United Airlines sees rising leisure travel as vaccines increase

United Airlines sees the number of domestic leisure travel passengers in June moving closer to 2019 levels while leisure travel demand to other countries is gaining in popularity as more flyers take to the sky after a year of coronavirus pandemic lockdowns.

"During March we finally reached that demand inflection point we had been looking for, and we continue to see that resurgence today. Vaccine distribution gains in the US have renewed our desire as Americans to travel," said Andrew Nocella, United's chief commercial officer on the April 20 results call.

In comparison with the pre-pandemic levels of 2019, United sees domestic load factors for April were only "slightly behind," with May levels "slightly ahead" and expectations are for mid-June domestic leisure passenger load factors to be in excess of 80% of June 2019 levels.

Airlines were hit the hardest by the lockdowns mandated to prevent the spread of the coronavirus, which began in late March in much of the US and the world, cutting demand for jet fuel. US jet demand averaged 1.08 million b/d in 2020, compared with the 1.74 million b/d in 2019, according to Energy Information Administration data.

The price of jet on the US Gulf Coast is reflective of weaker-than-normal demand, as many refiners blended jet into the diesel pool because of lack of demand. For the week ended April 16, 2021, USGC jet averaged $1.66/gal, about 32 cents/gal lower than the $1.98/gal for the week ended April 20, 2019, Platts assessments showed.

However, in 2021, as vaccinations continue to roll out across the country – with about 26% of the country fully vaccinated -- more people are taking to the sky, with expectations that the number of flyers will only increase along with vaccinations.

Data from Transportation Safety Agency show that 1.42 million travelers passed through TSA checkpoints on April 19, 2021, compared with the 99,344 travelers on the same day in 2019 and 2.6 million in 2019.

In preparation for the uptick in demand, United previously announced it recently restarted the process of hiring pilots and has already announced plans to hire over 300.

"We recognize that the competition for the best pilot talent is only going to heat up," said United's president Brett Hart on the call.

But demand for business travel and long-haul international flights remains in the doldrums, off by 80% from 2019 levels, which is weighing on United's financial results.

Business travel still lags

However United remains "cautiously optimistic" that there could be the beginning of a rebound in business travel as early as this summer.

"We expect a post-summer positive inflection point in business travel demand and a strong acceleration into 2022," said Nocella, adding he hopes business travel surpasses the "down 70%" level versus 2019 by early fall.

Nocella made clear, however, given the pace of business travel demand pickup, "a full schedule is not warranted in the coming months."

International travel heats up

However, demand for international travel rises in tandem with rising vaccines worldwide. As more countries open up their borders, United expects it will likely unleash pent up demand for travel.

"International demand is going to be completely contingent on when borders open," said Nocella. However, he noted that when borders open, the demand is there.

"We took over 3,000 bookings yesterday for our services when we launched [our new service] to Greece, Iceland and Croatia. If the UK opens up, I think you are going to have a hard time finding a hotel room...because there's going to be so many people wanting to go there," he added.

Demand for travel to Europe is slightly higher than that to Asia, but demand for Latin American travel is higher than both, according to United's metrics.

United expects to be at 2019 levels of service to Latin America by this summer, CEO Scott Kirby said on the call.

However, Kirby said it's been very "Houston-centric" and going forward they are going to "diversify the portfolio" to increase flights to Latin America from "Los Angeles, Washington and New York."

While air travel is showing signs of recovery, particularly for the domestic leisure sector, recovery for the business and long-haul travel are expected to be longer term.

"I'm more convinced that with every data point we see, that both business and long-haul international are coming back" said Nocella, adding United has "incredible confidence in the long-term," expecting a recovery in those two sectors by 2023 if not earlier.