Vaccines arm hotels, airlines with new power to jack up prices
By JUSTIN BACHMAN, MARY SCHLANGENSTEIN AND PATRICK CLARK | Bloomberg | Published: December 23, 2020
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The arrival of a coronavirus vaccine has the U.S. travel industry preparing for a rebound in demand following a historically terrible year. After months of deep discounts — with hotels offering lavish perks and airlines dangling fares such as $21 from New York to Florida — prices are set to make up at least part of the ground they lost.
Trip providers have slashed capacity, so any gains in bookings will tend to boost rates. And as vaccines take hold, they're poised to unleash a torrent of pent-up vacation demand as people emerge from months of being cooped up at home. That's leading to optimism within the industry for an upswing in the spring and summer, even as rates remain depressed and a recovery in business travel is a long way off.
"No one's getting ready to pop open a bottle of champagne yet," travel consultant Henry Harteveldt said of airlines and hotel groups he has polled. "But there is hope right now that summer 2021 will come in and be certainly not only much stronger than this year, but at or above 50% of where we were in 2019."
Already, some affluent travelers have begun making reservations for blow-out vacations, said Jack Ezon, a managing partner of Embark Beyond, a travel agency catering to the super-rich. Clients have flooded the company with requests for big parties in Europe and the Caribbean, with some budgets topping $1 million.
"Anything on the Mediterranean is bumping," he said. "Space is already tight and it would be wise to have something in your pocket by the end of January so you don't get shut out."
While it may soon be too late to score a luxurious suite on, say, Italy's Amalfi Coast, prices for other types of travel have yet to reflect a potential surge in demand.
The pandemic has caused would-be vacationers to wait much closer to their travel dates before booking plane tickets or hotels, giving those businesses less visibility into their ability to boost rates. Any recovery in demand will need to be sustained before airlines consider raising prices, said Lacey Alicie, director of data analytics at Ailevon Pacific Aviation Consulting and a former revenue executive at American Airlines.
There are other reasons a recovery may not be swift. The depth of this year's collapse has been unprecedented and risks abound, from vaccine distribution bottlenecks to virus mutations. And any rebound will only come after a brutal winter as covid-19 continues to tear through the country. Early 2021 will bring "really rough months," Southwest Airlines Chief Executive Officer Gary Kelly said recently.
"We expect next summer to be a lot better than this year but not normal," Andrew Nocella, chief commercial officer for United Airlines, said in an interview. "We think 2022 is probably the bigger year."
The $900 billion relief bill Congress passed on Dec. 21 is slated to provide new funding to loan programs that have helped hotel owners stay afloat, but the industry remains in a precarious situation. STR, a lodging data firm, predicts that room rates will remain below 2019 levels until some time in 2023, with urban markets from New York to San Francisco taking longer to rebound.
"Our property owners, these people are struggling, a lot of folks are focused on needing cash," said Michael Deitemeyer, CEO of Aimbridge Hospitality, the world's largest third-party manager of hotels.
Still, vaccines are offering hope that Americans will rediscover their wanderlust and cast off the limitations of video chats and telephone calls. On the day that Pfizer Inc.'s shot was approved for use in the U.S., hotel bookings jumped to the largest daily number since the pandemic began in March, according to RateGain, which powers bookings for major hotel and online travel information providers.
United predicted Dec. 11 that third-quarter bookings would be only 40% below 2019 levels compared with 70% now. Delta Air Lines sees "a level of optimism" from the vaccines, said Joe Esposito, vice president for network planning.
"Six months, even three months ago, we didn't know where the end was," Esposito said. "Now we can at least see that in spring and summer there's going to be pent-up demand for people to travel and get out because everybody has lost a year."
While it likely will be well into 2021 before shots are available to every adolescent and adult in the U.S., travel may rebound sooner once more vulnerable older people are vaccinated. With aging parents or grandparents inoculated, younger relatives may decide it's safe to visit even if they haven't been vaccinated themselves, said Savanthi Syth, an airline analyst at Raymond James Financial.
The recovery will be driven by leisure travelers, who generally pay lower rates than corporate road warriors or conference goers. But airlines, in particular, have become leaner companies, with the six largest U.S. carriers shedding nearly 84,000 jobs since January. The cuts mean fewer flights — and fares that are likely to be higher than in 2020 as vacationers gradually trickle back into airports.
It's a similar story for cruise lines, most of which plan to resume operations in March, but with occupancies down as much as 50% on some itineraries. Cruise Lines International Association said the pandemic had cost the industry nearly 164,000 "direct and indirect" U.S. jobs and $8.6 billion in lost wages.
Cruise companies are planning a staggered return to the seas. Carnival Corp., the world's largest cruise company, is removing 18 ships from its fleet, permanently cutting capacity by 12%.
"We're going to have limited capacity with pent-up demand," Carnival CEO Arnold Donald said on the company's most recent earnings conference call. "And I don't think demand is going to be a big issue in the short term."
When a travel executive feels more optimistic, it's probably time to consider buying before the deals wane.