The airline industry is eager to move on, but it hasn’t figured out how.
Air travel has recovered somewhat in recent months, but it remains deeply depressed compared with 2019, and no one knows when business will return to more normal levels.
Two essential moneymakers for airlines — corporate and international travel — are likely to stay sidelined for another year and possibly much longer.
“As a quick strategy, fly where people are,” said Ben Baldanza, a former chief executive of Spirit Airlines, the low-cost carrier. “That’s been a real smart strategy, but that’s not a long-term way for those airlines to make money.”
Before the pandemic, business travel accounted for about 30 percent of trips but 40 to 50 percent of passenger revenue, according to Airlines for America, an industry association. And those customers aren’t expected to return in great numbers any time soon.
Airlines for America does not expect passenger numbers to recover to 2019 levels until at least 2023. And airlines might have to wait even longer if the economic recovery falters because of the spread of coronavirus variants or a delay in vaccinations.
Still, airlines say they are hopeful for the year ahead.
Southwest said sales this month were better than expected.
Alaska Airlines said it hoped to operate about 80 percent as many flights this summer as it did in 2019, while Hawaiian Airlines offered a similarly upbeat forecast.
Delta’s chief executive, Ed Bastian, said in a message to customers last week that he expected to see an “inflection point in the spring” as consumer confidence grew, travel restrictions eased and vaccine distribution expanded.
Delta recently extended its ban on booking passengers in middle seats through April and hired a chief health officer. The moves are part of Delta’s effort to brand itself as a premium, health-conscious carrier.
Southwest is offering deals, including a sale promising one-way fares as low as $50 in celebration of its 50th anniversary. The airline typically has big sales in the fall and sometimes has them in the summer.
“Every time demand has shown signs of life, it’s taken another step backward,” said Hunter Keay, senior airline analyst at Wolfe Research. “So it’s very hard for airlines to go out there and put aircraft in markets, because if you get that wrong you just exacerbate the problem of cash burn.”
Some experts argue that corporate travel may never fully recover, with many in-person meetings permanently replaced by video conferences and phone calls.
American is “very optimistic” that corporate travel will return as vaccines are distributed, Vasu Raja, the airline’s chief revenue officer, told investors and reporters last month. But, he added, “the rate of that is unclear at best.”
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United Airlines is growing its transatlantic presence later this year with a newly-announced route between Boston and London, UK.
Operating the flight will be United's Boeing 767-300ER, a wide-body aircraft, with an ultra-premium three-class interior. Passengers will be able to choose from the airline's Polaris business class, Premium Plus premium economy class, and economy class.
The route is geared towards business travelers with 46 business class seats available in a cabin that takes up most of the plane.
A new Boston-London route is an odd addition for United, which rarely strays from its intercontinental hub-and-spoke route network with these kinds of point-to-point routes.
And while United's former slogan might be "come fly the friendly skies," the skies above the north Atlantic Ocean are about to get a lot more hostile for one airline. The new route comes just as competitor JetBlue Airways plans to launch its first-ever non-stop flights to Europe, from Boston and New York.
United's announcement also comes just days after JetBlue and American Airlines announced an expanded partnership that sees the world's largest airline pre-pandemic and New York's "hometown airline" partner on new routes, schedules, and frequent flyer programs, among others.
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Airlines receive only about 60% of their revenue from passengers directly (the other 40% comes from selling frequent-flier miles to credit card companies and other travel partners like hotels and car rental agencies).
But of that 60% of passenger consumer revenue, the big money comes from business travelers – as opposed to those flying for leisure or personal reasons – in percentages that far outweigh their numbers.
Business travelers account for 12% percent of airlines' passengers, but they are typically twice as profitable.
In fact, on some flights, business passengers represent 75% of an airline's revenues.
Corporate travel policies used to emphasize saving money. However, (pre-pandemic, anyway), given the hassle-prone nature of air travel, managers often showed concern about employee comfort, convenience, and productivity – as it was counter-productive if an employee arrived too tired or stressed-out to do his or her job. So, businesses were often willing to pay more to book last-minute flights or non-stops options, though typically not seats in an elite section of the aircraft.
Business travelers and high-end travelers also bring substantial revenue to airlines by purchasing additional services and using frequent-flier and other incentive programs.
Businesses usually allow employees to leverage business travel to earn and keep frequent flyer miles and points, which are increasingly valuable to airlines as a source of revenue and data.
Amazon’s aircraft fleet is on pace to have doubled in size between May 2020 and June of this year, laying further groundwork for Amazon Air to rival the likes of carriers FedEx and UPS, according to a study.
Amazon Air now makes an average of 140 flights per day and is expanding its fleet, signaling a “growth spurt this spring,” said the report issued Tuesday by DePaul University’s Chaddick Institute for Metropolitan Development.
Amazon’s air cargo fleet is a critical part of the company’s strategy to meet its increasingly ambitious one- and two-day delivery targets. The company quietly began testing out air cargo operations in Wilmington, Ohio, in 2015 as part of a project under the code name “Aerosmith.”
Amazon leases most of its cargo aircraft through Atlas Air Worldwide Holdings and Air Transport Services Group, but in January it purchased 11 used Boeing 767-300 jets from Delta and WestJet.
Morgan Stanley has predicted Amazon could potentially leverage its end-to-end logistics operations to offer delivery services to outside parties as soon as this year.
“Amazon’s entry into this business will likely occur in the next 18 months, and when it occurs, Amazon Air — and the CVG/Wilmington hubs in particular — will be critical,” says the study.
Amazon is bringing some air cargo operations in house, instead of relying on outside contractors. Over the last few months, the company has posted job listings for maintenance managers and managers to oversee contracted air ground operators.
Ultimately, moving more of its air cargo operations in house would allow Amazon to better control costs and delivery speeds.