Airline CEOs view the transatlantic market as the summer’s best international bet
By AARON KARP
While the full picture of the global airline network recovery from the COVID-19 pandemic is still unclear, there is one aspect of the rebound widely agreed upon among airline executives: The transatlantic market is poised for a summer surge.
“It’s definitely the case from talking to airline CEOs that they’re seeing strong transatlantic demand and it’s across the board,” IATA DG Wille Walsh told Routes. “Whether this will be sustained as we go through the year or whether this is a bump ahead of normalizing, I’m not sure, but certainly indications are at this stage that demand on the transatlantic is strong.”
The transatlantic boom appears to be driven by two major factors: the substantial easing of COVID-19 border restrictions and passengers willing and able to spend money to cross the Atlantic.
“Fewer restrictions in major international markets are unlocking demand for long-haul travel,” Delta Air Lines president Glen Hauenstein said during a recent earnings call. “We expect a very strong summer in the transatlantic based on demand trends. … It does look like the transatlantic business is returning robustly, and that's very exciting for us.” The US lifted restrictions on vaccinated travelers from 33 countries in November 2021, enabling passengers from Europe to fly to the US again, and the rebuilding of routes and the return of demand commenced. “There is huge pent-up demand for international travel,” former American Airlines CEO Doug Parker said before leaving his post at the end of March.
Walsh said governments on both sides of the Atlantic unnecessarily disrupted travel for too long.
“I have sympathy for governments in how they needed to respond back in April, May 2020 when we really were dealing with an unknown,” he explained. “That sort of crisis was overcome, in my opinion, [later] in 2020 and yet we saw governments reduce access right through 2021. I don’t think there were good scientific grounds to do that. In fact, all of the evidence that was available suggested that the border closures were doing nothing to prevent the virus from spreading, and that’s because the border was closed after the virus was already in a country. So, the idea that you can keep it out once it’s in is nonsense.”
He noted that there is not unfettered access to the US because proof of vaccination is still required.
“That's clearly preventing a full recovery, but the outlook is very positive,” Walsh said. “Speaking to airline CEOs operating on the transatlantic, they're very encouraged by the figures that they've seen recently and the bookings that they're looking at going forward.”
Even the slower return of business travel is not dimming transatlantic expectations. That’s because of another trend that airline executives believe will boost travel across the Atlantic.
“International premium travel is recovering at a faster pace than international economy travel, and speaking to some CEOs, they’re attributing that to premium leisure,” Walsh said. “Consumers have disposable income at the moment and it looks like they’re prepared to pay to experience a premium product, both in the air and on the ground. That’s a positive because the recovery in business travel is clearly lagging the recovery in leisure travel.”
The loss in business traffic revenue is “being compensated by people traveling in premium cabins for leisure,” Walsh explained, suggesting airlines will not have to wait for a full return of business travel to operate profitably on transatlantic routes. Walsh believes “premium leisure is a sustainable segment of the market,” noting the trend has been apparent for the past five months.
One sign of the strength of transatlantic summer demand is that new routes—not just restored routes—are being opened by airlines. Spanish flag carrier Iberia, for example, plans to launch its first-ever flights from Madrid (MAD) to both Dallas Fort Worth (DFW) and Washington Dulles (IAD) from June 1. Iberia will operate more than 120 weekly flights to the US during its summer 2022 schedule, including service to San Juan (SJU) in Puerto Rico.
Another factor helping airlines as they ramp up transatlantic services is FAA’s extension through the summer of temporary waivers of international minimum flight requirements at several major US airports. “Based on global vaccination rates, changing infection rates and the threat of new virus strains, continued unpredictability of travel restrictions, and the disparity between demand for domestic air travel and demand for international air travel, extending the current limited, conditional waiver for international operations by all carriers, is reasonable,” FAA said in a public notice.
British Airways said the relief is “wholly appropriate and essential for preserving established international aviation networks,” but Airports Council International-North America said FAA’s decision will “weaken the reinstatement of much-needed connectivity and damage the competitive landscape at airports.”
Through Oct. 29, FAA’s extension of slot relief will help airlines maintain access to congested airports for international flights, even if they are cautious about adding back a specific route. This will especially give airlines flexibility in the New York market, where carriers jockey for slots at crowded Kennedy (JFK) and LaGuardia (LGA) airports.
Indeed, even the carriers touting a robust demand environment are reluctant to restore full capacity too quickly. US carriers have expressed concern about having enough staff and aircraft.
“We have 14 fewer 787s than we want to be flying” because of Boeing delivery delays, Parker said. “We’re not happy about that.” Delta will remain “disciplined” about capacity because of “macro uncertainty,” CEO Ed Bastian said.
“The priority is to operate reliably and … not get ahead of demand,” Hauenstein added.
Walsh concurred that airlines will be reluctant to restore capacity too quickly: “You will see a more cautious industry as a result of what we’ve gone through and that’s principally because everybody’s wondering about what’s going to happen when the next variant arrives. Will governments react the way they did and start closing borders? That’s what was killing the industry.”
