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General Electric CEO Larry Culp told CNBC on Tuesday that he believes global air travel will continue to recover from its pandemic-induced slowdown, which would pave the way for a positive outlook for the critical aviation unit of the industrial giant.
“Obviously we all have our eyes on a lot of things, including the delta variant. But that said, it looks like the leisure traveler is back and business travelers aren’t that far behind, let’s hope so, ”Culp said in an interview on“ Squawk on the Streets. ” “I think that overall this is what gives us optimism and confidence about our aviation business.”
Shares of GE ended up 1.24% on Tuesday, slightly below their day highs, after the Boston-based company released its second quarter results. Adjusted earnings of 5 cents per share exceeded analysts’ expectations of 3 cents per share, according to Refinitiv. GE also reported free cash flow of $ 388 million for the second quarter, surprising Wall Street analysts looking for cash outflows.
GE on Tuesday raised its free cash flow forecast for the full year, expecting it to be now between $ 3.5 billion and $ 5 billion. That’s up from its previous projection of $ 2.5 billion to $ 4.5 billion.
The aviation unit, which manufactures and services engines, saw orders jump 47% in the quarter year-on-year. In the second quarter of 2020, the company was in the grip of the Covid crisis, suffering with airlines from the dramatic drop in air transport.
All of GE’s industry segments – aviation, healthcare, renewables, and power – recorded an increase in profit margins in the last quarter. The aviation unit saw the biggest jump, increasing 1,930 basis points year over year. One basis point is equal to 0.01%.
Air travel to the United States has rebounded from its pandemic lows, but remains below pre-Covid levels in 2019. The Transportation Security Administration has screened an average of 2.04 million passengers per day over the past seven days , according to a CNBC analysis of security checkpoint data. That’s well above the roughly 661,600 passengers screened per day during the same seven-day window in 2020, but below the nearly 2.6 million daily passengers seen in 2019.
Leisure travelers traveling within the United States returned much faster than those traveling on business. However, business travel is seen as an important step in the recovery of the aviation industry, especially for airlines, as it generates far higher fares than leisure travel. Questions remain as to the pace at which business travel will return as more companies embrace remote working and continue to move away from face-to-face meetings in favor of video conferencing.
The rapid spread of the delta variant of Covid, and CDC’s advice on mask wearing, raise new questions about how quickly business travel and long-haul international travel will pick up, although company executives Airlines have said in recent weeks that bookings have spread variations.
From a global perspective, Culp said GE’s aviation unit is seeing improvement in its markets, including the United States, Europe and China.
“We are seeing Europe, slowly, gradually, coming back here as recently as well. China is just one digit from where it was in 2019,” Culp said. “We see this ripple effect in our store visit activity, which is really the core work that we do in our aviation services business,” he added. “We saw a sequential improvement in store visits in the second quarter compared to the first, and we believe we will see continued sequential improvement in the second half. “
– Reuters and Leslie Josephs of CNBC contributed to this report.
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