Business travelers are ‘far more valuable than a given vacation traveler,’ analyst says
Airlines

Business travelers are ‘far more valuable than a given vacation traveler,’ analyst says

Scott’s Cheap Flights Founder Scott Keyes assesses travel demand outlook ahead of the 2022 holiday season, the ratio of business and leisure travelers, and pricing for airline tickets.

Video Transcript

SEANA SMITH: Americans are eager to travel. That’s the clear takeaway from airline executives so far this quarter. And that willingness to spend doesn’t seem to be slowing down at least any time soon. Delta highlighted the strong appetite on its recent earnings call, telling analysts that demand for the entire holiday period is, quote, “very robust.” American Airlines CFO Derek Kerr echoed that same sentiment, saying that, quote, “he doesn’t see any signs of demand slowing down as we enter into the new year.”

So for more on this and what we could expect from the travel industry going forward, we want to bring in Scott Keyes. He’s the founder of Scott’s Cheap Flights. So, Scott, the earnings calls that we’ve gotten so far, a lot of the largest US carriers very bullish about travel demand heading into the holiday season and even beyond into 2023. Is that consistent with what you’re seeing on your site?

SCOTT KEYES: Yeah, absolutely. Look, we are seeing a really, really strong amount of travel demand going forward into the holiday season. And the number of people that are looking to take vacations or visit family and relatives is as high, if not higher, than it was pre-pandemic. And the reason why we still don’t see passenger numbers quite at pre-pandemic levels is that business travel is still down about 25%.

So the makeup of folks on a plane right now, which are actually fuller today than they were in 2019 because of fewer flights in the air, is skewed towards vacationers and leisure travelers and away from those business travelers.

DAVE BRIGGS: All right, you talk business travelers, you talk leisure travelers, but we hear from all these CEOs is this blended travel concept. And I know some call it “bleisure.” Is that something you’re able to track, you’re able to see in the amount of demand?

SCOTT KEYES: Yeah, look, I think there is some amount of bleisure that’s happening today in a way that it hadn’t pre-pandemic because it’s so much more common or acceptable to be doing remote work to be flying out on a Thursday, work on Thursday and Friday, and then have vacation in through your weekend. That is a kind of tested and proven model today in a way that it wasn’t in 2018 or 2019.

But the fact is still that airlines would far prefer to have a business traveler than a leisure traveler because business travelers tend to pay more for their flights. They’re far more valuable than a given vacation traveler, who purchases a ticket out of their own funds and therefore is more price sensitive. So even with the rise in bleisure travel, I still don’t think that’s an equal substitute for airlines from a business perspective. They’re probably still losing out in that trade and still hoping for a more full recovery of business travel to come.

SEANA SMITH: And Scott, when you take a look at the rebound that we’re seeing, carriers are in a tough spot because they’re having trouble adding to routes because of the labor shortage, also the plane shortages adding some complications there. I guess from your assessment, are we seeing any improvement on this front?

SCOTT KEYES: Gradual. It’s a bit by bit, piece by piece type of improvement because the fact is that pilots, not to mention all the mechanics and other aspects of air travel that normally we don’t think much about, but pilots is not an entry level job. It’s something that takes months, years of training, tens, hundreds of thousands of dollars to go through the process, and 1,500 hours of cockpit time before you can be certified to fly commercial jets in the United States. And that takes time to train up new pilots, especially given the thousands and thousands of pilots shortage that we are facing at the moment.

And so this is something that impacts smaller airports and more regional carriers more than folks in, let’s say, New York or LA or Chicago. But it has an impact across the board and is leading to higher fares today than we would have seen in a parallel universe where the number of pilots had kept pace with where we were heading on a pre-pandemic trend level.

DAVE BRIGGS: Yeah, fears are some of these smaller destinations will disappear entirely from some of the regional airlines. So you talk about fewer pilots and fewer planes adds up to scarcity. How far are prices up? How much is inflation factoring in to the airline picture?

SCOTT KEYES: Yeah, look, it is up quite a bit compared to last year. 2021, it’s up over 25% airfare levels. But when you zoom out a little bit further and adjust for inflation, it actually looks like it’s basically in line with pre-pandemic trends when it comes to airfare, that we have been on a gradual downward slide in overall airfare costs starting in around 2014, 2015. And it’s just been gradually getting cheaper and cheaper on a real dollar basis.

And so while it had quite a few swings over the past couple of years, really dropping in 2020, rising up pretty rapidly this spring, it seemed to have evened out now. And I think for the first time since the pandemic began, we can say that the outlook for airfare looks something basically normal. It looks pretty close to what we saw pre-pandemic, which means that a lot of those winter holiday flights or peak summer flights are going to be, in many cases, eye poppingly expensive. But that was the case in 2018 and 2019 as well.

DAVE BRIGGS: What a pro, Scott. You put it on a T for me. So it’s holiday travel time. Is it too late to score yourself a deal? If not, how do we do it?

SCOTT KEYES: So a couple of thoughts here. It’s not too late, but it’s getting too late. You generally want to try to avoid last minute flights because they tend to be quite a bit more expensive, but not all last minute flights are equal. A flight booked a day before travel is almost certainly going to be more expensive than a flight booked a week before travel. And that’s almost certainly going to be more expensive than a flight booked a month before travel.

So you want to try to book sooner rather than later. You want to remember that last minute flights tend to go in one direction when it comes to prices, and it’s not down. But the other thing that I would add is that Thanksgiving in particular, if you got the week off work or the kids are out of school, it is the hidden best week for international travel. Folks don’t think of Thanksgiving as a cheap time to fly, but that’s because most folks are traveling domestically where Thanksgiving is a big holiday. Internationally, it is not a holiday, and late November is very much low season.

That’s why I took a look just before coming on. If you live in New York City right now, flights over Thanksgiving cost the same to fly to Milan in northern Italy, 548 bucks roundtrip, as it costs to fly to Fargo in North Dakota. I have nothing against the Midwest. I grew up there. I love the place. I would rather spend Thanksgiving in Italy than in North Dakota.

DAVE BRIGGS: Oh, man, Fargo’s coming for you, Scott. I don’t know. Italy, Fargo? I’ve been to Fargo. It’s a nice place.