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Airlines are going to lose if they continue to price gouge: Analyst

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Mike Boyd, Boyd Group International President joins the Yahoo Finance Live panel with to discuss what airline travel will look like as the world opens up following COVID-19.

Video Transcript

[MUSIC PLAYING]

- Interestingly, though, you didn't see JPMorgan's CEO Jamie Dimon there in person. He didn't travel for the shellacking there in front of Congress. But Americans are traveling more and more.

Over the weekend, we saw the highest number of travelers at TSA checkpoints since the pandemic, crossing 1.8 million passengers screened Sunday. But of course, that's mostly leisure travel. We've still been waiting for an uptick in business travel to come back. And a lot of airlines might be worried about what the future of travel looks like, particularly in the back half of the year, once we get past the pent-up demand for leisure travel.

And joining us now for more on that is our next guest, Mike Boyd, Boyd Group International President. And Mike, thanks for coming on. I mean, when we look at it, obviously, people have been cooped up. People want to get out there. So we're seeing that uptick now, but it doesn't look like airlines are necessarily, across the board, boosting travel demand for later in the year. So what are you watching as, maybe, a potential warning sign there.

MIKE BOYD: Well, one of the things we're looking at, for example, United Airlines has cut about 5% out of its schedule in August. They may be seeing something that isn't being-- isn't obvious right now. We think there's going to be a spike, but it's still going to be well below 2019. And next month, they're going to be about 86% of the capacity we had in the same month in 2019, but there's going to be a lot less passengers in that lower load factor.

So I think this is going to be the bellwether. We're going to see whether it really is a bubble, people wanting to get to see grandma, which you couldn't do last year, and whether it falls down after Labor Day, which it may do. But as far as business travel goes, it's not coming back to where it was. It was declining before, and this just shoved it down even further.

- And Mike, some would argue it's not going to come back to pre-pandemic levels, largely because companies have learned to operate without having to travel so much. I mean, to what extent can travel overall, the activity, return to those levels we saw in 2019 when you consider that businesses have likely adjusted to this new reality?

MIKE BOYD: Well, the reality is that air travel as a communications mode is very different than what it used to be 30 years ago. 30 years ago, you had to fly between Albany and Boston to do business. Today, there's nobody traveling there because you could all-- you can do it virtually like we're doing here.

So that's not going to come back at all, but business travel, again, air travel as a communications mode is very different than what it was 30 years ago, and the pandemic just pushed it even further down. So a lot of that travel is not going to come back because it just doesn't work anymore.

- Yeah, when you look at how that impacts the airlines specifically, these companies trying to show investors that it is coming back, I mean, which ones are you watching that might be more levered to that? Because we've had a few guess come on say that Southwest was in a good position because of the way that they lean on leisure travel.

MIKE BOYD: Well, you know, but they're not all leisure travel. That's another thing, too. There's some myths about Southwest. A great airline, but there's myths that it doesn't have hubs; it does. There's myths that it's all leisure; it's not. You know, it's going to be affected, too, if business travel drops.

The carriers you want to watch are the ones like Spirit, and Frontier, Allegiant. They're the ones that are virtually all-- not all, but about 95%-- leisure travel. They're the ones that are in line, probably, to absorb some of those discretionary that are out there with people who couldn't see grandma last year.

- Mike, anybody who's booked a flight for the summer over the last few weeks has seen just how high those prices are now. I would imagine a lot of that, also, because of capacity limits for these airlines. While they have added to their capacity, certainly not at full scale like we saw pre-pandemic. What are we anticipating in terms of prices? Are we likely to see it high for so long?

MIKE BOYD: I think we will. Second of all, we've got other policies in Washington that are definitely going to jack fuel prices up. That's down the line as well. So we have a number of things coming. Don't look for a deep discount in air travel in the next year. It's just not gonna be there.

- I've got one more for you here, Mike. When we talk about the bellwether of what this, this holiday, this upcoming three-day weekend means for what the rest of the year could look like, I mean, when you try and project out, we've got 1.8 million on Sunday. What are you looking at for Memorial Day weekend in terms of how many people might be getting back to flying again?

MIKE BOYD: Well, it'll be heavy, but let's put it in this context. In 2019, there were about 930 million in plane passengers in the United States. This year, our forecasts show it's gonna end up about 650. So it's still gonna be below what it was in 2019.

It's gonna be growing, but we'll know more about what's gonna happen after Labor Day. When that happens, then we're gonna see whether it's gonna be $650 million or $700 million. But it ain't gonna be where it was in 2019.

- And finally, Mike, going back to what you said about the prices, you don't expect it to drop anytime, I mean, you know, I ask this selfishly, because I've seen, trying to book, just how high it is. My parents just booked a flight to New York City, $800 round trip on United. And that is not at all where the price was a month ago. So how concerned are you that those price staying so high, with the airlines necessarily not adding to capacity-- I mean, is the demand and the desire to travel strong enough to keep this going, even with the price tag that high?

MIKE BOYD: That's a really good point, because keep in mind, you know, price is what drives the leisure traveler. If it's way too high, they're not gonna go to the wedding or the bar mitzvah. That's all there is to it. And that's gonna be a balance.

But I think airlines are gonna tumble, because the fact is they can't replace that business revenue. They're gonna lose and they're gonna continue to lose by gouging people who want to go down to Miami. And they're just not gonna to be able to do that. We're gonna have to have a change in the model a little bit in terms of realizing we've gotta get their costs down even further.