Executives from American Airlines, United Airlines and Southwest Airlines at a Morgan Stanley conference Wednesday each touted strong demand, including in the corporate segment, but noted volatile and rising fuel prices likely will reduce capacity, each confirmed
"Demand is incredibly resilient," United CFO Michael Leskinen said during Morgan Stanley's 14th annual investor conference in Laguna, Calif., on Wednesday. "Premium cabins [are] humming along very nicely. Corporate business has been ticking up a little bit. We're still 4.5 points back from what we think the trend line is, but we've seen a little bit more of an uptick in corporate."
Leskinen further explained that the figure was 4.5 percentage points below a pre-pandemic baseline. "While corporate has been very, very robust, and we're seeing volumes pick up, there's actually plenty more room to run there," he said.
"Demand remains strong," American CEO Robert Isom said. After posting a 26 percent year-over-year increase in second-quarter managed corporate revenue, he added that "we're going to produce another quarter of significant gain year over year" for a sixth straight quarter of double-digit growth for the segment.
Though overall demand tends to be lower in September than in summer months, Southwest CFO Tom Doxey said, "September has exceeded our expectations. The demand environment is very, very strong."
Doxey added that Southwest reported a 30 percent year-over-year increase in corporate revenue for the second quarter. "We haven't publicly talked about exactly what those levels are and what the mixes are, but we're very strong on the corporate side."
Fuel and the Fourth Quarter
Airline executives also noted the challenges of dealing with higher fuel costs. The global average price of jet fuel increased from $156.85 for the week ending Aug. 28 to $181.46 for the week ending Sept. 11, according to the International Air Transport Association.
American's Isom said the company expects its fourth-quarter fuel expense to climb by over approximately $1 billion. "If fuel prices remain as high as they are right now, I think that's going to require some adjustments in terms of our capacity planning as we take a look out in the future," he said. American CFO Devon May confirmed the carrier would continue to adjust capacity for later in the fourth quarter.
United's Leskinen said that "we made some adjustments to our schedule." He added that "there are some routes that were on the lower end that get pushed into not profitable when fuel spikes like this. ... As you look into the fourth quarter, there'll be some flights in December that we don't fly that we thought we were going to fly."
If fuel prices remain high, the carrier will make some adjustments into the first quarter and beyond into 2027, Leskinen added.
Southwest's Doxey said that the carrier started the year with plans for a capacity increase of 2 percent to 3 percent year over year, but "we've cut that about in half," he said. "If fuel is higher for longer, I think that's a natural response that you see is that you trim some of that capacity."
Looking at the forward booking curve, American is about 25 percent booked for the fourth quarter, Isom and May said, while United's Leskinen said the carrier had 35 percent of its tickets booked for that quarter. Southwest didn't provide a forward-booking number.