United ‘Carefully Watching’ Business Travel Recovery

Business demand for United Airlines continued to rebound in the second quarter to about 75 percent of volume levels in the same period of 2019 and 80 percent of revenue, United EVP and chief commercial officer Andrew Nocella said during a Thursday earnings call.

The rate of recovery, however, slowed the “last few weeks” for domestic business demand compared with the growth seen earlier in the quarter. The improvement rate for international “still looks really good, though, even with the headlines about London Heathrow,” Nocella said. “With the economy potentially worsening, business travel recovery is something we’ll be watching carefully.”

Heathrow Airport earlier this month imposed daily passenger capacity caps though Sept. 11.

And while the company is “pleased with the revenue trends” well into the third-quarter booking curve, “we’re not counting on a material rebound in business bookings in the quarter to meet our [total revenue per available seat mile],” Nocella added.

United CEO Scott Kirby outlined three “looming risks” to the industry: aviation infrastructure constraints, “sharply elevated” fuel prices, and the growing likelihood of an economic slowdown or recession and its effect on demand.

The three “will drive the narrative around United and our industry for the next six to 18 months,” Kirby said. 

Keeping those current and potential headwinds in mind, the company continues to adjust its near-term capacity plans “to fly the most reliable schedule we can,” said United president Brett Hart. 

Second-quarter capacity was down 15 percent versus Q2 2019. Capacity in the third quarters is expected to be down about 11 percent and down 10 percent compared with 2019, lower than United’s previous targets. Capacity plans for 2023 now are up about 8 percent over 2019 levels, which is 12 percentage points below the company’s previous goal of 20 percent. 

“We feel 8 percent growth is the right choice and achievable for United,” Nocella said. “At United, taking care of our customers is our No. 1 focus, and we believe that moderating capacity growth will allow us to deliver service levels our customers expect.”

Metrics and Further Outlook

Like American Airlines, which also reported quarterly earnings Thursday, United reported a profit in the quarter ending June 30, with net income of $329 million on revenue of $12.1 billion, which was up 6 percent compared with Q2 2019. Passenger revenue was $10.8 billion, up 3.3 percent from 2019 levels, and the highest Q2 revenue in the company’s history, according to United. Q3 operating revenue is expected to be up about 11 percent versus 2019.

By region, domestic passenger revenue was $7.2 billion, up 9.3 percent from 2019, while Europe reported $1.8 billion, up 5.2 percent. The Middle East, India and Africa showed the largest improvement, up 55.9 percent to $329 million. Latin America gained 22.6 percent over 2019 levels, at $1.1 billion. The Pacific region was the only area to post a passenger revenue decline, at $428 million for a 62.3 percent drop from 2019.

Q2 fuel prices were $4.18 per gallon. Fuel guidance for the third quarter is $3.81 per gallon.

Regional operations remain strained as the pilot shortage continues and carriers, including United, are cutting or eliminating service to smaller markets. The company “already shut down 17 or 18 [markets] that we can’t fly to because of a lack of [regional jets],” Nocella said. “It’s an unfortunate outcome of where we are, but that is what the outlook looks like at this point.”

Nocella added that for some small communities with less frequency, they’ll be serviced by larger aircraft, “and we think that our customers in those markets are going to appreciate the mainline aircraft.” Still, “service to small communities is going to be different,” he said.

RELATED: United Airlines Q1 results

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