After Silicon Valley Bank failed last month and raised fears about a wider banking crisis, bookings for last-minute business trips on United Airlines quickly dropped and remained depressed for about two weeks, underscoring how economic turmoil could choke off a strong run for the travel industry.
United CEO Scott Kirby said Wednesday that business-travel bookings have since recovered, but the lesson was not lost.
“It seems clear that the macro risks are higher today than they were even a few months ago,” Kirby said. He said United still expects a mild recession, “which is consistent with what we are currently seeing in our bookings, but we agree the tail risk is higher than normal."
Kirby said he still feels good about United's forecast for full-year profit — which is higher than Wall Street expects. However, his remarks on a call with analysts exposed a crack in the airline industry's otherwise solid front of rosy commentary about travel demand.
Delta Air Lines CEO Ed Bastian told The Associated Press last week that his airline saw no impact from the bank failures and other dire headlines. Consumers might be reducing their spending on cars and home-improvement projects, he said, “but they are certainly not pulling back on air travel.”
Airline ticket sales have surged since early last year despite rising fares, high inflation, fear of recession, layoffs in the tech sector, and the failures of Silicon Valley Bank in California and Signature Bank in New York.
Even with corporate travel still lagging, the number of people going through U.S. airports was higher in January and February than in the same months of 2019, before the pandemic. March and the first half of April were barely below 2019 levels, according to government figures.
Airlines are counting on that strong demand continuing and helping them become profitable in the April-through-June quarter, which includes the start of the critical summer travel season.
Delta lost $363 million and United lost $194 million in the first quarter. It's traditionally the weakest travel period of the year, and both airlines had higher labor and fuel costs that offset huge revenue gains.
United predicted after the market closed Tuesday that it will earn up to $4 per share in the April-through-June period, which is more than analysts were expecting. The shares rose 6% in afternoon trading and helped lift other airline stocks.
Consumers appear to be especially interested in international trips this summer, with bookings rising much faster than for domestic flights. United plans to offer fewer domestic flights in the second quarter than it did in the first.
Business-travel bookings are running ahead of last year's pace, but they fell 8% compared with 2019 after the March failure of Silicon Valley Bank, said Andrew Nocella, United’s chief commercial officer.
United executives also said the pandemic seems to have changed the seasonal patterns for travel. Many white-collar workers have not returned to the office, and are working remotely. Executives said that is making the typically strong March-through-October period even stronger, while hurting bookings in January, February and November, which depend more on business travelers.