A Concerning Variant: Hope Reigns, But Industry Frets Over Spread

Travel supplier executives in recent weeks colored their second-quarter earnings commentary with optimism, enthused by a springtime surge in U.S. domestic travel demand that outstripped many analysts’ expectations and raised hopes that a full business travel comeback could be in the offing. But a new coronavirus variant has emerged to threaten that comeback, spreading at a worrying rate, triggering a new round of masking recommendations and illustrating that consigning the Covid-19 pandemic to the industry’s history books won’t be a smooth or quick process.

The delta variant of Covid-19 in July and August blasted its way through the United States unvaccinated population, highlighting the segment of Americans who thus far have declined to take a coronavirus vaccine and spurring a U.S. Centers for Disease Control and Prevention recommendation that even fully vaccinated people should wear masks while indoors in local areas with high transmission rates. That guidance, issued July 27, reverses the CDC’s announcement in May that fully vaccinated people no longer needed to mask while indoors.

While some companies and cities subsequently issued new masking directives and recommendations, no hotel company by press time had done so. CDC never dropped a requirement that all airline passengers to wear masks.

The variant also muddied some companies’ return-to-office plans, like Google, which pushed back its welcome-back date for employees one month to October. Employees returning live and in person to offices is a milestone viewed by many suppliers as a key benchmark on the path to restarting business travel.

“We are reading lot about some companies moving office openings back from September to October, so we want to be cautious about that,” JetBlue CEO Robin Hayes said late last month in an earnings call. “We’ve been here before, and we still are concerned a spike in variant cases or other concerns could impact future demand. We’ve said for over a year now that this could remain a very non-linear path, so we certainly don’t want to get ahead of ourselves in setting expectations.”

There are some signs that whatever level of business travel recovery has taken place this year has slowed in recent weeks. Air ticket sales by U.S. corporate travel agencies for the week ending Aug. 1 were 55.8 percent lower than the commensurate week in 2019, according to ARC, better than the 58.9 percent the week prior but not as good as the 51.5 percent the week of July 11, right when the variant’s spread accelerated. The leisure comeback, too, in recent weeks has stalled, according to ARC data. 

Meanwhile, Sabre’s second-quarter global distribution system net air bookings increased month over month—declining 65 percent, 62 percent and 49 percent in April, May and June, respectively, compared with the same period in 2019, according to the company. July net air bookings, however, were down 61 percent from July 2019.

Optimism Remains

On the other hand, some suppliers cited data that showed demand strengthening despite the variant’s spread. Marriott International’s special corporate bookings in June were up 23 percent from May, executives this month said during the company’s second-quarter earnings call. Such bookings during the first three-and-a-half weeks of July then increased 27 percent from the commensurate June period, according to Marriott.

“We are optimistic that we have turned a corner,” Marriott CEO Anthony Capuano said, adding that the increase in corporate bookings was widespread across industries.

United Airlines CEO Scott Kirby on July 21 said he did not expect the variant to derail the carrier’s springtime recovery. United has not yet seen any impact on bookings, and while there could be a “temporary pullback” in reopening, it would be short-lived, he said.

“We think the most likely outcome is that the continued recovery in demand continues largely unabated,” Kirby said. “The evidence is overwhelming that someone who’s vaccinated is highly protected against severe disease, hospitalization and death.”

Customer surveys at the end of June showed that 84 percent of United MileagePlus members were fully vaccinated, he added.

We are reading a lot about some companies moving office openings back from September to October, so we want to be cautious.about that.”

JetBlue’s Robin Hayes

Sabre CEO Sean Menke this month during the company’s quarterly results call noted the “fits and starts as it relates to recovery,” which he said correlates to Covid-19 case counts and government travel restrictions.

“The promising news is that as case counts and travel restrictions subside, the underlying travel demand trends remain encouraging, and we believe the overall recovery arc remains positive,” Menke said.  

Menke sees “pent-up demand” for travel. As markets open, demand follows, he said.

“However,” he said, “we are also seeing some travel restrictions put in place in Europe and [Asia-Pacific] in response to the delta and other Covid-19 variants. Because of these puts and takes, we think volatility in recovery trends across EMEA and APAC are likely over the next several months.”

Menke said: “When we were early on in Covid, there were a lot of question marks relative to recovery. What we are definitely seeing is, as markets open, as people are comfortable meeting from a vaccination perspective, the demand is there. I’m not concerned about demand.”

International Disarray

Suppliers also continued to push for international borders to reopen, and some progress has occurred on that front. Canada on Aug. 9 will open its border to U.S. travelers fully vaccinated against Covid-19, with a wider opening to the rest of the world to follow in September. And people who have been fully vaccinated in the European Union or United States now can avoid requirements to quarantine or self-isolate when arriving in England, though arrivals still need to do the usual pre-departure test before arrival and take a PCR test on the second day after arriving in England.

But U.S. officials cited the variant in declining to lift restrictions on international entry from Europe, the U.K. and other locales. “The more transmissible delta variant is spreading both here and around the world,” White House press secretary Jen Psaki said last month. “Driven by the delta variant, cases are rising here at home, particularly among those who are unvaccinated, and appear likely to continue in the weeks ahead.”

Nevertheless, suppliers said they remained optimistic about future international business travel demand, even if it materialized more slowly than domestic travel. American Airlines president Robert Isom last month during the company’s earnings call said while domestic business travel should return to 2019 levels in 2022, international business travel would follow on a slower timeline.

“As we go out and talk to CEOs in insurance, in financials, in consulting and accounting firms, everything tells us business is going to come back to where we’d seen it before,” he said. “Maybe it’s in different ways, but we feel really confident, starting with domestic in 2022.”

—Michael B. Baker and Jay Boehmer contributed to this report.

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