Airline and plane-maker recovery depends on business travel

LYNNWOOD — Business travelers are the airlines’ bread and butter. They fly year-round. They pay for first-class and premium seats, which have the highest profit margins. They fill less than a third of all airline seats but generate 50% or more of annual passenger revenue, according to the trade group Airlines for America.

For many airlines, they’re the pillar that supports lower-cost travel, said Vago Muradian, editor-in-chief of Defense & Aerospace Reporter.

“Business travel is what pays for all of this — it pays for everybody at the back of the tube to travel for a couple hundred dollars,” said Muradian, one of 300 virtual participants who attended the Pacific Northwest Aerospace Alliance conference, a four-day conference that wrapped up on Thursday.

In its 20th year, the event draws participants from across the U.S. and beyond to the Lynnwood Convention Center. But this year, everyone — from Boeing and Airbus executives to local tool and die makers — attended virtually.

The COVID-19 pandemic delivered a knockout punch to the airline and travel industry last March. Volume has picked up since then, but in January domestic travel was down 60% from pre-COVID levels, and international travel was off by 85%. Across the globe, 7,000 of the world’s 25,000 commercial passenger planes are parked.

Now airlines, airplane manufacturers and their suppliers desperately want to know: When will airline travel, and business travel in particular, return to normal?

Cautious panelists predicted that business travel won’t return to pre-pandemic levels for two or three years. The more optimistic say there could be a significant recovery by the end of this year.

A few agreed with Microsoft co-founder Bill Gates, who said in November that, even post-pandemic, more than 50% of business travel will cease. Should that model prevail, it could upend the airline industry, analysts said.

Devin Liddell, a principal futurist at Teague, a Seattle consulting firm, said video conferences have proven their worth, which has led companies to evaluate the cost of a round-trip flight “to attend a 90-minute meeting,” Liddell said.

Ron Epstein, a senior equity analyst at Bank of America, said he normally travels 250,000 miles a year on business. Last year, the number fell to zero.

Bank of America, which employs 170,000 people, doesn’t plan to resume business travel until October due to COVID-19 liability concern, said Epstein. “What if I travel and get sick? — that issue is going to be around for a while,” said Epstein. He doesn’t foresee business travel showing a significant gain until 2022 or 2023.

Aerospace analyst Richard Aboulafia, vice president of analysis at Teal Group, predicts business travel could return by the end of this year.

After being stuck in one place for a year, “Who doesn’t want to take a trip?” he said, looking up and looking left at the virtual panelists he joined on screen.

Kevin Michaels, managing director of AeroDynamic Advisory, an Ann Arbor, Michigan-based consulting firm, recommended “vaccine diplomacy” as a way to help the global economy and airlines recover.

“If we really want to bring back travel, the rich countries that ordered lots of vaccines are going to have to find ways to share vaccines with the developing economies,” Michaels said.

Canada is an example, said Michaels. Early on, it ordered “the equivalent of five vaccines for every citizen, because they didn’t know which vaccine would work.”

When business travel does resume, it will snowball, Michaels said. When a company sanctions business travel, its competitors will lose sales if they don’t follow suit, he said. “You’re not going to win new business by sales calls over Zoom when your competitor is there face-to-face,” Michaels said.

Darren Hulst, vice president of commercial marketing at the Boeing Co., agreed. Hulst gave an update to Boeing’s annual 20-year market outlook.

Virtual meetings can help maintain a business, said Hulst, but its not a very effective way to drum up new business. “Humans connect, you know,” he said.

The airline and travel industry has a history of bouncing back, most recently after 9/11 and the 2008 recession, said Hulst, who described a three-step recovery.

Domestic travel is expected to recover late this year. Regional travel, defined as intra-continental travel between cities within North America or between cities within Europe, for example, could approach pre-COVID levels by late 2022. Long-haul routes that employ, say, the Everett-built 777 and 777X models and larger 787 versions aren’t expected to fully resume until 2023 or 2024, Hulst said.

“Single-aisle fleets will recover the fastest, followed by medium and then larger wide bodies that serve those long-haul routes,” Hulst said.

Boeing has revised its market outlook through 2040 downward, but by only 5%, Hulst said. Over the next two decades, commercial airlines will need 43,000 new planes, with demand for single-aisle aircraft at 75% and wide bodies at 17%.

The pandemic is expected to accelerate the rate at which aircraft are retired and replaced. Normally, about 2% to 3% of the world’s active airline fleet — some 20,000 to 25,000 planes — is put out to pasture each year. But during turbulent times, the percentage has historically jumped to 4% to 5%. At the higher rate, more than 1,000 planes per year will need to be replaced, Hulst said.

Aboulafia and other analysts continue to stress the need for Boeing to develop a new airplane, preferably a single-aisle model that can compete with the Airbus 320neo, or risk losing an enormous chunk of market share to European rival Airbus. Orders for Airbus’ single-aisle passenger jets have outpaced demand for Boeing’s 737 Max, said Aboulafia. He noted that Boeing hasn’t launched a new airplane program since 2004.

Hulst offered no clues about plans for a new airplane. He called the 737 “the most complete airplane in the single-aisle family for the future because of its breadth, from the 737-Max-7 to the 737-Max-10,” discounting the notion that a new single-aisle airliner is needed.

Janice Podsada; jpodsada@heraldnet.com; 425-339-3097: Twitter: JanicePods