Business travel is surging back sooner than expected, but there's still some bad news for airlines

An unexpected early return of business travel is bringing some good news for U.S. airlines, hotels, and travel-service providers still reeling from the height of the COVID-19 pandemic.

Still, there's a catch.

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From major in-person conferences in Miami to smaller team meetings and office visits, in-person events have come streaming back to a corporate landscape as the vaccination rate across the U.S. has climbed.

It's a remarkable change compared to forecasts earlier in the pandemic — and even earlier just this year — that business travel would not begin to return until 2022 at the earliest.

Domestic leisure demand has returned even beyond pre-pandemic levels, but the exact scale of business travel recovery is hard to nail down. Regardless, it's universally agreed that business travel is far more along than even the most optimistic forecasters expected.

Overall in the United States, corporate travel demand is up to 30-35% of 2019 levels, JPMorgan analyst Jamie Baker said in a presentation on June 30. The demand is even higher at United, where corporate demand is up to 40% of pre-pandemic levels CEO Scott Kirby said on "Face the Nation" on Sunday.

Business travel overall is recovering at a rate of around 10% per week, according to corporate travel management firm TripActions. The rate comes to about a 31% recovery rate month-over-month, with business travel up more than 300% compared to the start of the year.

Baker said that he expects 2022 business travel levels to reach about 66% of 2019 demand.

"Hopefully our forecast turns out to be conservative," Baker said during the presentation.

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Overall, air travel is still down about 30% over 2019, according to TSA passenger data.

For airlines, the bad news is that virtually all of this early business travel demand is for domestic flights, a consequence of various border closures around the world, and various restrictions and requirements for those countries allowing entry at all. Some companies also don't want their employees crossing borders.

The problem is that long-haul international business travel offers airlines the highest yields. Domestic corporate travel — especially when purchased last-minute — offers solid margins, but can't compare with a roundtrip business class ticket to Europe purchased five days ahead of time by a corporate customer flying an executive to a series of meetings.

The absence of the highest-priced sales can be seen in data provided by the Airlines Reporting Corporation (ARC). While airlines sold 22.7% fewer tickets overall during the week ending July 11, the total dollar amount paid for those tickets was down nearly 40%.

Whether the rate of business travel return increases — potentially aided by the resumption of some long-haul international business travel — is something that airlines are eagerly watching. With leisure demand expected to dip in September as the summer travel season ends, carriers are hopeful that business travel can help make up the difference.

"We expect that business demand is really going to pick up in September as most of these schools are back in," Kirby, United's CEO, said on Sunday. "A lot of people are back in offices, but we don't think it really recovers in full until 2023."

Meanwhile, as business travel continues to return, whether or not it reaches pre-pandemic levels in the next few years, the legacy players have some increased competition.

Southwest Airlines plans to make a play for a larger share of managed corporate travel than it's had in the past. The airline expects that demand to recover to roughly 50% of 2019 levels by the end of this year.

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“The pie may be smaller, domestically,” Southwest president Tom Nealon told TPG during an exclusive interview, referring to the scale of post-pandemic business travel, “but we’re going to have a bigger slice of it.”

“The corporate managed travel business is about a $10 billion business,” he said. “That’s just domestic coach travel."

“So there’s a lot of opportunity for us,” he added.