United Airlines CEO has an optimistic outlook for the airline. After aggressively managing 2020, Scott Kirby was pleased to report last week that United expected its core cash burn to be positive in March and, assuming booking trends continue, positive moving forward. As many consider pent-up demand leading to a summer surge with questions about what will come after, Mr. Kirby explained he thinks there will be more travel in a post-crisis world.
Why Mr. Kirby thinks there will be more travel moving forward
Speaking at the 2021 J.P. Morgan Industrials Conference, Mr. Kirby stated the following:
“I think that there’s going to be more travel going forward just period. It’s not just pent-up demand…retail spend has been up, but durables are way, way up, and things like travel and leisure are down 70%. I think all that durable expense that would have been happening in 2022, 2023, 2024 – you’ve already bought a new washing machine, you don’t have to buy another one, people already bought a new car, did a home repair – that money that got spent was pull forward. It is going to mean a lot more available to spend in ’22, ’23, ’24 for leisure demand.”
While 2020 was a rough year for the travel industry, not all industries were battered. Much of the spending was concentrated around bigger items. Per CNBC, existing-home sales in the US in 2020 hit levels not seen in over 10 years. Along with home-buying, other retail segments saw a bump in revenue. Home Depot, a home improvement retailer in the US, saw sales for the fiscal year 2020 increase nearly 20% compared to the fiscal year of 2019.
Non-airline factors that affect consumer spend
To an extent, airlines compete with several other industries for dollars from consumers. However, some of that spending is outside of an airline’s control. While airlines can try to price themselves competitively against other carriers, passengers have to choose to spend on travel over other items like a washing machine or a car.
Not to mention, after a passenger chooses to travel somewhere, there are added costs like dining and lodging that may be priced higher than a consumer is willing to spend. For example, even if there are airfares at rock-bottom prices to destinations like Hawaii or Jackson Hole, customers may choose not to book if lodging expenses, dining expenses, or car rental expenses do not have the flexibility some airline tickets have or the low price that a consumer would be willing to spend.
A surge is starting to show
Spring break travel is pushing the industry toward a successful March, and an increase in future bookings has airlines hopeful for a summer surge in demand. However, it is unclear what happens after a summer surge.
For much of 2020, passengers have been unable to fly to many destinations. Through the normally busy summer season, states like Hawaii and New York had entry restrictions in effect that severely deterred leisure travelers. As those states started opening up later in the year, more people did visit those destinations. Summer 2021, however, will be the first peak summer season since 2019, when these states are mostly open for leisure travel.
The lack of ability to travel in 2020 led many to speculate about pent-up demand that will come through as vaccinations roll out and people gain the confidence to fly. Moreover, as countries worldwide start to press forward with reopening for tourism, as some European countries have already indicated they are willing to do, it is expected that there will be another surge for international travel coming from pent-up demand.
A summer surge is brewing and simmering, but per United’s CEO, he believes that the summer surge is part of a trend for more travel in the coming few years after a year where most people essentially stayed at home or were deterred from visiting the places they wanted to visit. The real test for whether Mr. Kirby is right will come in 2022 and 2023 when international travel is expected to start coming back.
Do you think travel going forward will be higher than pre-crisis levels? Let us know in the comments!