Covid risks? Airfare inflation? FMH? Let’s hit the sky

By Judy J. Beasley Last updated Oct 19, 2022

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At the height of the pandemic, airline executives knew travel would eventually recover when vaccines became widely available. They also had a vague idea that flight patterns were going to change. They were right on both counts. Demand is approaching 2019 levels and executives have a clearer picture of how the pandemic has changed passenger behavior. These changes and the pent-up appetite for travel will continue to benefit airlines despite lingering Covid risks and capacity constraints that will keep airfares high for some time.

One of the main drivers of new flight models is the ability to work remotely or from the office. Business and leisure travel are being combined in a new trend that airlines are calling hybrid working. Customers are extending their business trips to add a few days of sightseeing. They also have the opportunity to travel more often and vary their schedules; they can fly during the week and work a few days from an Airbnb while the family hits the beach or the slopes.

As a result, United Airlines Holding Inc., which released its third-quarter results on Tuesday, posted the third-highest revenue per available seat mile in its history in September, which is normally an off-peak month. Delta Air Lines Inc. is experiencing greater demand during the week and is seeing fewer typical peaks of Sunday and Monday departures and Friday return trips.

“What we’ve seen is that demand has come back very different in 2022 than it was in 2019,” Delta President Glen Hauenstein said in a conference call with analysts the week. last.

Domestic flights were the first segment to rebound, and it continues to be strong. Travel to Europe is now leading the international travel recovery, and Asia is recovering as countries like Japan begin to reopen. United said on Tuesday it had restarted flights from the United States to Tokyo and Edinburgh, Scotland, for example, and added a new one to Cape Town, South Africa. China is still a big hurdle with its zero-Covid policy, and it’s impossible to predict when that will change.

The trend line is clear: people are returning to the sky. At the height of the pandemic, when airports were ghost towns, some predicted travel would never return to normal and workers would settle for Zoom meetings. It was hard to imagine in 2020 that people would come together again to travel by plane.

Business travelers and tourists are now ready to ride in a small metal tube filled with a few hundred strangers without masks. Covid-19 has by no means disappeared. There are still about 37,000 new cases per day in the United States and 321 daily deaths on a rolling seven-day average, according to the Centers for Disease Control and Prevention. That’s a considerable drop from a peak of 812,000 daily cases in January and daily deaths as high as 2,700 in February. People are more convinced that if they are healthy and vaccinated, Covid is more like the flu than a death sentence.

For passengers willing to take the risk, they will continue to pay for the privilege of flying. Ticket prices in the United States jumped 22% in the second quarter compared to the year-ago period, according to the latest available data from the Bureau of Transportation Statistics. This is a function of aircraft manufacturers’ inability to keep up with demand, pilot shortages and even the constraints of air traffic control centers and some busy airports. Airlines cannot add all the capacity they want, which means prices will go up. United said its capacity in the fourth quarter will be around 10% lower than the same period in 2019. Delta’s capacity is still 17 percentage points lower than in 2019; it expects its network to be fully restored by next summer.

It’s not a short-term problem. It could take four or five years to resolve crimping capacity issues, United chief executive Scott Kirby said in an interview with Bloomberg TV on Wednesday. That’s why airline revenues and profits will rise even as the economy slows and inflation eats away at consumers’ purchasing power.

“Supply is going to be constrained for years by artificial factors,” Kirby said. “Boeing and Airbus are way behind, and supply chains are way behind, on their ability to produce new planes.”

This is great for airline profits, not so much for passengers. United’s planes were 87.3% full in the third quarter, down from 76.1% last year and leading the same period in 2019, which was 86.1%. Having full planes translates to higher profits, and United expects its fourth-quarter adjusted operating margins to exceed those of 2019 for the first time.

Not all airlines are happy with the shortage of planes. Michael O’Leary, CEO of low-cost airline Ryanair Holdings Plc, said the ‘only dark cloud on our horizon’ is Boeing’s inability to deliver the 21 737 Max the Irish airline is due to receive before Christmas . O’Leary expects to get maybe a dozen of these new planes. With more capacity, Ryanair would be able to take market share in an environment of rising ticket prices.

Airlines expect to be fully recovered next year as business travel, the last hurdle, returns to normal. Covid cases and even deaths will probably never drop to zero, but the risk is down and people are learning to live with it. After all, thousands of people die every year from strains of flu that have been around for a century or more. Crowded planes, restaurants, concerts and sports stadiums indicate that people are getting their lives back.

The big question is whether combining business and leisure travel is a long-term trend and whether remote working will last, giving people those flexible travel schedules that airlines love. For now, airlines are betting that this new work-life balance is here to stay.