A European travel ban on Americans could be a sign of disastrous things to come for US airlines
An American Airlines flight attendant checks passengers' seats for forgotten items before disembarking from their flight to Boston at Ronald Reagan Washington Airport in Arlington, Virginia.
ERIC BARADAT / AFP via Getty Images
The European Union is reportedly planning to ban American travelers because of the large number of coronavirus cases in the United States.
The travel restrictions, which could be the first of many when countries emerge from COVID 19 bans, are reportedly being reassessed every two weeks.
While U.S. airlines see a slight improvement in domestic travel demand, additional delays in international travel would exacerbate the problems of some of the country's largest airlines.
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The plans announced by the European Union to exclude American travelers would certainly be a disappointment for quarantine-weary globetrotters who want to return to the world.
The plans are expected to be announced next week and then reviewed every two weeks thereafter. For some U.S. airlines, the ban could mean a slower, more painful slogan as they try to recover from their pandemic problems.
Since much of the world is still in the early stages of reopening after closures, the most robust domestic travel activity takes place in the United States. Despite the virus returning in parts of the country, this demand has come from vacationers and people in the United States who want to visit friends and relatives separately after months of quarantine.
It was easy for some airlines to benefit from it.
The southwest, for example, is primarily a domestic airline, and its few international destinations are largely in the greater region, such as Central America or Mexico.
Allegiant Air also mainly flies within the United States. It works with a point-to-point model that avoids hubs. This allows it to be quickly adjusted if the demand appears in new places during the recovery - or if the demand in certain areas decreases due to peaks in certain cases.
For the so-called Big Three - American, Delta and United - the situation is grim.
The airlines all operate extensive domestic networks and have adapted their plans and business models to maximize them.
However, these airlines still rely heavily on international flight revenue and often use these domestic networks to feed international hubs.
"National and international companies have diverged significantly," said Vasu Raja, director of network and route planning for American Airlines, in an earlier interview with Business Insider. "Although we are increasingly optimistic about domestic sustainability, abroad looks different."
"While we are still at the beginning of our planning, we are planning a completely different and newly designed international network for American Airlines," he said.
Due to increasing domestic demand, American Airlines plans to operate 55% of its domestic capacity in July compared to the same month in 2019. In April the airline flew about 20% of its domestic capacity and in May around 25%. to Raja.
However, American expects to fly only 20% of its international capacity, and utilization factors are expected to be low.
While airlines can certainly continue to court domestic passengers, a real recovery would not be possible without international travel.
One reason is that airlines on international flights with premium cabin seats achieve the highest margins of all ticket types. Ticket sales in premium cabins such as Business Class on international flights offer significantly higher returns than economy seats at home and abroad.
In addition, upsells and other incidental charges generate significant revenue for airlines, and there are more options on the longer international flights that are normally flown on larger aircraft. For example, Delta earned $ 15 billion in 2019 for premium products and upgrades, while the Big Three in 2019 earned almost $ 3.4 billion in checked baggage fees, according to the Bureau of Transportation Statistics.
Business trips are vital for the larger airlines. Although business travelers only make up 15% to 20% of air travel, analysts say they make up about half of their sales.
A major reason for this is that people traveling with corporate money tend to be less price sensitive than vacationers. They often buy tickets that are closer to the travel date, when tariffs increase, when a personal meeting or performance is essential.
Unlike the few wealthy vacationers and honeymooners who treat themselves to something special, most business class passengers are business travelers whose companies are willing to pay to make them feel more comfortable and rested after a flight. It is an effort to keep labor productivity high.
Andrew Didora, airline analyst at Bank of America, said the business trip has not yet made a meaningful return, according to Andrew Didora, an airline analyst at Bank of America, in a recent research report.
Business travel was slow to return in China, which was banned about two months before the United States and is still recovering.
In addition, concerns about exposure or liability business trips are likely to continue to be held until a vaccine against COVID-19 is available. Even a partial return is unlikely before the offices are fully open again, Didora wrote.
Industry experts are also affected by the possibility of additional travel bans or an escalating conflict between the countries.
"Public health is still a major concern worldwide," Tori Emerson Barnes, executive vice president of public affairs and politics for the US Travel trading group, said in an email to Business Insider. "But such bans tend to turn into cycles of political retaliation. This is the last thing the global economy needs to start a recovery."
Representatives from American, Delta and United referred to Airlines for America, an industry and lobby group that represents most major airlines.
In a statement, a representative of the trading group emphasized that the airlines were keen to revert to their normal flight schedules.
"The U.S. aerospace industry is striving to resume service to Europe and internationally," said Katherine Estep, a representative of the group, in an emailed statement. "We will continue to work with governments around the world to restore the service to the wellbeing of our passengers and employees."
Experts have predicted that it will take up to five years for airlines to fully recover to flight levels and 2019 demand.
Ultimately, airlines that have built their business models on international travel will continue to have problems even if domestic travel returns.
"While the recovery is good, we are far from anything that can sustain the business over a long period of time," said Raja, director of network planning at American, in the earlier interview.
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