80% countries designated as "no-go" by the US, Global airline opening delayed
 Apr 23, 2021|View:372

US airlines were confident that summer travel would rebound as vaccinations kicked in, but their optimistic outlook has been overshadowed by the inaccessibility of international markets and the rampant outbreaks in countries such as India and Brazil. Just this week, the US State Department said it would declare some 80 per cent of the world's countries as "do not travel" areas. This has made it more difficult for airlines to regain lost ground for overseas travel. It has also dealt a blow to the recovery in oil demand.  This week, US crude futures retreated from more than one-month highs and continued to fall more than 2% to a one-week low of $60.86 per barrel on Wednesday (21 April) before trading around $61.18 per barrel in a narrow range in early Asian trade on Thursday.

IATA raises airline industry loss forecast, says timetable for global air travel reopening delayed

The aviation industry's main lobby group has widened its loss estimates by about a quarter this year, saying new outbreaks and virus variants have delayed the timetable for the reopening of global air travel.

The International Air Transport Association (IATA) said on Wednesday that airline industry operators will lose about $48 billion in 2021. The organisation had earlier forecast a figure of US$38 billion.

Willie Walsh, former head of British Airways parent International Consolidated Airlines Group and now director general of IATA, said, "The crisis has lasted longer and gone deeper than anyone expected, and the losses will be lower than in 2020, but the pain from the crisis has increased."

The outlook for the aviation industry has become even bleaker as a result of new travel bans and restrictions arising from the increased outbreak in key aviation markets such as India and Brazil. Countries with the fastest vaccinations have become more cautious about restarting air travel, fearing that variants of the virus capable of breaching vaccine protection could enter the country.

The US State Department said this week that it would include about 80 per cent of the world's countries in its "avoid" travel advisory. In Europe, the UK has delayed confirmation that it will reopen for travel in mid-May, saying it will make a decision closer to that date. While some countries are opening up air travel for vaccinated travellers, progress on the so-called vaccine passport has been very slow and complicated.

Hopes had been high that air travel would bounce back in the first half of the year after the industry lost around US$126 billion in 2020 due to the epidemic crisis, and IATA now says the crucial summer travel peak is also at risk. forecast when it was introduced. At that time, IATA expected air passenger traffic to return to about half of its pre-outbreak levels. The time for the airline industry to break even, previously expected in the fourth quarter, has been pushed back to 2022.

While optimism for the second half of the year is largely dependent on a continued rebound in large domestic markets such as the US and China, Walsh said he was slightly more optimistic about the European market than IATA's official forecast.

Airlines increase capacity, but demand for international flights remains weak

According to an analysis of data from flight-tracking specialist OAG, companies such as American Airlines Group and Delta Air Lines have increased capacity in recent weeks. Despite the new variant of the virus threatening the economic recovery, US still plans to restore domestic seat capacity to over 90% of 2019 levels and international seat capacity to 80% this summer. Delta said that travellers were "starting to rejuvenate". United was more cautious, but still expects to fly more than half the number of flights this quarter that it did before the outbreak.

Given that the recovery in travel has been limited to domestic or vacations to surrounding areas such as Mexico, budget airlines such as SpiritAirlinesInc. and FrontierGroupHoldingsInc. are likely to benefit from the pain of the big carriers. essentially, domestic flights are unprofitable and the margins are very slim compared to international flights where many business travellers pay a premium for business class."

The latest data from the Global Flight Tracker, constructed using weekly OAG data, shows a decline in capacity in the US after an Easter boost to growth. On a percentage basis with 2019 data, the US still lags behind major markets such as China and India in terms of passenger traffic, but is ahead of Europe.

Investor unease grows as summer travel recovery prospects are dire

The biggest question now is the outlook for the summer. Despite airlines claiming to have expanded their flight schedules, investors are increasingly uneasy about the strength of the recovery. The S&P index tracking the top five US airlines has fallen for 10 consecutive days, the longest losing streak since data became available in 1989.

Another influencing factor was pricing, with ordinary class fares for domestic flights in March about a third lower than they were two years ago. However, Matt Bradford, a spokesman for flight research website Skyscanner, believes that "average US airfares are expected to be roughly the same as in 2019" over the summer.

Many US business and leisure travellers are already unable to travel to their most frequently visited foreign destinations due to travel restrictions associated with the new crown epidemic crisis. According to OAG, international flights currently account for less than 9 per cent of air capacity. The number of visitors from the US from major countries such as Canada, the UK, Japan and Germany has fallen by 90 per cent or more. The significant drop in transatlantic and Pacific passenger traffic reflects in part the demise of business travel. According to travel data company AirlinesReportingCorp. business travel ticket sales are down 78% from 2019, compared to an average decline of 47% across all markets. The chart below shows that demand for international flights in the U.S. remains depressed from 2019 levels.

In contrast, two states, Montana and Wyoming, saw passenger traffic return to levels less than 20% different from pre-epidemic levels, driven by demand for skiing during spring break. Airport passenger numbers in California fell by 63 per cent in March, while New York and New Jersey saw declines of 66 per cent and 53 per cent respectively. Under normal circumstances, John F. Kennedy International Airport, Newark Liberty Airport and Los Angeles International Airport are the busiest airports in the United States for overseas travel.

In states such as Texas, Florida, Illinois and Georgia, which have large domestic hubs, the drop in passenger traffic lies almost in between. Nowadays, instead of being busy transporting wealthy business travellers to London or Tokyo, US airlines are focusing on how to attract more budget-sensitive leisure travellers.

Airlines struggle to make up for international flight losses as oil demand struggles to recover

In an effort to energise its international business, United is trying to tap into Americans' pent-up desire to travel with new seasonal flights to Iceland, Greece and Croatia. As the outbreak in Brazil worsened, American cut back on flights to South America and is now expanding its domestic schedule, for example, to Orlando, Florida, from eight US cities this summer.

OAG's Grant says: "If a US airline, by attracting people to the southern states, reaches places like Florida or Arizona or even California, the lost international demand can be compensated for to some extent, and while there are positive signs, it still needs to be able to access major international markets to cement the recovery we are seeing today ."

With the epidemic situation in India, Japan and Brazil intensifying, oil prices have been battered by growing concerns in the oil market about a recovery in demand and investors need to be wary of the risk of further falls in oil prices.

At 08:52 BST on 22 April, US crude oil futures were trading at $61.22 per barrel.