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Opinion: Strong Airline Demand May Not Return in 2020
The first quarter of the year has been a bloodbath for the travel industry. Planes are flying empty, hotels are empty and other industries impacted by travel and tourism are hurting.
Airlines are cutting capacity by as much as 80 percent in the U.S. and foreign airlines such as Emirates are completely grounded. Turkish Airlines has suspended all international flights. Hotel occupancy is in the low teens and even in the single digits in some places. Many hotels are closing their doors to guests. The Hilton New York Midtown, New York’s largest hotel at 1,878 rooms, among many others in the city have closed, with management hoping to reopen in July.
The airlines are doing the equivalent of shutting hotel rooms by cutting capacity, resulting in parking airplanes by the dozens across airports everywhere. There are some routes still operating at a varying array of fares, but aircraft are still empty. Some airlines are offering cheap fares but the demand really isn’t there.
As aircraft become grounded this is having an impact on airline staff. Their jobs are being put in jeopardy with furloughs and unpaid leave. While parking planes help save money by reducing fuel and maintenance costs, this still leaves an excess of staff. Something needs to be done with them.
U.S. airlines have ironically gone to the government and asked for subsidies to keep from laying off their employees. The end result has been a government bailout, $25 billion in direct grants as long as the airlines agree not to place any employees on involuntary furloughs or discontinue service at any airports they now service until at least the end of September. There is an additional $25 billion for loans.
This, however, doesn’t really solve any problems. It just kicks the can down the road to September with everyone hoping everything will go back to normal by then.
Some experts are suggesting that even if we do overcome the current pandemic during the summer it is possible that it could return in the fall. Even if it doesn’t, it’s not likely that the general public will start flying with the same gusto as they did before the pandemic.
The first reason is general fear still. That will take some time to overcome. Secondly, a lot of people will likely have money troubles, after lay-offs, furloughs, reduced hours, and more Americans are going to have a lot less money in the discretionary fun budget. If airlines drop fares to try to get people back on planes it wouldn’t help entirely since that’s still less revenue coming in for them.
Even if people were to start flying again it would still take time before international flights started having enough traffic to make those routes profitable again. These longer routes are generally more profitable for airlines due to higher yields.
On top of leisure travel it is possible that business travel may not return to normal either. First, businesses will likely still be cash strapped and there will be less travel and less spending. The pandemic is impacting companies all over the world and many will survive this battered and bruised.
Second, this might just be what makes companies determine that some business travel isn’t needed and can be accomplished through video teleconferencing. While it may not be immediately noticed, there will likely be bean counters analyzing data to see if some business travel is really needed if some business can be carried on as usual during these times of restricted movement.
All-in-all, it’s a little premature to assume that everything will return to normal within a few months. It’s possible we won’t see things go back to the way they were until at least 2021.
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