airlines

Key Takeaways

• Business travelers can make up 12% of passengers but 75% of revenues on some flights.
• While retail volume is back to pre-pandemic levels, business traveler revenue is at 50%.
• Although Omicron hampered winter demand, airline bookings are showing signs of life in the last couple of weeks.

From Delta (DAL) to Southwest (LUV), airlines are missing one key customer – business travelers.

Recovery Relies on Companies

You might be surprised to learn that retail travel has already returned to pre-pandemic levels.

American Airlines (AAL) offered the following chart to explain the gap.

Business travelers make up 12% of passengers but 75% of revenue on certain flights.

These critical customers bring in steady revenues to hotels when they attend conferences and events, some choosing to stay a few extra days with their families.

Some Signs of Life

Using credit and debit card data, Bank of America analyzed airline bookings in recent weeks after Omicron slashed travel at the end of December.

Here are the highlights:

• Both domestic and international booking volumes improved to down -27.4% vs 2019 (vs -30.4% last week) and down -39.7% vs 2019 (vs -44.0% last week), respectively. 
• Domestic leisure (tickets sold through OTA channels) improved modestly to down -16.1% vs 2019 (vs -17.7% last week). 
• Pricing improved in the aforementioned channels by approximately 4-5% pts from last week, which is a sign of improvement  after pricing dropped to start the year.
• Corporate bookings are rebounding, with bookings through large travel agencies and small travel agencies improved to down -54.1% vs. 2019 and down -22.3% vs 2019, respectively.

An Uncertain Future

To kick off the year, the Consumer Electronics Show (CES) had many participants join virtually as Omicron cases raged across the U.S.

This reality doesn’t appear to be changing anytime soon.

And with demand exceeding supply in many industries, the need for direct sales calls is waning.

The Bottom Line: Business travel waxes and wanes based on Covid cases.

While it may jump in fits and starts, organic growth should bring it to pre-pandemic levels sometime in the next year or two.

Discount airlines like Southwest and Spirit (SAVE) rely less on business travelers than standard airlines like Delta and United (UAL).

However, the deals may be in the most beaten-down names like American Airlines.

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