Delta Air Lines and United Airlines both reported poor Q3 earnings this week, but they and many other travel companies think the worst of the COVID-19 woes are behind them. Here’s why.
Even though COVID-19 cases are once again starting to rise in the U.S. and abroad, airline and hotel industry executives are saying that seven months of pent-up consumer demand bodes well for the future of the beleaguered travel business.
This budding “worst-is-over” logic is predicated on the fact that any business that has spent the past seven months retooling its operations to adapt to the worst financial crisis to ever hit its industry will probably be there on the other side.
For instance, United Airlines CEO Scott Kirby announced during this week’s earnings release that his company is “ready to turn the page.”
"Even though the negative impact of COVID-19 will persist in the near term, we are now focused on positioning the airline for a strong recovery that will allow United to bring our furloughed employees back to work and emerge as the global leader in aviation," Kirby said.
United attributes its new forward-looking stance to the successful execution of its “three-pillared strategy” of building and maintaining liquidity, minimizing cash burn and variabilizing its cost structure. Having met those objectives, United said it’s now positioned to “lead the industry when demand for air travel returns.”
Slowing the Burn
In a similar vein, Delta Airlines said this week in releasing quarterly results that while the numbers reflected the same financial hardship, the carrier also saw the same positive impact that belt-tightening has had on its operations.
“We have been encouraged as more customers travel, and we are seeing a path of progressive improvement in our revenues, financial results and daily cash burn," CEO Ed Bastian said in a press statement. "The actions we are taking now to take care of our people, simplify our fleet, improve the customer experience and strengthen our brand will allow Delta to accelerate into a post-COVID recovery.”
At the same time, Dino Michael, the head of Hilton Worldwide’s luxury hotel division, told Bloomberg that pent-up demand would lead to a turnaround in the travel industry this winter.
“The leisure sector will come back before the corporate sector. That’s where luxury is well-placed,” Michael told Bloomberg. “People have had major trips canceled and are itching to get out.”
Things Can Only Get Better
To be sure, any rebound in travel bookings and reservations will take time, and will be coming off of a historically low base.
For example, Delta said its latest results reflected a staggering 83 percent decline in passenger revenues on 63 percent lower capacity, and noted that air travel demand remained under significant pressure.
But travel-related businesses have had two quarters to adjust. For instance, many hotels have used the time to make sweeping changes to their rooms and physical facilities, as well as in the way they interact with customers.
Having done so, the notion within the travel industry that things can only get better is starting to catch on.
“We will get to a point where people will travel, but be more vigilant,” Michael told Bloomberg. “Frustration and pent-up desire related to spending so much time in the same four walls — that will override anything. Of that, I am optimistic.”
This comes despite PYMNTS surveys showing that the average U.S. consumer still sees the pandemic lingering for almost another year. Many don’t anticipate feeling comfortable returning to their former routines until then.
Even so, travel industry executives are offering their first signs of optimism since pandemic-related shutdowns began in March.
"While it may be two years or more until we see a normalized revenue environment, by restoring customer confidence in travel and building customer loyalty now, we are creating the foundation for sustainable future revenue growth,” Delta Air Lines President Glen Hauenstein said in a statement.
While citing the need to stay nimble as Delta begins to restore capacity to meet customers’ needs, Hauenstein characterized the comeback as "a slow and steady build in demand.”