The average price of an airline ticket is 43 percent higher than a year ago and 0.8 percent more expensive than in August, but travelers are still taking to the skies in an ongoing post-COVID travel boom.
As a result, airlines have been able to raise fares enough to cover higher costs for fuel and labor without discouraging travelers.
Consumers are spending less on goods and more on experiences, which has insulated airlines from the weaknesses other areas of the economy are seeing, Delta Air Lines CEO Ed Bastian said in a Wall Street Journal interview last week.
Business travel also is returning.
Delta’s corporate sales reached 80 percent of 2019 levels by the end of September, Bastian noted, helped by hybrid work models and the trend of combining business and leisure in the same trips.
Third-quarter business-class ticket sales in North America exceeded those in the same period in 2019 by 16 percent; in Europe, the growth was 13 percent, according to data service Skytra.
So far this quarter, the figures for business class sales are 28 and 26 percent beyond those of three years ago, Skytra said, with many tickets being booked months in advance.
The figures are surprising because, during the COVID War, many businesses had announced permanent cuts to their travel budgets after discovering tele-meetings were just as effective as face time.
“It could be a sign of an increasing number of leisure passengers booking business-class tickets, given that corporate travelers typically don’t book more than one month in advance,” Skytra CEO Elise Weber told the WSJ.
Air travel brought Delta $12.8 billion in revenue during this year’s third quarter, 3 percent more than in the same period in 2019, and delivered $695 million in profits for the period, even though Delta has yet to resume the full schedule it flew pre-COVID.
Sales this quarter could top those in the same period in 2019 by as much as 9 percent, the airline has said.
International Consolidated Airlines Group, which owns British Airways, has announced its third-quarter earnings will beat analysts’ expectations by 50 percent.
American Airlines’ sales also will be stronger than predicted, the company said.
The industry is experiencing a sharp reversal of last year’s doldrums, when COVID recurrences rattled airlines’ fragile recovery from travel lockdowns.
However, economy-class sales volumes in Europe have yet to recover strongly, analysts told the WSJ.
TREND FORECAST: Airlines’ share prices also remain depressed, with full-service carriers looking at stock values 53 percent below pre-COVID prices, according to FactSet. Budget airlines’ market values are down an average of 40 percent.
We forecast that as the economy sinks deeper into recession there will be less air travel and as noted, business class travel seats are being occupied by travelers who are upgrading rather than professionals flying to do business with clients. Therefore as noted by the WSJ, Investors are still avoiding companies that depend on consumers’ discretionary spending, which might shrink as inflation continues unabated.
TREND FORECAST: Early in the COVID War, we correctly forecast that business travel, the airlines’ most profitable sector, would decline even after unrestricted air travel resumed.
Since then, many businesses have permanently reduced their budget for business travel, a trend we noted in articles such as “Europe’s Banks Permanently Slash Business Travel” (4 May 2021) and “HSBC Endorses Remote Work Model, Slashes Travel Budget” (14 Sep 2021).
That trend will deepen as interest rates and inflation rise.
As noted, we believe that leisure travelers account for the surge in business class bookings. As coach class has become more cramped and more rowdy, travelers looking for a good time will be willing to pay a bit more to avoid the cheap seats and the annoyances that accompany them.
The Global Business Travel Association, which has a more detailed view of the market, has predicted that business travel worldwide will not return to pre-COVID strength until 2026.
As we noted in “Business Travel Bust” (13 Sep 2022), we disagree with the association’s assessment.
It will never return.
Inflation and higher interest rates are squeezing companies’ margins; businesses will do what they can to save money.
Having become comfortable, if not entirely happy, with Zooming and teleconferencing during the COVID War, bosses now see their positive impact on the bottom line and will make remote contact, not travel, the new normal.
PUBLISHER’S NOTE: U.S. airlines received at least $25 billion in federal rescue money during the COVID War, some as loans and some as outright gifts. As they become profitable, carriers should not only pay back their loans, but also return the gifts back to taxpayers.