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Corporate travel spend will likely come back next year: analyst

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Yahoo Finance’s Emily McCormick and Brian Cheung discuss how the travel industry is faring with Helane Becker, Cowen Senior Research Analyst.

Video Transcript

BRIAN CHEUNG: Well, as we get more and more people vaccinated, more and more people might be willing to get on a plane. So the statistics from the TSA show that throughput actually hit 1.5 million on Sunday. In fact, I was actually one of them. And that was the first time it hit that mil mark in a year. But that's still off about 1 million from 2019 numbers.

So let's dive into this a little bit more with Helane Becker. She's a Cowen Senior Research Analyst that watches the airline space. Now my personal read from Newark Airport, at least yesterday, was that there weren't many more people at the airport, but that, in general, it seemed like planes are getting more packed definitely than they were, let's say, three or four months ago. So what's the read that you're seeing over at Cowen, just in terms of the volume of ticket bookings and what that might mean going forward?

HELANE BECKER: Hi, Brian, and thanks very much for having me on the show this morning. Yeah, definitely we're seeing that million and a half people travel. And our view is that between now and Memorial Day weekend, we thought we would see somewhere between 1.1 and 1.3 million people traveling. So at a million and a half yesterday, that's actually a little better than we were expecting, number one.

And number two, we also were thinking we might not get a good spring break. And it looks like we're going to get something for spring break, which a lot of schools-- some schools canceled, but a lot of schools are in the middle of now and will be for the next few weeks.

And then Memorial Day weekend, we think we'll see the jail break that we've been forecasting would occur this summer with regularly 1.5 million to 1.6 million people traveling every day through the summer months before we see a downturn in September after Labor Day, which we would normally get. I think our view is a lot depends on what happens with companies going back to work and what happens with international travel and recovery to get back that million that you cited in your opening remarks about we're still down a million year-over-two, and the difference being business and-- and international travel.

EMILY MCCORMICK: Helane, this is Emily. I wanted to highlight, actually, a data point from Bank of America last week, and they noted that Bank of America card spending on airlines was up on a year-over-year basis starting March 12 for the first time since the start of the pandemic. But it is still down when we compare that to 2019. And I'm wondering, based on your own data and your own research, when do you really see things starting to get back up year-- or year-over-year when it comes to 2019, so up over two years?

HELANE BECKER: Yeah, year-over-two. So we're thinking 2022, 2023 time frame is when we are going to get that recovery. And I think when you think about travel-- I'm not sure of the BofA numbers because I don't have access to them, obviously, but my-- my sense is that corporate travelers are still trying-- corporate-- corporations, in general, are still trying to figure out, how do we get our people back to work, let alone how do we accept visitors safely?

So our thought is that corporate travel spend probably comes back next year once people feel more comfortable going-- I guess are more-- are vaccinated and they feel comfortable going to conferences and they feel comfortable traveling again for work. And then as borders reopen later this year, we expect that we'll see international travel recover. And then, obviously, those are the big tickets that get put on people's credit card. So 2023 is when we're thinking we're going to see pre-pandemic revenue levels.

BRIAN CHEUNG: And Helane, what about ticket price inflation? It seems like we've already heard some economists warn that that could be coming down the pike, but it seems like we haven't seen too much anecdotal evidence of that just yet. So where do you first see maybe some of those price fare increases coming? And when do you expect to see them?

HELANE BECKER: Well, it depends on the market you want to travel to. Somebody this morning complained to me that fares to Utah from the New York area were very expensive. I know I am going to Florida this weekend, and my fare was going-- was, like, ridiculously high, so I decided on a different airport that wasn't going to be that-- that much out of my way.

But that's-- but that's happening because airlines are smaller than they were two years ago. You saw-- with few exceptions. You know, American is 15% smaller, Delta's 20% smaller than they were. United, Southwest, Spirit are about the same size, maybe even a little bigger.

And the result is that even in cases where there are-- the routes still exist, the number of flights per day have come down. So demand, as it recovers, means that we're going to see ticket prices increase, and we're starting to see that now. And we think we'll see that in the busiest markets, places where you can do outdoor stuff, so Arizona, Nevada, Florida we talked about, the Caribbean. I think you're going to see Mexico even. I think you're going to see demand for these-- these resort areas increase as people just want to get away. They've just had it being cooped up at home. They want to travel. And then with things reopening as people-- and you know, as I said before, getting vaccinated makes a whole lot of sense. And then the fares will follow, which is a good thing.

I mean, the government was very gracious-- is that the right word-- to support the airline industry in three stimulus plans. But what the airlines need is revenue. They've done a great job lowering costs. Now we need to see revenue grow. And the only way you get that, in my opinion, aside from higher ticket prices which would actually discourage travel, is to reopen things and then people will travel.

And you'll see margin improvement into '22 and '23, because a lot of the costs that the airlines took out aren't coming back, especially corporate staff. They're not going to hire back a lot of corporate. And then some of this will be offset by higher fuel prices. I was actually just looking at the numbers a little while ago. Jet fuel costs are $1.65 a gallon compared to a year ago when they were $0.58 a gallon.

So that-- that tripling means that ticket prices will support-- higher ticket prices will have to be in place to support the higher fuel costs. And you know, all of that bodes well, I think, for the industry into next year. This is still somewhat of a transition year as we continue to recover and people continue to travel-- or start to get back to traveling, I guess, is a better way of describing it.

EMILY MCCORMICK: Right. And I'm wondering, too, as a potential investor in airlines, of course, we have seen US-based carriers doing quite well for the year-to-date, albeit off of a low base, but I'm wondering if certain companies seem better positioned to capitalize on this recovery than others, whether it's because of especially stringent cost cutting, better operating conditions, better management? What's your view on-- on that?

HELANE BECKER: Great question, Emily. So our view is that the airlines that are best positioned are the airlines with big domestic route networks and that appeal to the leisure traveler. Because let's face it, once you're on board the aircraft, most planes inside look pretty similar. And as long as the flight is on time, which is important, everybody wants an on-time-- on-time flight, we expect that people will travel those airlines. So we have outperform ratings on airlines like Alaska Air, Southwest, Spirit, Allegiant, JetBlue.

We also have an outperform on United as our international pick, because they're most leveraged to international, more leveraged to international than the other two big airlines. And if we're wrong and international comes back sooner than we currently expect, then United would do well. But also, to your question, United, JetBlue in the Northeast, especially, these airlines have been negatively affected by the fact that New York has essentially been closed for the better part of a year.

We still don't have Broadway shows here. People aren't traveling here for business. I think the quarantine rules in New York City, actually, go away this week. But in general, we haven't had very strong traffic in this Northeast area. And that means that the airlines here, you know, the two big ones, United and JetBlue, are-- are leveraged to that recovery.

Delta has a big operation in New York, Kennedy. American has a good operation there as well. So those two airlines will benefit. United, with Chicago and San Francisco hubs, they benefit from recovery in those markets. So you know, we're-- we're pretty excited about the idea that we can see a better recovery in the summer of 2021 than people, including myself, were expecting, you know, even six or eight weeks ago.

EMILY MCCORMICK: All right, well, Helane Becker, Cowen Senior Research Analyst, thank you so much for joining us.