Excerpt from Bloomberg
Despite the omicron setback for airlines, the longer-term prospects are looking bright.
The rapid spread of the omicron variant has sent office workers back to their kitchen tables and put the business travel recovery on pause. But the longer-term outlook is actually looking brighter these days.
First, it's important to note that despite the doomsday predictions early in the pandemic, business travel isn't dead so much as hobbled. Before the omicron variant sent demand plummeting, domestic corporate volumes in early December were about 40% below 2019 levels, United Airlines Holdings Inc. said this week when it reported fourth-quarter earnings. That's a meaningful recovery; on the same measure, corporate travel was 90% below pre-pandemic levels in the early part of the second quarter and down 60% as of June. United expects the rehabilitation trend to get back on track by the end of February as the surge in cases ebbs and more companies start to treat Covid-19 as endemic. But there's clearly still a ways to go.
One interesting divide that has emerged is that smaller businesses have proved much more willing than larger corporations to put workers back on planes. At American Airlines Group Inc., travel demand in the fourth quarter from small and medium-sized businesses returned to 80% of its pre-pandemic level, compared with only 40% for large companies. A Jefferies Financial Group Inc. survey of U.S. adults who took business trips in 2019 found that those who worked at companies with fewer than 1,000 employees were much more likely to predict a return to pre-Covid patterns in the near term. About 80% of that group on average expected to be traveling as much for business as they were before the pandemic by the end of 2022, compared with just 55% of workers at bigger enterprises. Among the 9% of previous business travelers who said corporate trips would never return to a 2019 pace, two-thirds work at companies with more than 1,000 employees, the Jefferies data show. The results of the survey were published in January.
This makes sense in the short term: Corporate giants with storied reputations and long-standing customer relationships are less likely to lose out on opportunities by keeping workers at home a little longer. The gears of change grind slowly at bigger companies, particularly in the face of a constantly evolving virus. Upstarts don't have the same luxuries — and there are many more of them these days. Entrepreneurs filed a record 5.4 million new business applications last year, almost double the annual average between 2005 and 2019, according to data from the U.S. Census Bureau. This creates new opportunities for the airlines. Corporate giants typically negotiate deals for preferred rates in exchange for their premium business, but most carriers haven't targeted small and medium-sized entities in the same way. That means the cost of sales for this category is much lower and more akin to that of leisure passengers, even though small businesses tend to mimic their larger peers in their tendency to buy higher-priced last-minute tickets, Vasu Raja, American Airlines' chief revenue officer, said on a call this week to discuss earnings.
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