Airlines still looking for business travelers

Airlines value premium travelers above other customers, letting them board first, eat a meal, and order a cocktail without whipping out a credit card.

Many of them are business travelers who fly frequently and often pay higher last-minute fares than the jeans-and-T-shirt crowd on the way to see grandma. Anyone who questions why airlines treat business travelers nicely only needs to look at the carriers' third-quarter financial reports.

On Wednesday, American Airlines parent AMR Corp. reported that it lost $359 million in the third quarter, and Continental Airlines Inc. posted an $18 million loss. Those results followed losses in the last few days reported by Southwest Airlines Co. and United parent UAL Corp.

That news, and oil prices above $81 a barrel, dragged down airline stocks. Continental and AMR shares fell more than 11 percent in afternoon trading.

Overall traffic is picking up. Planes were mostly full over the summer vacation period and through September.

But revenue at the biggest airlines plunged about one-fifth from the levels of summer 2008, largely because business travelers stayed home, grounded by cutbacks in corporate travel during the recession.

Airline executives refused to predict when demand for travel - and higher prices - might come back.

"We are bumping along the bottom," Continental President Jeff Smisek said Wednesday. "I can't tell you when the recovery will come or how quickly or at what rate business travel will return ... the recovery seems to be quite slow."

The day before, United President John Tague said there was no chance airlines could return to earlier revenue levels until they can recapture high-paying customers.

Basili Alukos, an airline analyst at Morningstar, said United is the most heavily dependent on premium passengers - business travelers and international customers - but that many airlines are feeling the effect. He said there has been a permanent change in travel habits, including more business travelers buying cheaper tickets in coach.

Alukos said some premium passengers will return as the economy improves and companies employ more people who need to travel, "but everyone is going to try to hold down their costs."

It's hard to know how many passengers are flying for business versus pleasure. Southwest has said that in good times, at least 40 percent of its customers are business travelers. It may be higher at other airlines. Alukos estimates that a little more than half of U.S. passengers are traveling on business.

At AMR, traffic in the third quarter fell about 6 percent, but revenue plummeted 20 percent. The company blamed a drop-off in business travel and low fares to entice leisure customers to American, the nation's second-largest carrier.

AMR's $359 million loss compared with profit of $31 million in the third quarter of 2008, when the Fort Worth-based company sold its investment business.

Houston-based Continental, the No. 4 U.S. airline, lost $18 million, which was a big improvement over the $230 million loss a year earlier, when jet fuel prices were roughly 50 percent higher.

Revenue plunged 20.2 percent, to $3.32 billion, despite a traffic downturn of less than 1 percent. Weak sales cut across all of Continental's markets, with trans-Atlantic business particularly sluggish.

However, Continental is betting on improvement next year. After two years of cutting capacity by eliminating flights or using smaller aircraft, the airline expects to increase capacity next year by between 1.5 percent and 2.5 percent, with all the extra flying on international routes.

While larger carriers posted losses for the quarter, low-fare AirTran Airways said Wednesday it earned $10.4 million, although revenue fell 11 percent, to $597.4 million. A year ago, the company lost $94.6 million.

AirTran has been dropping unprofitable routes and executives of the carrier, based in Orlando, Fla., said they expect to increase capacity between 2 percent and 4 percent next year.