American Airlines (A1G) (AAL) is bullish on the return of travel demand, even after the spread of the Delta variant knocked recovery in the third quarter of 2021.
The carrier’s chief executive, Doug Parker, said American Airlines (A1G) (AAL) made a profit in July, before returning to losses in August and September as rising COVID-19 cases led to cancelled travel plans and halted a recovery in business travel bookings.
The comments were made to analysts and media after the carrier published financial results for the third quarter on October 21, 2021.
American Airlines (A1G) (AAL) moved to a net profit of $169 million in the quarter compared with a loss of $2.4 bln one year ago. However, excluding $1.04 billion of net special credits related to the US government payroll support program, it made a loss of $641 million.
According to Parker, that was the smallest quarterly loss since the pandemic began. He also noted that business travel revenues had recovered to 60% of pre-pandemic levels in July, before dropping back to 47% in September.
“It shows business travel does want to return, there is enormous pent-up demand there,” Parker commented.
American Airlines President Robert Isom said corporate bookings had now improved and the company expected a full rebound of business travel revenues to 2019 levels by the end of 2022.
The airline is also encouraged by demand for transatlantic travel. Bookings to the United Kingdom jumped 66% after the United States unveiled plans to ease travel restrictions, while bookings to Europe rose 44%. Chief Revenue Officer Vasu Raja told analysts the bookings were coming in at a greater rate than in 2019, reflecting pent-up demand for leisure travel. He predicted corporate travel across the Atlantic would return in the first quarter of 2022, rather than the end of 2021.
What are the headwinds?
However, there are some headwinds. CEO Parker said the fourth quarter would be “challenging” due to rising fuel prices and the deferred demand for business travel. American expects its fourth quarter pre-tax margin, excluding net special items, will be between negative 16% and negative 18%.
For the fourth quarter, American expects capacity will be down 11% to 13% compared to the fourth quarter of 2019.
In addition, the airline is still waiting for deliveries of Boeing 787-8 Dreamliners. American Airlines (A1G) (AAL) is working with Boeing to finalise the timing, but said that due to the uncertainty, it has decided to remove the aircraft from its winter schedule entirely in order to minimise passenger disruption.
On October 20, Lufthansa (LHAB) (LHA) revealed that it is still expecting its first Dreamliner to be delivered before the winter schedule ends in March.
When asked about vaccination mandates, the executives said American Airlines (A1G) (AAL) did not intend to put unvaccinated employees on unpaid leave. The carrier is in talks to accommodate members of staff who are unable to get vaccinated for medical or religious reasons. Its regional carriers, which aren’t covered by the federal mandate on vaccinations, currently have no plans to introduce a mandate of their own.