HomeTop StoriesChanging trends in travel demand are complicating US airlines

Changing trends in travel demand are complicating US airlines

By Rajesh Kumar Singh

CHICAGO (Reuters) – Consumers continue to spend money on airline tickets. But travel patterns change so often, in part due to work-life changes brought about by the pandemic, that airlines must continually adapt when booking airline seats and remain cautious when forecasting demand and revenue.

That situation could result in lost revenue for the airlines if they misguess the best time to sell seats, while their caution in estimating revenue takes a toll on their stocks, as Wall Street interprets that as a sign of waning consumer demand.

American Airlines Chief Financial Officer Devon May attributed the challenge to the difficulty of forecasting demand. For investors, this has increased the risk of confusion.

“We’re getting better at it, but the demand trends today are still a little bit different than they were in 2019,” he told Reuters.

Concerns about future demand were one reason American Airlines shares fell 6% on Thursday, even after it raised its full-year earnings forecast. Analysts said investors were concerned that the increase was modest after the company’s second-quarter performance.

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American is not alone in this battle. In March, United Airlines had to change its first-quarter profit forecast from a profit to a loss because it overestimated business travel demand in January and February.

In the June quarter, United withheld seats for summer travel and made them available closer to peak travel dates at higher fares in an effort to maximize revenue. It was a risky bet, as booking data from the previous quarter had shown that customers booked their trips well in advance.

United’s move paid off, generating a record quarterly turnover. The company’s chief commercial officer Andrew Nocella said it was another sign that seasonal travel patterns have changed.

“The summer peak period is more spread out compared to before,” he said on a conference call on Thursday.

Airlines can no longer afford to rely on historical booking data as hybrid or telecommuting arrangements have given customers more flexibility to plan travel, said Henry Harteveldt, founder of travel consultancy Atmosphere Research Group.

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As a result, airlines are leaning more on artificial intelligence and employing data scientists to better align seat sales, ticket prices and flight scheduling with changing booking trends, he said.

Yet airlines risk not keeping pace with ever-changing travel patterns and missing financial forecasts.

“This is a very difficult path to walk,” Harteveldt said. “Airlines are starting to look at things more conservatively.”


That caution is worrying investors, who are unsure whether travel spending will hold up.

Rahul Sen Sharma, co-CEO of financial services company Indxx, said investors are concerned that business travel has still not returned to pre-pandemic levels, leaving airlines heavily dependent on price-sensitive vacationers.

“The valuable customers haven’t really come back,” said Sharma, who follows airline stocks. “They are the ones driving profitability.”

However, airlines say business travel has fundamentally changed since the pandemic. Delta Air Lines CEO Ed Bastian said that while people don’t travel much for work, hybrid work arrangements have led to a 50% increase in personal travel from the pre-pandemic period.

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American CFO May cited frequent upgrades to industry earnings forecasts as evidence that the drive to travel remains strong.

“It’s a different demand profile than what we’ve seen in the past,” he said. “But our systems are catching up.”

Booking trends for international travel have also changed.

Delta said the summer travel season in southern Europe is now longer than it used to be, prompting the airline to adjust its network.

Delta has extended schedules for its seasonal flights to many European destinations in November and December. It also plans to resume services in February and March instead of April and May.

“We’re going to have a great summer,” Delta President Glen Hauenstein said. “Our goal is to have a great winter as well.

(Reporting by Rajesh Kumar Singh in Chicago; editing by Ben Klayman and Matthew Lewis)

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