Ban on travel to Europe could further harm US airlines during pandemic

The European Union’s move to ban American travelers will likely be a disappointment to quarantine-weary globetrotters seeking to return to the world.

For some US airlines, the ban could presage slower and more painful work as they try to recover from their pandemic problems.

With much of the world still in the early stages of reopening the first pandemic blockades, the strongest travel activity is occurring domestically in the United States. Despite the resurgence of the virus in some parts of the country, the uncertainty has been more manageable compared to other parts of the world.

Meanwhile, most of that demand in the United States comes from leisure travelers and people looking to visit friends and family after spending months in separate quarantine.

For some airlines, this has been easy to capitalize on.

Southwest, for example, is primarily a national airline, and its few international destinations are found primarily in the larger region, such as Central America or Mexico.

Allegiant Air, similarly, primarily flies within the United States. It operates on a point-to-point basis, avoiding centers, allowing it to adjust quickly as demand appears in new places during recovery, or when demand falls in certain areas due to spikes in cases.

For the so-called “big three,” American, Delta, and United, the situation is bleaker.

Each of the airlines operates a substantial home network, and has been adjusting its plans and business models to focus on maximizing them.

However, these airlines still depend heavily on the income from international flights, and often use these domestic networks to power international hubs.

“National and international companies have diverged significantly,” Vasu Raja, who directs network and route planning for American, said in a previous interview with Business Insider. “Although we are increasingly optimistic about the sustainability of the national, the international seems a lot different Proposal.

“While we are still at an early stage in our planning, we are planning a very different and much more reinvented international network for American Airlines,” he said.

Based on increased domestic demand, American will operate 55% of its domestic capacity in July, compared to the same month of 2019. In April, the airline flew around 20% of its domestic capacity and in May it flew around 25 %, according to Raja.

However, American will only fly 20% of its international capacity, and load factors are expected to be low.

While airlines can certainly continue to woo domestic travelers, a true recovery would be impossible without international travel.

Part of this is that airlines enjoy higher margins by selling premium cabin seats on international flights than any other type of ticket. Selling tickets in premium cabins as business class on international flights offers significantly higher returns than economy cabin seats, whether domestic or international.

Furthermore, additional sales and other ancillary fares generate significant revenue for airlines, and there are more opportunities on longer international flights, which are generally made with larger aircraft. For example, Delta earned $ 15 billion for premium products and upgrades in 2019, while the Big Three earned nearly $ 3.4 billion in checked bag fees in 2019, according to the Bureau of Transportation Statistics.

Another related concern: Obstacles to international travel could mean it may take even longer for business travel to resume.

Business travel is crucial for larger airlines. Even though business travelers only account for 15-20% of airline traffic, they account for about half of their revenue, analysts say.

A big part of that is because people who travel the company ten cents tend to be less price sensitive than leisure travelers. They often buy tickets closer to the travel date, when fares go up, if a meeting or in-person presence is essential.

In addition to a relative handful of wealthy leisure travelers and honeymooners enjoying a special treat, the majority of business-class passengers are business travelers, whose companies are willing to pay to make them feel more comfortable and rest better. after a flight. It is an effort to keep worker productivity high.

So far, corporate travel has not begun to return significantly, and it is not expected to do so for some time, according to Andrew Didora, airline analyst at Bank of America, in a recent research note.

Business travel has been slow to return to China, which, being two months ahead of the US. USA In terms of the pandemic and recovery, it suggests a slow return here.

Also, concerns about exposure or liability are likely to continue to curb business travel until there is a vaccine for COVID-19. Even a partial return is unlikely before offices are fully reopened, Didora wrote.

If a large number of travel bans occur along with an apparent separation within companies over employee travel, this crucial segment for American, Delta and United could take even longer to recover.

The possibility of additional travel bans, or an escalation of fighting between countries, worries industry experts.

“Public health remains the number one concern worldwide at this time,” Tori Emerson Barnes, executive vice president of public affairs and policy for the US Travel trade group, told Business Insider in an emailed statement. “But bans of this kind tend to turn into cycles of political retaliation, which is the last thing the world economy needs as we are trying to start a recovery.”

Spokespersons for American, Delta and United referred to Airlines for America, an industry lobbying and trade group that represents most of the major airlines, for comment.

In a statement, a spokesman for the trade group stressed that the carriers were eager to return to their normal schedules.

“The US airline industry is eager to resume service to Europe and internationally in general,” Katherine Estep, a group spokeswoman, said in an emailed statement. “We will continue to work with governments globally to restore service in a way that prioritizes the well-being of our passengers and employees.”

Experts have predicted that it will take up to five years for airlines to fully recover to 2019 flight and demand levels.

Ultimately, airlines that have developed their business models around international travel will continue to struggle, even when domestic travel returns.

“While the recovery is good, we are far from anything that can sustain the business for a long time,” Raja, American’s head of network planning, said in the previous interview.

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