Fincredible Transcript April 27: Air Travel
Travel demand insights from airline earnings calls.
Air travel in the US is still recovering from the effects of COVID-19. Vaccination efforts have led to a surge in leisure travel demand in the past couple of months, but total air travel demand is still down significantly from pre-pandemic levels.
The chart below confirms travel is still lagging significantly relative to 2019, but the gap appears to be closing.
With the largest US airlines reporting earnings last week, we can listen to their earnings calls to find insights into how the recovery of air travel is shaping up.
Leisure Travel
Leisure travel has been the force behind travel recovery in the past few months. Airline executives all mentioned an acceleration in leisure travel demand since March of 2021, and several pointed out there is still significant pent-up demand.
“The first quarter had 2 distinct periods, with the first half feeling very much like an extension of 2020 as demand was slower than expected. But as case counts decline and vaccinations accelerated, demand picked up meaningfully later in the quarter, allowing us to achieve $4 million of daily positive cash generation in the month of March, the first positive cash generation since the onset of COVID-19.”
Edward Bastian, CEO
“Pent-up demand is also evident with domestic leisure bookings 85% recovered to 2019 levels and leisure markets more than fully restored.”
Glen Hauenstein, President
“We have seen steady and very encouraging improvements in leisure travel demand and bookings week after week, really since about mid-February.”
“And just to give some perspective, March's load factor was 20 points higher than what we experienced in January, and that was actually on higher capacity as well, which I think really highlights the pent-up demand for leisure travel that we're seeing.”
Tom Nealon - President
“During March, we finally reached that demand inflection point we've been looking for and we continue to see that resurgence today. Vaccine distribution gains in the U.S. have renewed our desire as Americans to travel. Near-term demand strength was driven by domestic and short haul international leisure and VFR customers, not by our business or long haul customers well, at least not yet. Consumer confidence about air travel is clearly strengthening and we see that in all of our customer feedback.”
Andrew Nocella - Executive Vice President and Chief Commercial Officer
“Our first quarter revenue of $4 billion was effectively flat on a sequential basis versus the fourth quarter of 2020. However, our demand and revenue trends accelerated significantly as the quarter progressed. In January, our total revenue was 34% of what it was in 2019. And by March, it was 46% in 2019. This trend was driven by strong leisure demand in the U.S., Mexico, the Caribbean and Latin America. This momentum has continued as our 7-day rolling average of system daily net bookings has reached 2019 levels this week. And this is in spite of business and long-haul international demand remaining weak, with net bookings of roughly 20% of their level -- of their 2019 levels.”
Robert D. Isom - President
Corporate Travel
Corporate travel has been lagging compared to leisure travel. Airline executives believe a turning point might occur in the second half of the year, with some pointing out Labor Day or in-person school reopenings as possible inflection dates.
“Small business demand, which was roughly 17% of our system revenue has been improving steadily as vaccination rates have increased and as markets reopen. An increasing number of our largest corporate accounts are coming back to the office and indicating that they'll be traveling in the third quarter and confirming in-person board meetings, conferences and events for this year.”
Robert D. Isom, President
“The corporate travel recovery has been slow but steady. Corporate volumes in March were nearly 20% recovered, up from 15% at the end of 2020. Small and medium enterprises continued to outperform other corporates by about 5 points.”
“While we expect continued improvements to business travel through the summer, we anticipate the significant increases will occur after Labor Day as we enter the more traditional business travel season.”
“Our views on corporate demand recovery are consistent with what we've heard in our most recent quarterly corporate survey, where 1/3 of our accounts expect to increase travel volume in the June quarter and a majority of our corporate customers expect to return to office in the second half of the year.”
Glen Hauenstein, President
“Our corporate managed travel revenues were down 88% in the first quarter versus Q1 of '19, which is consistent with our fourth quarter 2020 results. However, we did see some modest improvement later in the quarter, in particular in March, where corporate revenues were down 85% versus March 2019. And based on what we're seeing and hearing from our corporate customers, continues to be very clear that domestic business travel will certainly continue to significantly lag leisure recovery. And for now, we are planning for a scenario where business travel will still be down 50% to 60% by the end of this year.”
Tom Nealon, President
“We continue to talk to our corporate clients about the timings and what a rebound of business travel looks like as we consider our capacity plans for the second half of '21. We expect the post summer positive inflection point in business travels demand and a strong acceleration into 2022. Hopefully surpassing the down to 70% levels I mentioned earlier, maybe by early fall. Our best guess is that a rebound will be correlated with schools reopening in person and more people returning to the office.”
Andrew Nocella - Executive Vice President and Chief Commercial Officer
International Travel
International travel has also been lagging but, unlike corporate travel, it’s been mostly due to travel restrictions. Companies noted there is significant pent-up demand for international travel, evidenced by strong and swift demand for destinations as soon as restrictions are lifted.
“Long haul international line represents a significant opportunity for United. We have seen in recent weeks that immediately after a country rise access with proof of a vaccine leisure demand returns to the level of 2019 quickly. We've adjusted our schedule to take advantage of these opportunities this spring and summer. A few weeks ago there was a rumor Greece was going to open. As soon as that rumor occurred, our Greece bookings took off. Athens is our second best booked Atlantic market this summer and we're excited to announce yesterday the addition of a second daily flight to Greece this summer from our Dulles hub complimenting our newer flight.”
“Iceland which also permits access with vaccine proof is our best booked Atlantic destination this summer. And as a result we announced yesterday plans to operate Chicago service this summer, in addition to our normal Newark service. We also announced plans to begin service between Newark and Croatia this summer in another country that permits access with proof of a vaccine.”
“And so, in terms of visibility, we're not going to have a ton of visibility ahead of you are when you do. When you start to see people and office buildings in downtown Manhattan and it's hard to get a table at lunch, you'll know the business travel is probably back. When you see borders open and the ability to go with vaccines internationally, you'll start to know that international travel is back.”
Andrew Nocella - Executive Vice President and Chief Commercial Officer
“It's important to note there is significant pent-up demand for international travel, and we're seeing it most in markets like Tel Aviv and Athens where market reopenings are leading to steady increases in demand.”
Robert D. Isom - President
“International travel remains muted with long-haul international booking volumes at only 15% to 25% recovered. We're seeing some early signs of life in Europe, with Iceland opening to travel to vaccinated U.S. citizens and increased demand for Israel and leisure destinations this fall. That said, Europe lags the U.S. and Pacific is expected to be the last region to recover. We do not anticipate meaningful international demand improvement until later in the year when borders reopen.”
Glen Hauenstein - President
“Overall, I'd say our international demand is performing just fine, not a lot to report. At this point, we are only serving 8 of our 14 international stations, and we'll intend to bring the remaining 6 back online as it makes sense and as restrictions ease.”
Tom Nealon - President
Vaccinations
There was also an interesting comment by Delta CEO about vaccination rates.
“Based on our survey work, 75% of our customers expect to be vaccinated by Memorial Day. With improving demand in vaccine trends, we announced that we'll start selling middle seats May 1, providing a powerful tool for improving our financial performance.”
Edward Bastian - CEO
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