Summer travel is back, but will it be enough to boost flagging U.S. airlines?
May 27, 2021
By Claudia Assis, MarketWatch
Cooped-up U.S. residents may be eager to take to the skies again, but a growing demand for air travel ahead of the summer may not be enough to get U.S. airlines past last year’s doldrums.
While demand for leisure trips might be on the upswing with summer here, U.S. air carriers have seen their expenses escalate during the pandemic. They are still mostly deprived of key sources of revenue, including the rarely-discounted business and first-class travel and long-haul flights that make the most of their networks.
“Certainly there’s strong demand for leisure and visit families and friends travel, and that’s helpful,” Citi analyst Stephen Trent told MarketWatch. “At the same time, that upside is at least somewhat priced in,” and other concerns remain.
“It’s still a tough situation,” Trent said.
Major U.S. airlines, including legacy carriers such as American Airlines Group Inc. AAL, 2.28% and United Airlines Holdings Inc. UAL, 2.00% and relative newcomers such as JetBlue Airways Corp. JBLU, 1.23%, are chasing the same, narrow segment of customers.
Moreover, they got saddled with debt to remain afloat during the pandemic and face structural headwinds, with concerns about inflation and rising fuel prices adding to a still-precarious situation.
Major U.S. airlines received about $50 billion in a series of government bailouts and grants during the pandemic, mostly so they could make payroll, and only paid some of that money back.
At peak crisis, they saw capacity shrink more than three quarters, cut flights, and maxed out on their borrowings in a race to keep afloat. Their sales dropped precipitously: for 2020 as compared to 2019, revenue for legacy American Airlines AAL, 2.28%, United UAL, 2.00%, and Delta DAL, 1.26% fell more than 60%. Sales for Southwest Airlines Co. LUV, 0.82% dropped 60% in 2020, and Jet Blue Airways Corp.’s JBLU, 1.23% fell 62%.
With the Memorial Day holiday around the corner and the lifting on pandemic restrictions in several sates, summer leisure travel is certainly in full swing.
There’s “a huge, pent-up demand that has amassed in the past 12, 15 months now being relieved,” said Scott Keyes, co-founder of travel site Scott’s Cheap Flights.
The number of flights are still lower than before the pandemic, but planes are fuller and deals, especially for the more coveted destinations, are rare, he said.
People seem to be favoring a middle-of-the-road approach to traveling.
As the first big trip for many people in a year or more, “they don’t want a ‘quick gateway’ trip, they want it to be a bucket-list trip,” Keyes said.
That means that deals to U.S. destinations such as Florida, Alaska, Hawaii, western spots by national parks, and international but still close destinations such as Cancun, Mexico, and Jamaica are the most coveted right now, and where the deals are fewer and far in between, he said.
In contrast, not as many people seem interested in travel to urban spots such as New York City and Chicago, and lingering concerns about travel overseas are also denting demand for European destinations.
The emphasis is on places that can be just as good without all the amenities and attractions being available, a more “outdoorsy type of travel,” he said.
IATA this week painted a hopeful picture of air travel demand globally, but even so called its presentation “an almost full recovery.”
Travelers may be eager, but there’s also the continued need to keep operations slim. Different countries and regions will recover at their own pace, depending on lingering restrictions, vaccination rates, and the strength of their own domestic market, IATA said.
IATA estimated that the COVID-19 pandemic shaved off at least two years’ growth from global airlines.
U.S. airlines stocks have been resilient. The U.S. Global Jets ETF JETS, 1.21% has gained 68% in the past 12 months and 20% this year, outpacing gains of 38% and 12% for the S&P 500 index SPX, 0.20% in the same period.
Citi’s Trent has taken five plane trips since the pandemic started, all of them leisure. He felt confident with the steps airlines were taken to keep planes clean and safe, and with studies showing low transmission rates aboard airplanes, he said.
“I will probably be doing that again sooner rather than later,” he said. “But I don’t think we will back to pre-pandemic levels in the second half of the year … it’s a generally constructive, better environment, but not back yet.”