- The European Union is said to be planning to bar American travelers because of the large numbers of coronavirus cases in the US.
- The travel restrictions, which could be the first of many as countries begin to emerge from COVID-19 lockdowns, would reportedly be reevaluated every two weeks.
- While US airlines are seeing a small improvement in domestic travel demand, additional delays for international travel would compound troubles for some of the nation’s biggest airlines.
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The European Union’s reported plans to bar American travelers would certainly come as a disappointment to quarantine-weary globetrotters looking to get back out into the world.
The plans are expected to be announced next week and reviewed every two weeks after that. For some US airlines, the ban could portend a slower, more painful slog as they try to recover from their pandemic woes.
With much of the world still in the early phases of reopening from lockdowns, the most robust travel activity is happening domestically in the US. Despite a resurgence of the virus in parts of the country, that stateside demand has come from leisure travelers and people looking to visit friends and relatives after months spent quarantining apart.
For some airlines, this has been easy to capitalize on.
Southwest, for example, is primarily a domestic airline, and its few international destinations are largely within the greater region, such as Central America or Mexico.
Allegiant Air, similarly, flies mostly within the US. It operates with a point-to-point model, eschewing hubs, which allows it to adjust quickly as demand pops up in new places during the recovery — or as demand drops for certain areas because of spikes in cases.
For the so-called big three — American, Delta, and United — the situation is bleaker.
The airlines all operate substantial domestic networks and have been adjusting their plans and business models to focus on maximizing those.
Those airlines are still largely reliant on revenue from international flying, however, and often use those domestic networks to feed into international hubs.
“The domestic and international businesses have diverged meaningfully,” Vasu Raja, who heads network and route planning for American, said in an earlier interview with Business Insider. “Though we’re increasingly more optimistic about the sustainability of domestic, international looks like a much different proposition.”
“While we’re still early in our planning, we are planning for a much different and much more reimagined international network for American Airlines,” he said.
Based on rising domestic demand, American plans to operate 55% of its domestic capacity in July, compared with the same month in 2019. In April, the airline flew about 20% of its domestic capacity, and in May it flew about 25%, according to Raja.
However, American expects to fly only 20% of its international capacity, and load factors are expected to be low.
While the airlines can certainly continue to court domestic flyers, a true recovery would be impossible without international travel.
One reason is that airlines see their highest margins of any ticket type with premium-cabin seats on international flights. Ticket sales in premium cabins like business class on international flights offer significantly higher returns than economy seats, whether domestic or international.
Additionally, upsells and other ancillary fees generate significant revenue for airlines, and more opportunities exist on the longer international flights, which are usually flown with bigger planes. For instance, Delta earned $15 billion for premium products and upgrades in 2019, while the big three made almost $3.4 billion in checked-bag fees in 2019, according to the Bureau of Transportation Statistics.
Business travel is crucial for the bigger airlines. Even though business travelers make up just 15% to 20% of the airlines’ traffic, they account for about half of their revenue, analysts say.
A major reason is that people traveling on the company dime tend to be less sensitive to price than leisure travelers. They’ll often buy tickets closer to the travel date, when fares go up, if an in-person meeting or appearance is essential.
Unlike the relative handful of wealthy leisure travelers and honeymooners splurging on a special treat, most business-class passengers are business travelers, whose companies are willing to pay for them to be more comfortable and better rested after a flight. It’s an effort to keep worker productivity high.
So far, corporate travel has not begun to meaningfully return, and is not expected to for some time, according to Andrew Didora, an airline analyst with Bank of America, in a recent research note.
Business travel has been slow to return in China, which entered lockdown about two months ahead of the US and is much further along in its recovery.
Additionally, concerns about exposure or liability are likely to continue holding back business travel until there’s a vaccine for COVID-19. Even a partial return is unlikely before offices fully reopen, Didora wrote.
To all this, the possibility of additional travel bans, or an escalating tit-for-tat between countries, has industry insiders concerned.
“The public health is still the number one concern around the world right now,” Tori Emerson Barnes, the executive vice president of public affairs and policy for the trade group US Travel, told Business Insider in an emailed statement. “But bans like these have a tendency to devolve into cycles of political retaliation, which is the last thing the global economy needs as we’re trying to start a recovery.”
Representatives for American, Delta, and United referred to Airlines for America, an industry trade and lobbying group representing most major airlines, for comment.
In a statement, a representative for the trade group stressed that carriers were eager to return to their normal schedules.
“The US airline industry is anxious to resume service to Europe and internationally at large,” Katherine Estep, a representative for the group, said in an emailed statement. “We will continue to work with governments globally to restore service in a manner that prioritizes the wellbeing of our passengers and employees.”
Experts have predicted that it will take up to five years for airlines to fully recover to 2019 levels of flying and demand.
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Ultimately, airlines that have built their business models around international travel will continue to struggle, even as domestic travel returns.
“While the recovery is good, we are far away from anything that can sustain the business over a long time,” Raja, the head of network planning at American, said in the earlier interview.