Here are the Reasons Explain American Airlines' Lowering Reliance on Contracted Business Trips

Here are the Reasons Explain American Airlines' Lowering Reliance on Contracted Business Trips

Airlines 2023-03-10

As corporate travel priorities continue to change in the wake of the Covid-19 outbreak, American Airlines Group Inc. is preparing for a reduction in contracted business from key accounts.

During a latest financial call, Chief Commercial Officer Vasu Raja of the Fort Worth-based American airline informed analysts that business travel accounted for nearly 25% of the carrier's $13.2 billion in fourth-quarter income. He claimed the figure has often been around 35%. Only five to seven percentage points of the 25% are contributed by contracted businesses. The remainder comes from unmanaged, uncontracted firms.

Meanwhile, according to Raja, 45% of American revenue now comes from so-called "blended" journeys, which include components of leisure travel and business travel. 30% of total revenue comes from leisure travel.

Here's what he actually said about it:

"The marketplace has undergone a significant transformation."

Between two-thirds and three-quarters of American's company deals in business travel, according to Raja, aren't being carried out. He also reported that non-contracted business has entirely returned while corporate travel income has generally increased to roughly 75% of its pre-pandemic level.

The adjustment illustrates the continuous dynamic for firms as they attempt to strike a balance between having people work remotely and coming back into the office.

"It can be difficult to force employees to take a day trip to Chicago or New York if you're having trouble getting them back to the office," Raja said. "Less than 1% of American travel currently consists of same-day corporate business visits, which used to make up 3% to 4% of total traffic."

He added:

"We're preparing for that to be a new reality."

American anticipates a 5%–8% increase in capacity this year.

Raja won't be as significantly harmed by cutbacks taking place at major organizations because its capacity strategy is more concentrated on leisure and blended travel itineraries than on business journeys. Giants including Goldman Sachs, Microsoft, Google, and Amazon reported hundreds of layoffs in previous weeks.

Raja noted that the businesses making layoffs frequently purchase items under corporate contracts, and that area of American's company appears to be irreparably damaged.

However, he stated the following as well:

"We also aren't constructing a strategy based on a lot of that demand returning. We aren't seeing a really large impact."

Along with the expansion of blended travel and the ongoing high demand for leisure travel, American Airlines is expected to benefit from various shifts in consumer behavior. According to Raja, both groups of passengers have been attempting to make later-planned reservations. Additionally, he claimed that these clients are more inclined to book higher-value fare packages and fly directly through American's website.

"We still see a scenario where around 60% of our earnings are coming directly to us through our dot-com and mobile app, and we expect that to continue to rise. Moreover, 70% of individuals looking for the lowest fare wind up purchasing a fare that is higher than that as those blended trips enter our owned channels. Therefore, that gives us hope."

American predicted that unit revenue would rise overall in the "low single digits" compared to 2022, with a first-quarter gain of between 24% and 27%. But increasing costs can also be a problem. For the entire year, a spike in unit costs of 2% to 5% is initially expected.

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