US Airlines Adjust Network Strategies as Business Travel Remains Sluggish
US airlines are facing a significant challenge as corporate travel continues to lag behind leisure travel in the recovery from the pandemic. While leisure travel demand has soared, businesses are still hesitant to resume regular travel activities, leading to airlines restructuring their networks to accommodate the decline in business passengers.
Before the global health crisis, corporate travel played a pivotal role in the travel industry, contributing up to half of passenger revenue for US airlines. Business trips enabled airlines to sell premium seats at high margins and fill flights during weekday travel. However, with many companies yet to fully reopen their offices and encourage employees to return, bookings for business travel have stagnated.
Investors in travel companies are expressing concerns over the inability of spending by vacationers to compensate for the shortfall caused by diminished corporate travel. The impact on airlines has been noticeable, with Alaska Air reporting a 25% decrease in business bookings compared to pre-pandemic levels. Despite hoping for a breakthrough next year when travel budgets are finalized, Alaska Air remains cautious about factoring that assumption into its network planning.
Similarly, JetBlue Airways has announced plans to allocate capacity away from business travel-heavy destinations like New York and redirect it towards leisure destinations with higher profit margins. Southwest Airlines is adjusting its flight frequencies, shifting focus from short-haul business routes to medium- and long-haul routes. The airline also plans to reduce flights on Tuesdays and Wednesdays by up to 10% compared to Mondays, Thursdays, and Fridays.
Experts anticipate that the recovery of business travel will trail leisure travel for some time. Southwest CEO Bob Jordan expects business travel to rebound eventually but believes it will take longer than the restoration of leisure travel.
Hotels are also grappling with weak corporate demand. Marriott reported a significant decline in bookings from technology and accounting firms compared to 2019 levels. Large companies are also experiencing slower recovery in terms of room bookings.
While corporate travel in the US remains sluggish, countries in the Asia-Pacific region and Europe have witnessed a faster recovery due to more employees returning to offices. In these regions, companies have been more amenable to remote work arrangements, facilitating the return to office-based work.
Some airlines have found solace in hybrid work arrangements, which allow individuals to combine business and leisure trips. This trend has helped carriers to fill high-margin seats that were previously occupied by corporate travelers. Delta Air Lines has observed strong revenue growth from premium cabins since the pandemic, outpacing low-cost seats. American Airlines has seen higher revenue from customers combining business and leisure travel, leading to a revision of its contract terms with major corporate clients.
Despite these positive developments, some investors remain skeptical about the sustainability of current travel patterns. Recent data on passenger screening and fares suggests that US travel demand has peaked, thereby affecting airlines’ pricing power.
As the industry navigates the complexities of recovering from the pandemic, airlines must continue to adapt their network strategies to align with the evolving needs of travelers. While leisure travel thrives, the full recovery of corporate travel may take time, prompting airlines to focus on optimizing their operations to maximize profitability in the new travel landscape.
