Airline recovery in sight, but 'to be highly profitable' transatlantic route needs to reopen: expert

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·4 min read

U.S airlines flew more than 2 million passengers on Sunday June 13, the largest daily number in more than a year, as carriers recover from the economic consequences of the COVID-19 pandemic.  

"The strong domestic travel should be enough to get them into the black," U.S. Travel Association CEO Roger Dow told Yahoo Finance Live. But Dow warns domestic travel alone won't be enough to restore the kind of profitability shareholders expect from the airlines. "To be highly profitable, you need business travel and international. It represents 41% of the revenue because that's the main part of the cabin and so we've got to bring that back."

The U.S. Travel Association represents "all components of the travel" industry, restaurants, hotels and airlines. It spearheaded an international press conference, last week, with CEOs from the largest airlines, calling on regulators in the United Kingdom and United States to open the lucrative transatlantic route between London and New York.  

"The UK route is basically $1.2 billion a month to the U.S. economy so it's critical. It's our largest overseas market," Dow said.

U.S. President Joe Biden and U.K. Prime Minister Boris Johnson signed a new Atlantic Charter last week that creates a task force to help open travel between the UK and U.S. as soon as possible. "Before the outbreak of coronavirus more than 5 million Brits visited the U.S. and over 4.5 million Americans visited the UK every year — more than any other country," according to a statement from Prime Minister Johnson's office.

"We're all in favor of a task force. But to open up this corridor is so important because the rest of the world will follow and this is the best corridor to open by far," Dow said.

'A strong recovery'

According to the Cowen Equity Research Weekly Fare Tracker, published fares on June 7 were down 21.3% year-over-year, but up 0.9% from the previous week to an average $251. Cowen tracks 278 routes in the U.S. domestic market, roughly 35% of the top 1,000 routes flown by United Airlines (UAL), Delta Air Lines (DAL) and American Airlines (AAL).

Raymond James airline analyst Savanthi Syth told her clients, in a recent note, "Leisure demand in the U.S. has seen a strong recovery with summer 2021 volumes expected to be similar to or slightly above summer 2019 with a seemingly lower level of pricing elasticity." Syth expects the demand for leisure travel to continue at least through spring break and Easter of 2022.

But Dow said airlines will miss the usual summer leisure travel surge to international vacation destinations which he said is off 81% from what it had been in 2019. Despite the commitment to reopen the UK and U.S. corridor, on Monday Johnson delayed fully reopening the UK until July 19.  

Deutsche Bank analyst Jim Reid told his clients, "The UK and more specifically England will be a good case study of what the rest of the world can expect and what risks we are prepared to take."

Dow predicts a pick up in domestic business travel will help U.S. airlines manage the loss of international travel revenue. "Most important thing is to get open for meetings, conventions and business travel, which more is a fall phenomenon. So we're still OK," Dow proclaimed.  

Raymond James' Syth said there are increasing signs of a somewhat faster recovery in U.S. business travel that is expected to continue through the end of the year. "We would note that, while generally considered leisure airlines, Southwest (LUV), Alaska (ALK), and JetBlue (JBLU) have a significant exposure to business demand recovery without the long-haul international exposure," that pulls at the bottom line of legacy carriers Syth wrote.

The airlines need at least one month to restore international routes once a country removes pandemic related restrictions, Dow said. In the meantime, the airlines continue to add domestic capacity. "I've talked to each of the CEOs, and they're comfortable that this summer will be a turning point," he added.

Adam Shapiro is co-anchor of Yahoo Finance Live 3pm to 5pm. Follow him on Twitter @Ajshaps

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