Enormous uncertainty about the structural change in the lucrative business travel segment.
By Wolf Richter for WOLF STREET.
In preparation for summer vacation season in the US, United Airlines announced today that in July it would add 400 more flights, compared to its June schedule, which would bring its schedule for domestic flights to 80% of July 2019. The additions would include new routes to tourist destinations, Bozeman, Orange County, Raleigh, and Yellowstone/Cody.
The lucrative international and business travel segments are a different matter. In terms of its international schedule, United only said that it would reopen some routes to European destinations. Overall international air travel has remained crushed. And Delta, which is heavily focused on business and international travel has spoken about both of them – more in a moment.
International revenue passenger miles by US airlines in February, the latest data available from the Bureau of Transportation Statistics, was still down 80% from February 2019:
But leisure travel is picking up. On Sunday, 14 months into the airline crisis, 1.85 million air passengers passed through TSA checkpoints to enter the security zones of US airports, the highest since March 2020, but still down 29% from Sunday in the same week in 2019. The seven-day moving average through Sunday was down 34.5% from the same week in 2019. The peaks and valleys in the chart represent calendar shifts of holidays:
Business travel, the most lucrative end for the airlines that subsidizes low-cost leisure fares, is facing enormous uncertainty. The estimates of what will happen to it are all over the place. Everyone agrees that some of it will come back. But many people in Corporate America believe that some of it will never come back, having been replaced by video conferencing, a permanent structural shift that the Pandemic has shown to work for many types of meetings, much like many types of retailers have seen their brick-and-mortar retailers business get crushed further year after year by ecommerce.
Delta Air Lines has positioned itself as higher-end airline catering to business travelers, particularly on international routes, and charging higher prices. It has been hit harder than other airlines during the Pandemic. Its net loss of $12.4 billion in 2020 was the highest in the industry, compared to American Airlines’ net loss of $8.9 billion and United Airlines’ net loss of $7.1 billion. Southwest, which is focused on leisure travel and has only a few international routes, lost $3 billion in 2020.
Delta CEO Ed Bastian told the Wall Street Journal last week in terms of the US domestic business travel segment, “We’re only right now 25% to 30% of where we should be. I think by the end of the year that will be at least twice that.” So by the end of 2021, domestic business travel would be about 50% or 60% of where it “should be?”
“International business is going to probably be another year from now,” he said – meaning down by about 50% by the end of 2022?
Business travelers were the cash cows for airlines. Back in the day, business travelers were buying tickets with expense accounts, and price was less of an issue or no issue, but practical considerations, service, and comfort dominated, and they were willing to pay for it. That segment has collapsed, particularly on the super-lucrative international routes. And airlines have cut capacity drastically on business-travel routes.
The entire industry is now trying to guess what portion of business travel will come back, and what portion will never come back. Estimates range all over the place, and uncertainty prevails.
But leisure travelers sticking to US domestic routes this summer, confronted with still reduced capacity, are going to face crowded and congested conditions, Ed Bastian said. And he added that it won’t be till 2022 when the leisure masses will be comfortable flying to Europe.
Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get why – but want to support the site? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.
Many experts agree that metal roofs are a great defense against wildfires. Click here or call 1-800-543-8938 for details from our sponsor, the Classic Metal Roofing folks.
Classic Metal Roofing Systems, the leader in fire safe roofing for residential applications, manufactures products that are 1/20 the weight of most tile products and eligible for Class A, B, or C fire ratings as determined by roof preparation.