Aviation Industry Updates: October 20, 2020

Ticket Prices Plummet While Cargo Revenues Increase

KEY QUOTES:

• “US airlines are in the crappiest recovery ever. They’re getting hit in two ways: The number of passengers is still way down, seven months into the pandemic, or actually over eight months into it because for airlines it started at the end of January with flight bans; and on top of it, ticket prices have plunged — the toxic mix of crushed volume and crushed prices.”

• “The number of passengers entering the security zones of US airports is still down 65% from the same time last year, according to TSA airport screenings. Normally, there is the summer peak in June, July, and early August, then passenger count drops in the weeks before Labor Day, and surges after Labor Day, as business travel picks up and people that don’t have kids in school go on vacation.”

• “But this year, business travel, including the entire conference and meeting sector, is still mostly dead and vacation travel is still thin, especially among the older people who might otherwise travel in the fall.”

• “Retail prices of airline ticket in September have plunged by 25% from January, before flight restrictions to China and other countries began to hit, according to the Consumer Price Index for September, released today by the Bureau of Labor Statistics. During the three months of February, March, and April, the CPI for airline tickets plunged 30%, by far the biggest three-month decline in the data going back to 1984.”

• “There has been some increase in domestic travel. But international travel – a lucrative segment for airlines – remains scarce given the continued travel bans. And international premium and business travel – the most lucrative segment for airlines – is even scarcer, given the travel bans and the corporate reluctance of sending their people around the globe unless they absolutely have to go.”

• “Ticket revenues – the toxic mix of fewer tickets at lower prices – collapsed across the board, but most on the lucrative international routes.”

Wolf Street

Airlines Emphasize Safety & Leisure Travel Increases | What Does This Mean For ULCC's?

KEY QUOTES:

• “Airline earnings started trickling in this week. The snapshot so far: Demand trends remain weak, especially with international and business fares, but the carriers made progress on reducing their operating losses, and they have shored up liquidity, removing concerns about solvency.”

• “Analysts see United and other carriers breaking even on cash flows later this year or early in 2021, with profits recovering modestly toward the end of next year. And they are emphasizing 2022 earnings multiples to value the shares.”

• “They are also doubling down on safety measures to try to convince consumers to fly again. Still, for all the upbeat talk about safety, United reiterated that it doesn’t see demand recovering without a broader economic reopening and progress on a vaccine.”

• “We recognize that even if you’re completely safe on an airplane, you have to have a reason to go,” CEO Kirby said. “Disneyland needs to be open, or your clients need to be accepting visitors in the office. That’s why we think demand isn’t going to get back above 50% until there’s a widely available vaccine.”

• “Seaport Global Securities analyst Daniel McKenzie, “We believe investors are under-appreciating the efficiency and power of diversified legacy networks, including UAL, in a smaller, post-Covid, consolidated industry,” he writes.”

• “Cowen’s Helane Becker: United, she adds, “has been more right about the pandemic than wrong, but the recovery is taking longer than investors hoped.”

Barrons

TSA Numbers Cross 1M!!! | Airlines Pitch Deals to Draw Travelers

KEY POINTS:

• “A survey of pandemic award prices finds airlines are making award seats available at very cheap prices in miles or points. First-class seats, which give you a bit more social distance on board, are a particularly good value.”

• “In its 10 busiest markets, United’s award seats for various travel dates in November averaged only 12,833 miles round trip, about half the cost of what traditionally has been a standard domestic coach ticket of 25,000 miles. JetBlue averaged only 15,167 points round trip. For first class, American was only 42,500 miles round-trip, Delta only 49,100 miles.”

• “While there are some eye-popping cash deals for flights, and tickets are usually cheap these days, the bargains offered in miles can be even better. Of course, for many people, big discounts on flights are unlikely to override fears of virus spread while traveling, not to mention restrictions on crowds, restaurants and entertainment at destinations.”

• “More airlines adjust award prices with the ups and downs of cash prices. But offering bargains with miles has taken on greater significance in the pandemic as frequent-flier programs have lost so much appeal. Since few customers are frequently flying, perks like seating upgrades, early boarding and free checked baggage have little value now. Making miles more useful can keep the programs attractive to consumers and keep them reaching for airline co-branded credit cards.”

• “That’s particularly important to airlines that have used their frequent-flier programs as collateral for billions of dollars in loans.”

• “Tova Hornung of Seattle had a friend coming to visit from Reno, Nev., and found a round-trip ticket for only 12,500 miles on Alaska Airlines. She’s used to seeing award ticket prices two and three times as high for domestic round trips.”

• “American says its awards connecting small cities are relatively cheap because of its strategy to fly more seats than competitors in those markets, and awards in top markets include flights between hubs where planes are fullest.”

• “Southwest ran counter to the trend other airlines showed. Southwest’s November prices in its busiest markets averaged 15,502 points, compared with 7,367 in a 2019 survey. After reducing capacity and limiting passenger loads so middle seats stay open, Southwest advance-purchase fares haven’t been as cheap as in the past. The airline prices awards based on the cash price.”

Wall Street Journal

Weekly TSA