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Lagging business travel takes shine off transatlantic restart -Breaking

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© Reuters. FILEPHOTO: British Airways’ plane arrives in London under new restrictions to stop the spread of coronavirus diseases (COVID-19), at JFK International Airport New York City. REUTERS/Eduardo Munoz

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By Sarah Young and Rajesh Kumar Singh

LONDON/CHICAGO – Monday will see planes take to the skies over the North Atlantic, a welcome development for airlines that have been under restrictions for 19 months. However, this won’t bring in enough revenue for the carriers whose business depends on selling the highest priced seats.

Transatlantic is the most profitable travel market in the world. It takes place on the ground, first and business class. Premium economy classes are where the highest prices drive the airline’s profits.

There are still questions about the speed and scope of return on corporate travel budgets. However, virtual meetings and online calls have been a viable alternative to the traditional pandemic.

This is bad news for British Airways parent company IAG, LON: and Germany’s Lufthansa. Their profits were buoyed in the past by corporations spending more to book closer to departure time and fly at more convenient times.

Travellers are eager to cross the pond again.

Anthony Diamandakis (Citi’s global head for Global Asset Managers) stated, “We are in the relationship business, and traveling is necessary to meet clients and to win deals.”

Trade is vital for small, non-financial companies.

Tony Kinsella from Lucideon UK’s chief executive stated, “In my personal experience, the USA is a people-market – deals are done face-to face with a smile and looking in each other’s eyes.”

On Monday, both fully-vaccinated Britons as well as Europeans will be allowed to enter the United States. It is fully reopening for two-way traffic in the United States since the start of the pandemic.

Kinsella immediately said “USA here we go”, and he already had his tickets booked.

LONG SLOG

Many experts think that the recovery of leisure travel and corporate travel will slow down.

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.

The British 100-listed company that is not named said it intended to cut travel costs for its internal meetings by 2/3 of 2019 and 1/3 for external meetings.

This means that the transatlantic restart may not prove as profitable as some airlines hope.

Transatlantic revenue is more important to European carriers than for U.S.-based competitors.

These routes were responsible for over 26% of IAG’s revenues pre-pandemic and more than 24% of Lufthansa’s revenues, Bernstein analyst estimates.

It compares with 11% to 17% passenger revenue at U.S. carrier American Airlines (NASDAQ:), United Airlines (NYSE:), Delta Air Lines, and United Airlines (NYSE:) and 16% for Air France-KLM.

Virgin Atlantic UK, which is based in London, has an even greater exposure with approximately 60-70% its transatlantic revenues.

Although transatlantic profits are not split by airlines, an analyst suggests that first-, business and premium economy flights at IAG account for more then half of its transatlantic revenues.

John Grant, global travel data specialist OAG says that transatlantic business travel will not see any recovery until after the second quarter 2022.

He said that “major conferences scheduled for next year’s first quarter have in many cases been cancelled because the planning cycle has so long.”

Companies want to ensure that they have revenue from these trips. They will therefore wait to see if economies and trade rebound.

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.

Willie Walsh is the former chief executive of IAG, who heads IATA’s global airline body. He says that corporate travel has a significant impact on airlines.

People assume that those who fly in premium cabins travel for business reasons. “They’re not,” he said at an industry conference.

Due to the lack of business travel, airlines have been trying to get leisure customers to upgrade more than ever before.

Shai Weiss, CEO of Virgin Atlantic said that people are more likely to remember the trip when they do it.

Virgin, Lufthansa, IAG and Lufthansa all spoke of high demand for premium travel and indicated that they see signs that business travel may be returning.

Delta announced last month that it had doubled its business bookings in Europe to 30%, following the reopening of the airport.

Grant of OAG said that the transatlantic market was strong, despite excess demand from seasonal holidays. The market will likely stay strong through mid-January.

He said that the absence of business travel makes airlines wary of increasing capacity too rapidly in the first 3 months next year.

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