The United Airlines CEO has an optimistic outlook for the airline. After aggressively managing 2020, Scott Kirby was pleased to report last week that United had expected its primary cash burn to be positive in March and, assuming reserve trends to continue, a positive advance. While many consider demand suppressed leading to a sudden spike in the summer with questions about what comes next, Kirby explained that he thinks there will be more travel in a post-crisis world.
Why does Mr. Kirby think there will be more trips in the future
Speaking at the 2021 JP Morgan Industrials Conference, Mr. Kirby stated the following:
“I think there will be more trips going forward. It’s not just about pent-up demand … retail spending has increased, but durable goods have increased a lot, and things like travel and leisure have decreased by 70%. I think all that durable expense that would have happened in 2022, 2023, 2024 – you already bought a new washing machine, you don’t need to buy another one, people already bought a new car, they did a repair at home – that money spent was pulled into front. This will mean much more availability to spend on 22, 23, 24 for leisure demand. “
While 2020 has been a difficult year for the travel industry, not all industries have been hurt. Much of the spending was concentrated on larger items. According to CNBC, sales of existing homes in the U.S. in 2020 reached levels not seen for more than 10 years. Along with the purchase of homes, other retail segments saw an increase in revenue. Home Depot, a building materials retailer in the U.S., saw sales in fiscal 2020 increase almost 20% compared to fiscal year 2019
Non-airline factors that affect consumer spending
To some extent, airlines compete with several other industries for consumer dollars. However, some of these expenses are beyond the control of the airline. While airlines may try to establish competitive prices in relation to others, passengers need to choose to spend on travel instead of other items, such as a washing machine or a car.
Not to mention that, after a passenger chooses to travel somewhere, there are additional costs, such as meals and accommodation, that may be priced higher than the consumer is willing to pay. For example, even if there are very low-priced air tickets to destinations like Hawaii or Jackson Hole, customers can choose not to book if accommodation, meals or car rental costs do not have the flexibility that some air tickets have or price that a consumer would be willing to spend.
A wave is beginning to appear
Spring break travel is pushing the industry into a successful March, and an increase in future bookings leaves airlines hopeful of an increase in demand in the summer. However, it is not clear what happens after a summer wave.
For much of 2020, passengers were unable to fly to many destinations. During the normally busy summer season, states like Hawaii and New York had entry restrictions in place that prevented leisure travelers. As these states started to open at the end of the year, more people visited these destinations. The summer of 2021, however, will be the first peak of the summer season since 2019, when these states are mainly open for leisure travel.
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The lack of the ability to travel in 2020 has led many to speculate about the pent-up demand that will arise as vaccinations are implemented and people gain confidence to fly. In addition, as countries around the world begin to press for the reopening for tourism, as some European countries have already indicated they are willing to do, it is expected that there will be a new surge in international travel due to pent-up demand.
A summer wave is brewing and boiling, but according to the United CEO, he believes the summer wave is part of a trend for more travel in the years to come, after a year when most people basically stayed in home or was prevented from visiting the places she wanted to visit. The real test of whether Kirby is right will come in 2022 and 2023, when international travel is expected to start returning.
Do you think that travel from now on will be higher than pre-crisis levels? Let us know in the comments!