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(Updates after U.S.-bound travel restrictions are lifted)
By Sarah Young and Rajesh Kumar Singh
LONDON/CHICAGO, Nov 8 (Reuters) - Planes poured across the
North Atlantic towards the United States on Monday, a boon for
airlines after 19 months of travel restrictions - but that alone
won't be enough for carriers whose profits depend on filling the
most expensive seats.
Experts say the real battle of the transatlantic, the
world's most lucrative travel market, takes place at the front
of the plane, in first, business, and premium economy class,
where those paying the top prices help drive airline profits.
Question marks remain over the pace and extent of the return
of corporate travel budgets, after the pandemic showed online
calls and virtual meetings offered a workable alternative.
That's mixed news for the likes of British Airways parent
IAG and Germany's Lufthansa, whose profits
have in the past been buoyed by corporates spending more by
booking closer to departure and flying at more convenient times.
Shares in IAG fell 2.6% on Monday after shrugging off
warnings of a big 2021 loss to close higher on overall
transatlantic travel hopes on Friday..
Some business travellers are desperate to get back over the
pond.
"We are in a relationship business and travelling is
necessary to meet clients, to win deals," said Anthony
Diamandakis, Citi's co-global head of Global Asset Managers.
For smaller, non-financial businesses too, travel is
essential for trade.
"In my experience of the USA, it's a people market - deals
get done face to face, with a handshake and looking into each
other's eyes," Tony Kinsella, chief executive of UK-based
materials development and testing company Lucideon, said.
The United States is allowing fully-vaccinated Britons and
Europeans to enter from Monday, fully re-opening to two-way
traffic for the first time since the pandemic started.
"USA, here we come," said Kinsella, who already has his
tickets booked.
LONG SLOG
Most experts believe that corporate travel will lag the
recovery in leisure travel.
U.S. spending on corporate travel is expected to reach only
25%–35% of 2019 levels by the fourth quarter of 2021, and
65%–80% a year later, according to a Deloitte survey of 150
travel managers.
One British FTSE 100-listed company, which did not want to
be named, said it planned to reduce travel for internal meetings
next year by two-thirds on 2019 levels, and by one-third for
external meetings.
That means the full transatlantic restart might not be as
lucrative as airlines would hope.
Europe-based carriers tend to be more reliant on
transatlantic revenues than their U.S. competitors.
Pre-pandemic, those routes accounted for more than 26% of
IAG's revenues and over 24% of Lufthansa's, according to
Bernstein analyst estimates.
That compares with between 11% and 17% of passenger revenues
at U.S. carriers American Airlines, United Airlines
and Delta Air Lines, and 16% of Air France-KLM's
.
UK-based Virgin Atlantic is even more exposed, with an
estimated 60-70% of its revenues coming from transatlantic
routes.
Airlines do not break down transatlantic profitability, but
one analyst estimates that at IAG for instance, first class,
business class and premium economy flying account for more than
half of the profits it makes from transatlantic flying.
John Grant of global travel data specialist OAG does not
expect transatlantic business travel to start to show any
significant recovery until the second quarter of 2022.
"Major conferences in the first quarter of next year have
already in many cases been cancelled since the planning cycle is
so long," he said.
"Companies want to be sure that there is revenue to be had
from such trips, so they will be waiting to see how economies
and trade recover."
LEISURE UPGRADE
Airlines are going to be looking to leisure travellers https://www.reuters.com/world/the-great-reboot/grandmother-grandson-finally-meet-us-flights-reopen-2021-11-05
to fill the gap left by corporates, and after months of
lockdowns their pockets will be deeper, encouraging them to
splash out on that premium economy or business class seat.
According to Willie Walsh, IAG's former chief executive who
now heads up global airlines body IATA, the importance of
corporate travel to airlines is often overstated.
"Everybody assumes that people travelling in the premium
cabins are travelling for business. They're not," he told a
recent industry event.
Airlines are trying harder than usual to entice leisure
customers to upgrade given the dearth of business travellers.
"We're seeing when people do take that trip, they're
thinking more of the experience," said Virgin Atlantic's CEO
Shai Weiss.
IAG, Lufthansa and Virgin have spoken of strong demand for
premium travel, and said that there are also signs that business
travel is returning.
Delta also said last month that its corporate bookings for
Europe doubled to 30% of 2019 levels following the reopening
announcement.
OAG's Grant said pent-up demand and seasonal holidays had
helped lift fares on transatlantic routes in recent weeks, and
the market would likely remain strong until mid-January.
"The absence of business travel will make the airlines wary
of adding capacity back too quickly in the first three months of
next year," he said.
(Writing by Sarah Young; Additional reporting by Rajesh Kumar
Singh, Andres Gonzalez and Kate Holton; Editing by Jan Harvey,
Tim Hepher and Emelia Sithole-Matarise)
