Americans making summer vacation plans are about to find airfare costs are near or even above pre-pandemic levels, according to the nation’s major airlines.
Executives from most of the major carriers said the recovery in domestic leisure travel is already here. That means yields, which measure how much passengers pay for every mile traveled, are up more than the airlines had been forecasting.
“Domestic leisure [travel] will be 100% restored by June, with … bookings ahead of 2019 levels and yields essentially recovered,” said Glen Hauenstein, president of Delta Air Lines (DAL), speaking at the Wolfe Research conference.
The airlines are being cautious about bringing back too much supply of flights too quickly, especially since the leisure fares booked well in advance of travel are not as lucrative as the business travel booked at the last minute. Business travel and international travel have yet to come back, although airlines said they’re seeing signs of a future recovery there as well.
United (UAL), which is due to speak at the conference later in the day, said in a filing that overall yields on tickets booked this month for travel in May and June are already near 2019 levels. That’s even with reduced demand for business travel — so it means that domestic leisure yields are already ahead of what was booked in 2019.
Profitability and the business travel problems
This doesn’t mean the airlines are back to being profitable, although several have said they have stopped burning through the cash the way they did for most of 2020 and early 2021.
It’s tough to be profitable with just domestic leisure travelers, said Philip Baggaley, chief credit analyst covering airlines for Standard & Poor’s. Yet getting this part of their business back is still important.
“There certainly has been a surge in domestic leisure bookings, and the yields they’ve been able to achieve,” he said. “They’re not filling up as much of the plane, but in a very large and important part of their business, they’re doing just fine.”
The airlines expect business travel will start to return once offices that had employees working remotely begin to reopen. It didn’t make sense, of course, to schedule business trips if the customer whom a business traveler wants to meet with hasn’t yet returned to an office.
“We still anticipate business travel returns in the fall and beyond,” said Vasu Raja, chief revenue officer at American. “Many corporations are at the nascent stages of coming back to the office.”
That’s why airlines won’t be back to the same number of flights this summer as they offered in the summer of 2019 before the pandemic. But they’re seeing strong demand for the seats they are offering, thanks to vacation travelers’ pent-up demand.
“Right now…the only thing that is keeping us from being at 2019 booking levels is where is we’re constricting supply,” said Raja.
The bad news for the vacation travelers is good news for the airlines and their investors. Shares of American (AAL), Delta, United and most other US airlines were up between 2% and 3% in midday trading.