It is likely that, upon the successful distribution of the COVID-19 vaccine within a given geography, domestic leisure travel will restart quickly. Pent-up leisure demand exists across the world, and travelers will be eager to return to traveling once it is safe in their local country or area. In a recent survey of travelers, 94% indicate plans to travel again once COVID-19 restrictions ease, with 66% saying they will stop putting off their dream vacation and make it a priority when they resume traveling.2
While leisure demand will be quick to restart, demand for business travel is expected to ramp up slowly. Whether business demand will return to pre-COVID-19 levels is up for debate, but most agree that it will take companies longer to feel comfortable with their employees resuming travel. In addition, with remote working now being a fact of life for many businesses, along with technological advances and an increasing focus on environmental sustainability, corporations around the world are re-thinking their travel and meeting policies, providing a headwind to the return of corporate travel.
During the 2008-2009 financial crisis or in the aftermath of the September 11 terrorist attacks — events that temporarily depressed air travel demand — there was no wide availability of the virtual collaboration tools that have become a staple of everyday life during the COVID-19 pandemic. The proliferation and broad adoption of these collaboration tools, in addition to trends in corporate travel budgets and environmental sustainability, will result in a permanent headwind to business travel demand. Whatever the level of business travel demand recovery, it is likely to be similar to leisure travel in that domestic or short-haul travel will resume more quickly than cross border travel.
Low-cost and ultra-low-cost carriers (LCCs) are well positioned to gain market share as domestic or short-haul leisure demand returns quickly after the distribution of COVID-19 vaccines. For ultra-low-cost carriers especially, their domestic or short-haul focus combined with their ability to undercut competitors on price provides tremendous upside looking to the next 2-3 years. Being in a stronger position once domestic or short-haul business travel levels pick up will put more competitive dynamic in that part of the market too and enable LCCs to increase pressure on their network competitors.
Network carriers will require greater creativity to adapt to the changing demand environment in the absence of steady business demand that typically drives their profitability. Even among network carriers, however, the implications for domestic versus international demand recovery impact the outlook for operational recovery.
The factors impacting any recovery also inform the strategy for airlines as they plan to emerge from the COVID-19 crisis. While much is uncertain, one thing is sure: with a vaccine on the horizon, airlines need to begin to move their focus beyond the downturn and plan for recovery. Airlines should consider both their relative performance prior to the onset of COVID-19 and their potential to resume normal operations quickly based on their role in the market as they plot out their recovery strategy.