Analysis: Airline fares and staffing gaps overshadow the transatlantic travel boom

MONTREAL/CHICAGO (Reuters) – Airlines expect the end of coronavirus testing requirements in North America to speed up the recovery of transatlantic traffic — but rising prices due to rising fuel costs and staff shortages could put the brakes on rising global demand. The largest international travel market.

Airlines have blamed a US requirement that air travelers test negative for COVID-19 for dampening demand.

But a week after the White House rescinded that rule, airlines reported increased interest in international travel.

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This is a bright spot as the industry prepares for an annual meeting of the International Air Transport Association (IATA) in Qatar.

IATA Director-General and former president of British Airways, Willie Walsh, expects airlines to prioritize major transatlantic routes that have over the years generated a large slice of the industry’s profits.

“I think they will reduce capacity in other areas,” Walsh told Reuters before the June 19-21 Doha meeting.

United Airlines (UAL.O) said searches for international travel from the United States, including Europe, have increased.

Similarly, travel management platform TripActions reported a 23% jump in bookings for international flights to the US, buoyed by higher demand from Northern Europe. Read more

American Airlines executives have advised customers not to delay their reservations if they plan to go to Europe because demand this summer is “on fire”.

However, the surge in demand comes at a time when carriers on both sides of the Atlantic are experiencing staff shortages, forcing them to cut capacity.

In Europe, widespread labor conflict, including short-term strikes by cabin crew over wages, has left passengers facing long lines and flight cancellations. Read more

This raises questions about whether airlines and even airports have enough resources to meet the growing demand. Transatlantic traffic has already reached 85% of 2019 levels, according to aviation analytics firm Cirium.

Amsterdam’s Schiphol Airport on Thursday set a cap on the number of passengers it will handle during the summer travel season, citing labor shortages and forcing airlines to cut flights. Read more

The move by one of Europe’s busiest airports means airlines including KLM, the Dutch subsidiary of Air France-KLM (AIRF.PA), will have to cancel an unspecified number of flights.

“For consumers, that means higher prices and a more disruptive travel experience,” said Peter McNally, global head of industrials and energy at research firm Third Bridge.

The transatlantic region is the world’s most lucrative travel market. In 2019, before the pandemic, transatlantic routes accounted for between 11% and 17% of passenger revenue at the three largest US airlines – United Airlines (UAL.O), Delta Air Lines (DAL.N) and American Airlines (AAL. O). ).

Air Canada (AC.TO), which indirectly carries American passengers abroad through its Canadian hubs, was seeing stronger demand for Europe even before Washington scrapped COVID testing requirements. The Montreal-based airline, the largest foreign airline in the United States, told Reuters that bookings from some US cities for Europe are above 2019 levels.

For big traditional players such as owner IAG British Airways (ICAG.L), Lufthansa (LHAG.DE) and Air France-KLM, the US market is key to profits as it tends to rely on transatlantic revenue more than US competitors.

United Airlines has the largest exposure to international traffic among the major US airlines. It plans to expand its transatlantic network by 25% this summer compared to 2019 levels even as it expects its overall capacity to be lower.

“No airline will fly more across the Atlantic this summer than us,” CEO Scott Kirby said on LinkedIn.

Kirby and other airline chief executives are betting that healthy US household savings plus strong pent-up demand will help fill flights despite rising prices and rising risks of a US recession. Read more

Inflation is at a record high in both the US and Europe, as Russia’s invasion of Ukraine and China’s COVID-related shutdown exacerbate price pressures. Central banks are under pressure to raise interest rates at a faster pace, weakening the global economic outlook.

Meanwhile, jet fuel costs have more than doubled in the past year. The boom in travel demand is helping carriers offset fuel costs at higher prices.

Average economy fares for a return flight from the United States to the European Union are up 26% from their 2019 levels, according to TripActions.

So far, there is little evidence that higher costs hurt travel spending. Delta said this month that consumer spending on American Express co-branded cards is up 140% this year compared to 2019 levels.

However, some indicators flashed warning signs.

A survey of US travelers last month by Cowen & Co. showed a slight dip in sentiment on the back of growing macroeconomic concerns and higher airfares. This week’s Adobe report also showed a slowdown in US airline bookings in May.

“The question is… Cerium,” said George Dimitrov, an analyst at Ascend by Ascend.

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Reporting by Alison Lambert in Montreal and Rajesh Kumar Singh in Chicago; Editing by Tim Hever and Diane Kraft

Our Standards: Thomson Reuters Trust Principles.

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