United Airlines CEO Scott Kirby has admitted that business travel has plateaued, which points to either a looming recession or a fundamental change in the way businesses think about travel.
United Airlines CEO: Business Travel Has PlateauedPlateaued
Appearing on CNBC’s Squawk Box, Kirby discussed the state of air travel as 2022 draws to a close and his projects for the year ahead. While he initially denied there were any signs to suggest recession is imminent, when pressed on business travel Kirby conceded that business travel has plateaued:
“The old metrics are probably wrong. Our data indicates…and this is probably indicative of pre-recession behavior, has plateaued, even though are total revenues are still going up.”
Kirby attributes the rise in revenue to new travel patterns he calls “hybrid work” that allow employees to work remotely and therefore add more leisure travel to their lives.
Even with this bad news, Kirby points out a number of good signs. First Kirby is excited over the pilot shortage:
“For the big airlines, that’s good news. Because there is a pilot shortage in the airline industry, we have real cost convergence going on. Low-cost carriers used to pay their employees less and use that to have lower fares. They can’t hire people now unless they get real close to being competitive with us.”
As View From The Wing notes, Kirby likes higher pilot wages because it hurts United’s low-cost competitors.
Second, Kirby believes airfare will continue to rise.
“Airfares still 40% lower in real terms than 10-15 years ago – “we are coming up from a low bottom…We think there is more room to run on this once people have the confidence about the economy.”
In terms of the impact of the plateau on profit, Kirby argues that the profit outlook is rosy:
“We are basically back to 2019 profit margins which was basically near an all-time high for us. Even with a recessionary environment, even with and high fuel prices we are coming back to nearly record-high profit margins.”
Summing up the industry, Kirby observes that revenue and profits will continue to rise because “demand is structurally higher, supply is structurally higher. Econ 101.”
“Because there is a pilot shortage in the airline industry, we have real cost convergence going on. Low cost carriers used to pay their employees less and use that to have lower fares…” pic.twitter.com/309vnrukQk
— Ross Feinstein (@RossFeinstein) December 6, 2022
United CEO Kirby has conceded that the rebound in business travel has tapered off. While that is in-line with concerns over a looming recession, at what point are we going to confirm that there is a fundamental evolution in travel away from “traditional” business travel? Or will it come roaring back to at some point?
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