At JPM Conference, U.S. Carriers Share Sunny Corp. Travel Outlook

Several major North American airlines on Tuesday at the J.P. Morgan Industrials Conference offered assessments of the state of business travel and their outlooks for the year ahead. While Delta Air Lines, American Airlines, United Airlines and Southwest Airlines each painted a bright picture of corporate demand, rising fuel costs and Boeing’s troubles shade the carriers’ projections.

Following is a roundup of key comments from carrier executives as well as any updated first-quarter guidance issued.

American Airlines

American CEO Robert Isom reiterated that business travel volume is not all the way back from where it was prior to the pandemic, but that “bodes well for American overall.” 

He didn’t expand on that, but earlier in the interview, Isom noted that American has “incredible” hubs in the U.S. Sun Belt, “where all the population is moving to. It’s where economic activity within these regions is outpacing the rest of the country.” He cited Phoenix, Dallas-Fort Worth, Charlotte and Miami, and added that the airline also has hubs in “some of the largest business environments as well,” naming Chicago, New York and Philadelphia. “We feel great about our network,” he said.

American’s regional network has “more origins and destinations, more city pairs than anyone else by a far, far margin,” Isom said. “I look forward to that as being a real driver for American as we fully recover from the pandemic and as business travel fully comes back as well.”

When asked about American’s reduced corporate sales force and push into New Distribution Capability, Isom said he’s “really proud of us being aggressive in taking some bold moves. It’s not without risk, obviously. But there is nothing that I see in terms of customer behavior that would suggest that we’re not on the right path.”

Isom also made the argument for booking direct or through “modern retailing and servicing technology,” which is “where the marketplace is going to go anyway,” he said. “For a long time, we’ve had issues with getting all of our intermediaries to a point where we can service and sell what we really think is best for our customers and ultimately for American Airlines. So, we’re pushing. And that push isn’t going to stop. And while you may have seen some changes to our sales force, I feel really good about what I see in terms of cost of sale, and I also feel good about how we’ve been able to hang on to our share as well.”

The only change American made to its first-quarter guidance was in its estimates for fuel. The carrier now projects fuel will cost an average of $2.80 to $2.90 per gallon, up from its previous guidance of $2.65 to $2.85 per gallon. 

Delta Air Lines

Delta CEO Ed Bastian said he feels good about demand and that “corporate is also returning.” He credited the corporate segment as one of the drivers of the carrier’s “really strong year-end performance. … It’s taken another step forward, and we expect there is more to go.”

When asked about whether the carrier has seen any close-in weakness, he responded that instead it has seen “close-in build” for March. “One of the reasons behind that is the return of corporate travel,” Bastian said. “We’re just a shade under where we were in 2019 now for intents and purposes, [and] we’re calling it fully restored in terms of traffic. So, that’s actually been a very good piece of our business for the March [quarter] and beyond period.”

Delta president Glen Hauenstein provided color on the “very strong domestic market. The hallmarks there are continued strength in premium products and growing demand for corporate travel and the more traditional corporate travel [from] all the Fortune 500 companies,” he said. “That’s setting up well for the second quarter and beyond.”

Delta reiterated its first-quarter guidance.

United Airlines

United CEO Scott Kirby talked about three market segments—premium travelers, domestic road warriors and price-sensitive travelers—noting that pre-pandemic, United was “good” in all three, but not the best. The carrier during the pandemic took steps to address those categories, and “we have moved into a competitive set with the top tier, and because of that, we are outperforming,” he said.

Much time was spent on the domestic road warrior front. Kirby credited Southwest Airlines with two advantages over United prior to the pandemic: customer service, on which he said United has caught up, and change fees, which United eliminated during the pandemic. 

“For those domestic road warriors, not having change fees was an insurmountable advantage for Southwest,” Kirby said, adding that he spent 25 years of his career trying to figure out how to create products “around the edges” without getting rid of change fees to compete with Southwest, and realized eventually that United had to get rid of them. 

“We’ve gotten competitive with their biggest advantage,” Kirby added. “That’s not a knock on them. They do a great job. But we now have all of the other things—the lounges, the frequent-flyer program, the international service, the bigger networks. All of those things come to the fore for those customers, and you can see it in our revenue data that we are winning in that segment. I’m not saying we’re better, but we’ve gotten competitive in that domestic road warrior segment.”

Kirby also acknowledged some of the Boeing’s recent challenges, not least of which was the Jan. 5 door-plug blowout on an Alaska Airlines flight and the U.S. Federal Aviation Administration halting production expansion of the Boeing 737 Max.

United has asked Boeing to “stop building Max 10s for us and build Max 9s,” Kirby said. “If and when the Max 10 gets certified, we’ll convert forward-looking [orders] to Max 10s. But the Max 10 is out for us until it’s certified.” 

Kirby didn’t confirm reports about finalizing purchases with Boeing rival Airbus, but he did say the carrier was in the market for Airbus A321s, “and if we get a deal where the economics work, we’ll do something, and if we don’t, then we won’t, and we’ll wind up having more Max 9s.” 

Still, Kirby said he was “encouraged” by Boeing’s stance. “I think they have accepted that there are larger changes they need to make. And … they need to go slow to go fast. And I think they are doing that. That means this year deliveries are going to be way behind what they originally expected and forecast. And I am glad that is the case, as much as I would like those deliveries. This is not a 12-month issue; this is a two-decade issue. And I’d rather have Boeing do what they need to do. I’m encouraged at least by the first step. It’s a long journey.”

Earlier this week, Delta’s Bastian told Bloomberg that he expects the Boeing 737 Max 10 to be delayed until as late as 2027.

United did not provide updated first-quarter guidance.

Southwest Airlines

Despite some close-in leisure volume coming in lower than expected, Southwest’s first-quarter revenue performance “still represents a very nice sequential improvement,” Southwest CEO Bob Jordan said. “We’re also on track to have another quarter of record revenue. Further, our [global distribution system] initiative is also on track and our managed business revenue is coming in nicely and right on our plan.”

Jordan also mentioned Boeing and the reason the carrier is not providing a full-year 2024 outlook is because of the recent change in the aircraft delivery schedule. “We just need some time to work through our plans to best adjust to new delivery expectations, a lot of that being in the schedules and how we plan to mitigate the risk of further reductions of the delivery schedule from Boeing,” he said. 

Boeing told Southwest it now expects to deliver 46 737 Max 8 planes in 2024, which is 12 fewer than the previous expectation of 58, according to Jordan. And Southwest was expecting 21 Max 7s this year, but now it does not expect them at all. Those planes had not been figured into the 2024 schedule, so that won’t affect flight offerings.

Southwest did provide updated first-quarter guidance Tuesday, with capacity now projected to be up about 11 percent year over year compared with prior guidance of up 10 percent. Fuel costs now are projected at an average of $2.95 to $3 per gallon, up from $2.70 to $2.80 as previously forecast. Forecast revenue per available seat mile was downgraded to flat to up 2 percent versus prior guidance of up 2.5 percent to 4.5 percent. The projected cost per available seat mile was increased to about up 6 percent year over year compared with up 5 percent to 6 percent.