American Airlines is the latest carrier to report lower than forecast revenues in August amid the surge in Covid-19 Delta variant cases. And while that has not changed the carrier’s overall outlook, American does see a delay in the return of lucrative business travelers.
The Fort Worth, Texas-based carrier no longer expects an inflection in the business travel recovery early in the fourth quarter, American Chief Revenue Officer Vasu Raja said at a Raymond James investor conference on Wednesday. He cited the delayed return of workers to offices, which itself is the result of the Delta variant surge across the U.S. Despite this, Raja remained optimistic for the return of corporate roadwarriors even if they come later than previously expected.
“We do anticipate there will be a slower recovery in business demand than what we’ve seen but there will still be a recovery,” he said.
Frontier Airlines, Southwest Airlines and Spirit Airlines have all revised down their third quarter outlooks because of the Covid-19 surge. Both Southwest and Spirit even pushed back expectations of September quarter profits by at least three months. American, at least for the time being, is not yet revising its capacity or other guidance but continues to “monitor” the situation, said Raja.
In July, American forecast revenues at 80 percent of 2019 levels, and capacity at 80-85 percent of two years ago in the third quarter.
The carrier’s wait-and-see attitude may prove prudent. U.S. Centers for Disease Control and Prevention data show the seven-day moving average of Covid-19 cases peaking on August 21 and beginning to fall after a continuous nearly two-month rise. And it comes two days after the U.S. Food and Drug Administration approved the Pfizer-BioNTech coronavirus vaccine that has prompted new vaccine mandates and rising confidence among investors in the recovery.
While American — and the broader industry — await the return of business travelers, the airline is moving forward with efforts to reshape its network in ways that will benefit it once the pandemic is firmly in the rearview mirror. This includes domestic partnerships with Alaska Airlines and JetBlue Airways that launched earlier this year, as well as a new strategic partnership with JetSmart in South America.
“Really, what it’s about for us is [to] create the same kind of network comprehensiveness for the customer in South America, especially in the short-haul network,” said Raja. He pointed to the fact that roughly 65 percent of travelers on its flights to and from South America consider the continent home — an impressive number given American is a U.S. and not South American carrier. He anticipates that many of these flyers could switch their local travel to JetSmart once they are able to earn and redeem American frequent flyer credits on the budget carrier’s flights.
“We can go create a level of customer value that really nobody across the region can do,” added Raja. As part of the pact, the American will buy a minority stake in JetSmart and support its growth across the continent. The ultra low-cost carrier has local operations in Argentina and Chile, and CEO Estuardo Ortiz has previously named Peru as a potential growth market.
American also has a codeshare partnership with Gol in Brazil. Gol is in the process of acquiring a local regional carrier to further strengthen its leading market share in the country.