One theme so far in airline third-quarter earnings reports is that blended business and leisure demand along with the travel that comes with hybrid work flexibility are offsetting the lagging recovery in managed business travel, and American Airlines is no exception.
The carrier’s contracted corporations are 80 per cent recovered, but this is the second quarter in a row in which overall revenue, at $13.46 billion, has “never been higher in our history,” American Airlines chief commercial officer Vasu Raja said during a Thursday earnings call.
He added that while managed corporate travel hasn’t fully come back yet, “it’s more than being offset. … That’s on the strength of this blended demand … and unmanaged business-related demand, all of which is coming in at higher yield values.”
As Raja noted, “yet” is the operative word. American Airlines CEO Robert Isom said that both leisure and business revenue “remain incredibly strong” and, as in the second quarter, each surpassed 2019 levels in the third quarter. And the company anticipates continued sturdy demand.
The business segment was led by small and midsize enterprises, as well as those travelling for a combination of business and leisure. “That and the return of long-haul international travel leaves us very bullish about overall demand, even in an uncertain economic environment,” Isom said.
The mix of revenue during the third quarter was 45 per cent from blended trips, 30 per cent from leisure and 25 per cent from business, but about “17 to 20 points of that is coming from non-contracted unmanaged business” with the remaining points from contracted customers, Raja said, adding that it’s “meaningfully small. Call it four, five points smaller than historic.”
Premium cabin trends
The carrier recently announced enhancements to its long-haul premium configurations, whereby beginning in 2024, there will be new Flagship Suites on Boeing 777-300ER aircraft as well as on new Boeing 787-9 and Airbus A321XLR deliveries, and premium seating on long-haul aircraft will increase by more than 45 per cent by 2026, Isom said.
The result? The removal of first class. “First class will not exist on the 777 or, for that matter, at American Airlines for the simple reason that our customers aren’t buying it,” Raja said. “The quality of business class has improved so much, and frankly, by removing [first class], we can provide more business-class seats, which is what our customers most want or are most willing to pay for.”
The growth in blended demand is behind this trend, too. Previously, about 50 per cent of the premium cabin was filled with contracted corporate customers, Raja said. Now, between 40 per cent and 50 per cent is blended demand and the rest is leisure demand willing to pay more for the quality of a business class seat.
Q3 metrics
The carrier’s total revenue was not just a record but also represented a 13 per cent increase over the same period in 2019, despite flying 9.6 per cent less capacity than three years ago, according to the company.
The carrier also reported third-quarter 2022 passenger revenue of $12.4 billion, up 55.8 per cent year over year. Net income was $483 million, up from $169 million a year prior.
Projected fourth-quarter capacity is 5 per cent to 7 per cent lower than in 2019, with revenue expected to be 11 per cent to 13 per cent higher.