Skift Take

With safety still rising up the traveler agenda, airlines won't have an easy task setting prices as they balance passenger welfare with profitability.

Something has to give as airlines pledge to keep blocking out middle seats on their planes, and it will likely be businesses that take the hit from the resulting hike in ticket prices.

Despite a vast range of airline cleaning measures and protocols, including at airports, physical distancing looks set to become the norm across the travel industry for some time.

Airlines aren’t happy, especially as they near the limits of how much cost they can actually take out of their operations, and as load factors go down, they’ll be forced to increase airfares — and to such an extent only corporations would be able to afford them, according to one industry expert.

“If airlines really took the social distancing factor to be essential, and they had to figure out how to make a profitable airline run with really low load factors, obviously they’d raise the prices,” said Scott Gilespie, CEO at consultancy tClara at an online event organized by Nina & Pinta and the North Carolina chapter of the Global Business Travel Association last week.

So how much, exactly? Gillespie later told Skift he believes that, in the current climate, the average roundtrip fare a major U.S. network airline needs to break even is $2,000, based on a 20 percent load factor, 50 percent fewer flights and a 30 percent reduction in the airline’s fixed costs — considerably higher than the $500 average in 2019.

In a best case scenario, he added, imagine a flight with an 85 percent load factor. If the carrier took out one-third of its seats and sold all the remaining seats, it would need an average fare 27 percent higher across all the remaining seats.

Speaking at the New Corporate Travel Journey – Before You Board webinar, he also argued airlines shouldn’t be concerned if leisure passengers are priced out of the market: “Airlines don’t need to move passengers, they need to earn revenue. And if the business side was willing to pay enough for those airfares, we could see air travel reserved for high-value trips and high-value travel, and not a lot of leisure. Anticipate higher airfares on a longer term basis, and that’s one of the realities we should all be expecting.”

Social Etiquette

While wearing masks onboard is now mandatory, taking out middle seats isn’t. Even the International Air Transport Association said it did not support mandating social distancing measures that would leave middle seats empty.

However, public opinion may be turning following a series of fresh coronavirus outbreaks and second waves. Both Southwest Airlines and Delta Air Lines recently committed to limiting bookings until at least September to maintain space between passengers.

Meanwhile, during the webinar, moderator Joe Currie, director, Americas at Nina & Pinta, revealed results from a Boston Consulting Group Trip dashboard consumer survey carried out at the end of May, which asked which measures would make you feel comfortable flying again in the next month.

Enforced social distancing came out top, with 54 percent, followed by onboard hand sanitizers (53 percent), and regular anti-viral cleaning (52 percent).

“If social distancing is the norm, it’s going to be hard to see how airlines are going to be successful selling tickets unless there is some social distancing. That means lower load factors, and higher airfares. The math is simple, and we should expect this. I suspect they’re going to go up on a fairly permanent basis,” Gillespie added.

United Airlines is not blocking middle seats, but is trying not to assign them on flights that are not full. It will also send notifications to customers if a flight is booked at more than two thirds full 24 hours before departure and give customers options to re-book.

“I have a tough time with a long-term type question right now, because our life for the past three months has been very nimble,” said Maria Walter, managing director, product and brand strategy at United Airlines, when quizzed by Currie on the airline’s view on airfare increases. “We’ve continued to reduce our fixed costs, and thinking through what is the right size of our workforce. We’re really trying to be flexible through all of this, so we can respond to the changing environment.”

Speaking at the webinar, she added social distancing onboard was not practical for the long term, and that United would rather focus on flying to places where people wanted to fly.

It’s taking a different tack to Lufthansa, which is resuming as many flights as possible to assess that demand. It has also reportedly backtracked on its decision to not block out middle seats.

 Over to Passengers

Walter argued that the onus will be on travelers in the future to change their mindset.

“An aircraft is not built with social distancing in mind,” United’s Walter said. “You’re not going to be able to maintain a six foot perimeter, as that would mean one customer every three rows. Establishing new expectations from travelers, around practicing their own health hygiene, is important for customers to help keep each other safe.”

Nina & Pinta’s Currie also revealed 67 percent in the Boston poll said their main concern would be their neighboring passenger’s health.

One solution United is exploring is leveraging existing booking technology that’s in place for larger passengers. “We’ve been talking about that,” Walter said. “You can book two adjacent seats, and we do have mechanisms in place. If that’s of interest to our corporate travel team, we’re able to expand on that.”

Before the pandemic, travel managers were increasingly factoring in the hidden costs of corporate travel, such as putting a monetary value on the time an executive will spend out of the office, and therefore be unproductive, into the total trip cost.

With airport queues and check-in lanes also set to get longer, business trips will be taking up even more of that previous time. Corporates will have to start weighing up the value of travel, and airlines will need to convince them it’s money worth spending.


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Tags: coronavirus, corporate travel, lufthansa, united airlines

Photo credit: Members of Delta's line maintenance crew disinfect the surfaces of the cabin including tray tables, seat backs and in-flight entertainment screens in a Boeing 757 in Atlanta. Chris Rank / Rank Studios

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