Travel demand is low. That means it’s a good time to find cheap fares
Airlines are set for big losses in the fourth quarter, though they're hoping for a pricing recovery to take hold later this year. For now, the timing remains a question.
But for passengers, this could be the time to book travel to lock in below-average fares.
Fares could jump 25% from current levels once travel confidence is restored, predicts Steve Hafner, CEO of travel-booking site Kayak.
For the next few months, travel restrictions and delays in vaccination programs seem likely to restrict demand, creating an environment favorable for ticket buyers and negative for airline financial performance.
"Right now, demand is relatively low with domestic fares down 17% (from one year ago)," Hafner said Thursday, in an email. "Once a vaccine becomes more widely distributed and travel demand comes back, we will see prices increase."
Hafner based his forecast on a Kayak survey showing that "Americans are eager to travel again once vaccines are widely available" following nearly a year of travel and social restrictions due to the coronavirus crisis.
The recent survey of 1,279 adults indicated that despite wanting to travel, only 12% of Americans have booked summer flights. Based on the theory that fares will rise when demand rises, Hafner advised that leisure travelers book now to take advantage of the lull.
That lull could last for several more months, even if winter holidays stimulate occasional weekend demand spikes.
More: IATA: 2020 worst year ever, but some recovery likely by 2022
In a note issued Tuesday, Cowen & Co. analyst Helane Becker wrote, "We expect depressed trends until 3Q21, when we expect herd immunity may be achieved and a new normal may be found."
"Near term we expect booking trends to remain depressed as the Covid-19 vaccine rollout lags the government's expectations," Becker added. "We continue to expect business travel to remain down 85% through at least the 2021 summer."
"Spring break travel is key to near-term demand, but is currently at risk given increased travel restrictions and renewed lock downs," she said.
Travel surged during the winter holidays, with the Transportation Security Administration clearing more than one million passengers on 11 of 15 days since mid-December. But the surge was likely temporary. The number of passengers cleared on Wednesday dipped to 665,855, the lowest since Christmas day.
Guide: When will international travel return? A country-by-country guide to coronavirus travel restrictions
This winter, leisure travel may be stimulated by holiday weekends, including Martin Luther King Jr. Day on Jan. 18 and President's Day on Feb. 15 . Next comes spring break, which most colleges have scheduled for the first half of March. "Spring break travel is key to near-term demand, but is currently at risk given increased travel restrictions and renewed lock downs," Becker said.
Kayak listed the top ten destinations where searches are recovering the most rapidly, although the number of searches remains lower than normal. Still, despite remaining down-year-over-year, searches for some destinations are inching closer to where they were during the same period a year ago.
Three of the top four are Caribbean destinations, including St. Thomas in the U.S. Virgin Islands, down 23% year-over-year; Cancun, down 33% and Aruba, down 33%. No. 2 Key West, is down 24%.
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Caribbean travel benefits hubs such as Charlotte and Atlanta. At Charlotte, American Airlines offers January service to 19 Caribbean destinations. But American offers only 490 daily Charlotte departures in January, down about 30% from what had been expected before the coronavirus crisis. Delta, meanwhile, has 13 Caribbean destinations from Atlanta, with 691 daily departures, down from about 1,000 a year earlier.
Like competitors, American substantially reduced costs during 2020, and now awaits the return of demand to reduce its daily cash burn, which was around $30 million in the fourth quarter.
Reducing cash burn is a competitive issue for airlines, especially because as Delta CEO Ed Bastian said last week that, "We continue to expect that we will achieve positive cash flow by the spring."
The topic will be key on fourth quarter earnings calls, which are slated to begin when Delta reports on Thursday, Jan. 14, followed by United a week later.
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