Corporate travel is likely to come under pressure in the long term, and that could cause airlines to struggle with profitability, a managing director at Citi said this week.
Still, he said it’s “not all bad news” for the industry, with signs of recovery on the leisure side and discounts being offered by manufacturers.
The aviation industry has been hit hard by the global pandemic that led to border closures and travel restrictions. This week, the International Air Transport Association said airlines are expected to lose $84.3 billion this year.
Mark Manduca, associate director of EMEA research at Citi, explained that a small adjustment in corporate travel can have a large impact on an airline’s profits.
While mandatory quarantines and strict border rules will impact business travel in the short term, the “proliferation” of virtual meetings could also create a “secular shift” in the long run, he said.
“Given the fact that a 1% movement in corporate travel volumes impact airline profitability by 10%, it’s not a crazy supposition to assume that the airline industry will struggle actually to get profitable again,” Manduca told CNBC’s “Capital Connection” on Wednesday.
However, he added that there are some positives for the industry such as lower staff wages, airport costs and fuel prices. “Lessors as well, and manufacturers are offering once-in-a-lifetime deals. So it’s not all bad news for the airline sector right now.”
Manduca also said he is “seeing signs of green shoots” for recreational travel. “If you look at the facts, short-term demand is indeed recovering, particularly on the leisure side.”
Tim Kelly of Atlantis Resorts agreed that at least some tourists are ready to start traveling again.
“About two thirds of our customers, they’re ready to come back now. They’re less constrained and less concerned about the circumstances, and there’s a third that are kind of waiting it out,” Kelly said. He is the executive vice president and managing director of Atlantis The Palm and The Royal Atlantis Resort and Residences in Dubai.
He told CNBC’s “Capital Connection” on Thursday that he expects international travel to open up in the third quarter. “We’re actually starting to see a lot of tourist interest, believe it or not, in (the fourth quarter) of this year.”
Still, Kelly acknowledged that there will be “slow growth and a long runway” for the business, and he predicted that it will take “anywhere between 12 to 16 months” before traffic returns to normal.
“I’m hoping that it will be in (the fourth quarter) of 2021, once the Expo arrives in Dubai,” he said. “I think that will be the point where we’ll have a lot better clarity and insight with regards to the market.”