BUSINESS TRAVEL FACES LONG RECOVERY. Business travel, a key revenue source for airlines and hotels, could take three years or more to achieve a stable recovery, industry analysts now say, far longer than originally predicted.
Airlines might not recover for seven years, said Michael Derchin, an analyst at Imperial Capital.
Before the pandemic, business travelers occupied about 10 percent of airline seats but accounted for half of major airlines’ revenues and as much as 75 percent of their profits, according to industry estimates.
Business travelers also generated up to 70 percent of the Hilton and Marriott hotel chains’ revenues, said Robin Farley, a UBS analyst.
But now, the global shutdown has permanently altered travel plans for many companies.
Of more than 300 businesses surveyed in May by BCG Henderson Institute, 200 said they would permanently change their employee travel policies.
Business travel also is being stymied by:
- varying local rules and strictures governing public behavior;
- corporate fears of being sued by employees sent on business trips who then contract the COVID virus;
- S. cities and states, and European countries which require people arriving from elsewhere to quarantine for 14 days.
DELTA REPORTS LOSS, CUTS PLANNED FLIGHTS. Delta Airlines, which reported a $5.7-billion loss in the second quarter compared to a $1.4 billion profit a year earlier, has cut in half to 500 the number of flights it was planning to add to its schedule next month.
Sales for the quarter were 88 percent less than those of a year earlier.
The nascent recovery in air travel seen in May and June has stalled, said Delta CEO Ed Bastian, adding the airline’s schedule in September will be about 25 percent of what it was a year previous.
Delta will continue to leave middle seats empty on its flights to maintain social distances. The empty seat will limit flights to about 60 percent of capacity.
Delta had profited in recent years by offering amenities to business and premium travelers and charging them higher fares. These customers, which accounted for half of Delta’s ticket sales, were among the first to disappear when the pandemic struck.
Bastian has said he thinks the airline industry’s sustainable recovery is at least two years away and business travel will never return to pre-pandemic levels.
Delta said that 17,000 employees have left the company voluntarily.
American Airlines has notified 25,000 workers their jobs may end when federal subsidies expire on 1 October.
AIRLINES SHED WORKERS BY THE THOUSANDS. About 28 percent of Southwest Airlines’ employees have volunteered to take long, unpaid leaves or early retirement buyouts. About 4,400 accepted buyouts; roughly 12,500 agreed to take extended time off.
Delta Airlines reported that 2,235 workers had accepted early retirement packages by the 21 July deadline. One plan gives pilots partial salaries for three years and continues health care coverage.
Delta also has asked pilots to cut their hours by 15 percent, which would forestall mandatory layoffs for a year, the airline said.
Other carriers report thousands of employees are accepting early retirement packages or volunteering to take open-ended, unpaid leaves.
VIRGIN ATLANTIC ASSEMBLES £1.2-BILLION BAILOUT. After months of negotiations with shareholders and private investors, airline Virgin Atlantic has put together a £1.2-billion plan that will sustain it for five years as it works its way back to sustainability, the company said.
Over the next 18 months, Virgin will receive a £170-million loan from Davidson Kempner Capital Management, a U.S. hedge fund, and a £200-million cash infusion from the Virgin Group, the airline’s parent company.
Delta Airlines, which owns 49 percent of the carrier, and other stockholders will forego £400 million in payments; creditors will defer $450 million in payments due.
As part of the agreement, Virgin will fire 3,550 workers. Virgin Atlantic expects that the deal will help it return to profitability in 2022.
United Airlines reported today their revenue plunged 87 percent in the three months ending June 30 compared to the same time last year, racking up a $1.63 billion loss for the second quarter.
TREND FORECAST: The airline industry is not expected to rebound until 2023 at the earliest.
As we have noted, with more people working from home and meetings online becoming the new ABnormal, business travel, which accounts for 75 percent of airline profits, will not rebound to previous heights.
Moreover, with strict regulations on capacity limitations and social distancing requirements, professional/business conventions and trade shows will suffer sharp attendance declines when they are allowed to reopen, further diminishing air travel.
However, if society buys into, and becomes injected with a COVID vaccine, it will free more who fear catching the disease on an airline or in a hotel room, to travel.