Delaying business travel brings out the brilliance of the transatlantic restart

LONDON / CHICAGO, Nov 8 (Reuters) – Aircraft will once again fill the skies over the North Atlantic from Monday, a benefit for airlines after 19 months of restrictions, but that alone will not be enough for airlines whose benefits depend on filling more. expensive seats.

The real battle of the transatlantic, the most lucrative travel market in the world, takes place at the front of the plane, in first class economy, business and premium, where those who pay the best prices help drive corporate profits aerial.

Question marks remain on the pace and scope of the return of corporate travel budgets, after the pandemic showed that online calls and virtual meetings offered a viable alternative.

This is bad news for companies such as the parent company of British Airways IAG (ICAG.L) and the German Lufthansa (LHAG.DE), whose profits in the past have been driven by companies that spend more by booking more close to the exit and flying at more convenient times.

Some travelers are desperate to return to the lake.

“We’re in a relationship business and traveling is necessary to meet customers, to win deals,” said Anthony Diamandakis, global co-head of Citi’s Global Asset Managers.

Also for smaller, non-financial businesses, travel is essential for business.

“In my experience in the U.S., it’s a people market: bids are made face-to-face, with a handshake and looking each other in the eye,” said Tony Kinsella, executive director of the development and testing company of UK-based materials Lucideon.

The United States will allow the entry of fully vaccinated British and Europeans as of Monday, completely reopening to two-way traffic for the first time since the pandemic began.

“USA, here we are,” said Kinsella, who already has tickets reserved.

LONG SLOG

Most experts believe that corporate travel will delay the recovery of leisure travel.

According to a Deloitte survey of 150 travel managers, U.S. spending on corporate travel is expected to only reach 25% to 35% of 2019 levels in the fourth quarter of 2021 and 65% to 80% a year later. Read more

A British company listed on the FTSE 100, which did not want to be named, said it planned to reduce travel for internal meetings next year by two-thirds from 2019 levels, and by one-third for external meetings.

This means that the complete restart of the transatlantic liner may not be as lucrative as airlines would expect.

European-based carriers tend to depend more on transatlantic revenue than their U.S. competitors.

Prior to the pandemic, these routes accounted for more than 26% of IAG’s revenue and more than 24% of Lufthansa’s revenue, according to estimates by Bernstein analysts.

This compares with between 11% and 17% of passenger revenue of American Airlines (AAL.O), United Airlines (UAL.O) and Delta Air Lines (DAL.N). % of Air France-KLM (AIRF) airlines. .PA).

UK-based Virgin Atlantic is even more exposed, with an estimated 60-70% of its revenue from transatlantic routes.

Airlines do not break down transatlantic profitability, but one analyst estimates that at IAG, for example, first-class, executive and premium economy class flights account for more than half of the profits they make from transatlantic flights.

John Grant, of global travel data specialist OAG, does not expect transatlantic business travel to begin to show any significant recovery until the second quarter of 2022.

“The big conferences in the first quarter of next year have already been canceled in many cases because the planning cycle is so long,” he said.

“Companies want to be sure that there is revenue for these trips, so they will be waiting to see how the economies and trade recover.”

LEISURE UPDATE

Airlines will look for leisure travelers to fill the void left by companies, and after months of deadlock, their pockets will be deeper, encouraging them to splash in this economy class or premium business seat.

According to Willie Walsh, a former IAG CEO who now heads the global airline IATA, the importance of corporate travel to airlines is often overstated.

“Everyone assumes that people traveling in premium cabins travel on business. They’re not,” he said at a recent industry event.

Airlines strive harder than usual to attract leisure customers to upgrade due to the lack of business travelers.

“We’re seeing that when people make this trip, they’re thinking more about the experience,” said Shai Weiss, CEO of Virgin Atlantic.

IAG, Lufthansa and Virgin have spoken of the strong demand for premium travel and have said there are also indications that business travel is returning.

Delta also said last month that its corporate reserves for Europe doubled to 30% of 2019 levels after the reopening announcement.

Grant, of the OAG, said repressed demand and the holiday season had helped raise fares on transatlantic routes in recent weeks and that the market would likely remain strong until mid-January.

“The absence of business travel will make airlines wary of adding capacity too quickly during the first three months of next year,” he said.

Written by Sarah Young; Additional report by Rajesh Kumar Singh, Andres Gonzalez and Kate Holton; Edited by Jan Harvey

Our standards: the principles of trust of Thomson Reuters.

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