Leisure Travel Is Likely to Recover
Airlines have suffered severe financial hardships during the pandemic. However, they are expecting that if and when a vaccine is widely available, demand for leisure travel will recover. There could even be a spike in demand for a certain period, because many people have put off vacations and visits to family during the pandemic. When lockdowns became less severe over the summer, airlines saw a significant uptick in leisure travel. A vaccine would likely cause a much larger spike.
In contrast, business travel did not see much growth, even when restrictions eased slightly. Because companies have become so comfortable with videoconferencing during the pandemic, analysts expect that business travel will see a permanent decline of about 15%.
Companies’ Travel Budgets Are Tight
Before the pandemic, business travel was the most profitable sector of the airline industry. Business travelers tend to be more likely to book convenient, high-price flights, and to fly first class or business class. Airline executives expect this could change. Even when some people begin flying for work again, companies’ travel budgets are likely to be tighter as a result of the economic downturn.
Recent data shows that, for the few airline tickets purchased with corporate accounts during the third quarter, the average fare was 45% cheaper than it was during the same period a year ago. Prices are likely to recover somewhat if and when a vaccine becomes available, but analysts expect they will likely not make a full recovery.
Budget Airlines See an Opening
Budget airlines are seeing an opportunity to move into the business travel sector. For mainline air carriers, business travel accounted for about 50% of revenue pre-pandemic. For Southwest (LUV), about 35% of revenue came from business travel. Airlines like Spirit (SAVE) and Allegiant (ALGT) generate about 10% of revenue from business travel.
However, these trends could change. For example, Southwest is expanding its presence at Chicago O’Hare, a major business travel hub for American Airlines (AAL) and United (UAL). Southwest is also making moves to compete with higher-cost airlines in Houston and Miami. Major hubs tend to be more expensive for airlines to service. However, at the moment, these airports are far less busy, so budget airlines may be able to establish a presence in new hubs.
Though there are still many questions about the future of air travel, it is likely that the business travel industry will be permanently impacted by the pandemic.
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