Southwest Switching To Plan B | Dominate Leisure Travel
KEY QUOTES:
“OAG chief analyst John Grant said the first full week of September actually was the fifth straight week that capacity around the globe declined, and that the trend is accelerating much more rapidly than most anyone had anticipated.”
“Project the current trend forward to year’s end and global capacity fall below 40 million in the last week of December; that will not be a happy Christmas for the airline industry,” he wrote in a Sept. 7 report. “The last full week of December 2019 saw some 106.8 million scheduled seats (globally), so we appear to be heading for less than half of global capacity by year end. Not quite the recovery shape that everyone expected.”
“Just three months ago Kelly aggressively was plotting to rapidly rebuild his maverick carrier to near its pre-Covid-19 size by Christmas, and to take away even more market share from its discombobulated conventional airline rivals. Now he is executing a sudden, unexpected evasive maneuver.”
“Southwest was on track potentially to take away two to five points of U.S. domestic market share.”
“Beginning in late August, Southwest began stripping flights out its schedule rather than adding more. As recently as the week of August 20 it was on track to offered 85,556 flights, up 4.1% from the comparable week in July. This month, however, Southwest plans to offer just 64,039 flights in the third week of the month. That’s a staggering 25.1% pullback in less than four weeks.”
“Every year after Labor Day, which traditionally signals the end of the peak summer travel season, airlines scale back their fall flight offerings. But dropping a quarter of all flights from August to September is something that’s never been done before by any carrier. American, for example, entered this month expecting to cut its number of flights by 11% from August. That’s a big, sobering number, but it’s still less than half the shrinkage Southwest initiated this month. United, meanwhile, laid in plans to cut its number of September flights by 5.7% from last month; Delta by 5.3%”
“While Southwest remains the most aggressive of the four biggest U.S. carriers in terms of rebuilding its schedule, its tactical reversal over the last three weeks has greatly narrowed that gap between it and its primary competitors.”
“Southwest’s tactical reversal does not mean that it has given up on the underlying goal of taking more market share during the industry’s struggle to recover from the economic impacts of the Covid-19 pandemic. While its biggest competitors have retreated more slowly, it appears Southwest is expecting the rest of the industry to catch up with it in terms of throttling back on the amount of fall capacity they’ll be throwing into the air.”
“Southwest’s already low-cost structure means that it “is very well-suited to service the leisure side of the market in addition to the business travel market.”
“While business travel demand now appears very unlikely to recover much until Covid-19 vaccines are approved and widely distributed – Kelly puts that time frame as sometime in 2021 “at best” – his airline remains the industry’s powerhouse in the leisure travel end of the market.”
“Kelly also expects American, Delta and United to raise, over time, the price of there standard coach fares now that all three have eliminated ticketing change fees of up to $200 on such fares. it now appears likely that it will take Southwest longer to grab the additional domestic market share than Kelly was expecting only three months ago. But the carrier still is on a course that could see it emerge from the pandemic era in a stronger competitive position vis-à-vis its big rivals than it was going into this unprecedented challenge for the whole industry.”
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Aviation Recovery Losing Momentum | Call To End Quarantines
KEY QUOTES:
“Very strongly worded statements are coming thick and fast from aviation organisations about the perpetuation of quarantine measures by governments, which are inhibiting the return of commercial scheduled services. Those measures are most common right now in Europe, where far from the virus pandemic being contained, infection rates are steadily climbing again.”
“ACI EUROPE calls on governments to abandon quarantine in favour of staged virus testing, citing ECDC (European Centre for Disease Control) opinion.” “Saving European tourism and aviation is not going to be done by selectively pouring billions into a few airlines. It will be done primarily by putting citizens and businesses in a position to travel again – so that all operators can look towards the path of recovery.”
“Released fresh data showing that recovery in passenger traffic across the European airport network lost momentum in the second half of Jul-2020 before stalling in August, overtly blaming this result on “the chaotic patchwork of travel restrictions reinstated by several States.”
“Many firms in the travel and aviation industry are advocating a two-test model: one on or before arrival, and then a second followed up after five days of quarantine, reducing the time travellers have to self-isolate by nine days.”
“IATA Director General, referred to “a COVID testing regime that manages the risk to keep people safe from the virus… and which will avoid apocalyptic unemployment that is sure to devastate society and the economy."
“Young people seem to be the major ‘spreaders’ at the moment as they ‘party’ in a way they could not during lockdown, conscious of the fact that if they catch the disease it will more than likely be only a mild version.”
“It isn’t as if there is an end in sight. The approval of vaccines, which are being sought on a country-by-country basis rather than being centrally co-ordinated, will not happen overnight.”
“The World Health Organisation recently said it only expects the pandemic to be ended “within two years”. Then governments have to persuade individuals to take the vaccine. In some countries 25% of people polled have said they will refuse it (in one case 75%!) as the number of conspiracy theories grows by the day.”
United’s Choppy Recovery | Will Leisure Lead The Way?
KEY QUOTES:
“The predictions that leisure and visiting friends and relatives (VFR) passenger segments will lead a recovery in air travel are starting to materialise. And as result, all operators will start aggressively chasing those passenger segments in an effort to prop up severely depressed revenues.”
“In the US, United Airlines is working to cater to leisure customers on both long haul international and domestic routes, joining rivals in bolstering its presence in leisure markets.”
“But as United and other airlines work to structure their networks, revenue remains severely depressed, and many operators, including United, are pulling in capacity as the recovery continues to remain choppy.”
“Both American and United are reworking their respective networks to capture a larger share of leisure customers.”
“The changes that US majors are making to their networks will up their competition with low cost and ultra low cost airlines, which should create some interesting dynamics for pricing. Airlines are already discounting to stimulate demand, so pricing could remain challenging for the foreseeable future.”
“The changes the large network airlines are making are not permanent in nature; however, with a full recovery in demand some years off, the heightened competition will linger for some time.”
“American, Delta, Southwest and United have all experienced some improvements in leisure bookings, but they are also stressing that the recovery in demand will remain choppy and jagged, and each airline’s revenue continues to remain significantly depressed.”
“United previously stated that it did not believe that demand would recover beyond 50% until an accepted treatment for COVID-19 became widely available.”
“The airline has said that reaching that 50% benchmark will entail the industry ensuring that individuals understand that flying is safe, which should lead to a reasonable recovery in VFR traffic.”
“United has also stated that the recovery in business demand will be led by small group events. Huge conventions are not expected to resume for some time.”
“For airlines that had a larger share of business passengers before the pandemic, it is logical to switch resources to passenger segments that are leading the recovery.”
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Additional Resources
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