Read the full interviews at inpractise.com
During the last month, we have interviewed over 10 former senior executives across the travel value chain to discuss the disruption to the industry. We also have 10 more interviews lined up through May.
One huge question we had was when and how travel demand will return. In this post we aggregate the opinion of the 6 executives below:
- Former Chief Commercial and Strategy Officer at Airbus
- Former Head of Google Travel
- Former Chief Strategy and Planning Officer at Etihad Airways
- Former Chairman Airbus China
- Former CEO of Spirit Airlines
- Former Area General Manager at Accor, East China
Former Chief Strategy and Marketing Officer at Airbus
The people who travel will, even more than before, travel for necessity. They will pay the price, but you will have less people in the planes. This is how I foresee it. There is nothing more difficult to predict than the future, but it seems to make sense to me, at least in the medium term. We may recover, but the recovery will be long.
If we translate that into figures, I believe that, in the best case, for short-range, such as commuting, we should be back to the levels of 2019, somewhere in 2024/2025. Best case. The worst case, in my view, would be 20% less, by that timeframe and, beyond that, it’s too long for me to consider. It gives a view on how this industry should be shaped, or reshaped. If you take that as an assumption and take it down airline by airline, OEM by OEM, supplier by supplier, you can easily predict what is going to happen.
In a sense, this should not be seen as a surprise. What is the main characteristic of this industry? The main characteristic of this industry is that, except for sudden disruptions, like Covid, evolution is always slow. When you have no disruption, if it goes up, it goes up slowly, but steadily. Then poof, and then again, it goes up. My analysis is that mankind will continue to travel and mankind will continue to fly to travel, but from a behavioral standpoint, the impact on commuting is going to be the one I described. It’s more difficult to predict for long-range, going from one continent to another or crossing the oceans. I think, there, the reduction will be much bigger. In my view, in the worst-case scenario, it’s a 50% reduction.
Former Head of Google Travel and Current Chief Commercial Officer at Iberostar Hotels
Q2 is completely wiped out, so we’ve lost all of the business for Q2. It is true that we were hit by the virus around the start of March and then all of the figures and the occupancy rates, went down the drain, quite quickly. As a company, we are now considering that May is completely lost; we have closed sales and we are not accepting any bookings. Most of the countries – not even hotel chains, I’m talking about countries and home destinations – are operating in the same manner. For June, it remains to be seen. We are revising the policies and the sales activity, on a day by day basis.
The interesting piece is, when you look to Q3, the numbers are still pretty stable. By stable, I mean, we haven’t seen a massive wash of business going away, just yet. It is true that the wash that we saw in Q2 came in different waves, as the virus hit different countries and moving from the East to the West. But Q3, surprisingly, in our books and in talking with colleagues from all over the world, they are still pretty stable. We have seen some erosion of the occupancy rates, but in our case, we are seeing around 30% occupancy rates, for July and August. This is a relatively good number, because we haven’t lost a lot of the bookings that we already had.
If you compare that with previous years, it’s a bad number, because we should be at a higher level by now, but if you consider that we are now five, six, seven weeks into the crisis, we haven’t seen a massive erosion just yet. It doesn’t mean that it won’t happen later; it might well do. But it hasn’t yet happened. This gives a ray of hope. If we look at Q4, we’re actually seeing positive pick up. Pick up is when we see new business and the cancellations, net net, there’s a pickup. That’s positive for Q4. We are seeing pretty good numbers for Mexico, we’re seeing numbers come back for the Canary Islands, which is an important destination for Europeans. By that standard, there should be some hope.
To your question, how long is it going to take, to regain pre-crisis levels? It will probably take 24 months, from the time that the virus is declared as being controlled. Either because there is a vaccine in place or because the authorities decide or announce that things are now under control and the epidemic is controlled. But I think it will take time to recover.
Former Chief Strategy and Planning Officer at Etihad
Every time we’ve gone through this, in the past, everybody has said, the world will be different. Every time we’ve bounced out of it much, much more quickly than anyone has ever anticipated. The recovery mechanism has always been, airlines, hoteliers and everybody, dropping their prices, having enormous stimulations and a lot of the market thinking, I can’t afford not to go. People have been prepared to take more risks than they ever would, in a situation like that.
This is different, in that they’re not going to take that risk if they think there is a true risk to their health. Of the industries involved in travel and tourism, the one that has got the greatest danger, is undoubtedly the shipping. The stories of cruise ships and being cooped up with 5,000 people have been heart-rendering. However, air travel, a lot of people are going to say, look, if I go to the airport and I get through it pretty quickly, on a short haul and I only fly for an hour, an hour and a half, I can sit there with my face mask on, not eat and drink and then run away at the other end; I should be okay. I think that’s where people will start to take a lot of risk, early on. The element of risk is too small.
The long haul is the danger. That’s going to really make a lot of people think twice. I do think we’re going to have to get to a point where the government is coming out and saying, we think this has completely receded and you can all go back to travel and the incidence of illness has been reported as very low, or we get a vaccine.
Former President and Chairman at Airbus China
If we take the market that I know best, China, domestic demand has begun, slowly, to reappear. For the month of March, for example, it was twice the number of passengers than February, but we’re still, in March, only looking at 40% of the domestic fleet flying and load factors below 60% where, normally, they’d be above 80%. They were, also, no doubt, discounted tickets, so the yield will be low, as well. It’s a slow start.
I would hope that by this time next year, the domestic will have recovered, largely, to pre-crisis levels. But the international situation, right now, and China is a good example, despite the fact that things are beginning to improve, within China, international traffic is still almost at a standstill. My own flight back to Beijing, on 27th May has been cancelled. There are very few flights, right now, internationally. I think that will obviously depend on the lifting of travel restrictions, around the world and not just in one country. At the moment, I think the international travel is going to take longer to re-establish and that might stretch out for longer than the recovery of the domestic market.
It’s difficult to anticipate, but as I say, I think that by this time next year, I would hope that the domestic market, in China, has re-established itself and, internationally, it might take a bit longer. Globally, I have to say, I would imagine that we won’t get back to 2019 levels until, maybe, 2023. It’s probably far too early to be very scientific about that.
Former CEO of Spirit Airlines
After 2008 and after 9/11, what happened is, it was the rate of capacity coming back, that determined when the airlines could, effectively, charge the rate again. In 9/11, it was easier in a sense. What happened after 9/11 was that it was such a dramatic shock to the system, that the industry reset its capacity. They got rid of airplanes, they retired airplanes that were older. They changed future order books and the industry was physically smaller, for a while. That allowed them to price reasonably, as the volume came back, because they weren’t trying to fill up all these empty seats.
In 2008, it took longer, because not a lot of capacity came back. The volume came back quickly, but it took longer to get the rate back. The rate wasn’t really back till, probably, about 2011/2012. It was a good year or two after the volume was back.
In this case, I think the reason I’m thinking it’s a U U, is because, right now, as we’re recording this, the industry’s capacity is, effectively, like your car idling in the garage, waiting to go out. All the workers are there. All the planes are there. They’re ready to launch all these planes again. Airlines have talked about that, taking on new deliveries this year, and they deferred deliveries that are coming in 2020, because why would you want to take delivery of a new airplane, when most of your fleet is on the ground, anyway? But in terms of the planes that were flying before Covid, they’re all there. There haven’t been returned airlines, there haven’t been big retirements, yet. If demand starts to return, say, by the end of this year, the industry is likely to quickly put capacity back in place, to start getting use of those employees that they’re paying or, in the US, that the government is paying for, until September, at least.
Former Area General Manager at Accor, East China
One of the lessons of SARS was that you shouldn’t play with ADR. If you play with ADR, you’re not necessarily going to gain in the short term, with a higher market share, firstly. Secondly, you’re going to suffer long term, because if you drop your rates, then it’s going to be tougher to go back to the rate strategies that you had before. That’s one of the key learnings from SARS.
However, in terms of occupancy, RevPAR is going to be affected on the occupancy side and the cost structure is expected to be higher, because of all the huge cleaning supplies that hotels have stocked up, in terms of purchases and usage.
Generally speaking, the occupancy dropped from the mid-80s, just before Chinese New Year, down to single digits. The single digits lasted until the end of March. In April, they went back to double digits. Overall, I would need to check the latest figures, but three weeks ago, the economy hotels, economy scale and two and three stars, were back in the 70% range. Five star and four star were in the 40% range. It depends on location; it depends on the city. Shanghai is better served than Beijing, because in Beijing, the rules are much stricter, due to the presence of the Chinese government in that city. They are not taking any risks there. Even today, Beijing is one of the cities where it’s quite difficult to travel to.