2020 has been a remarkable year in many ways. Not only have we seen the resilience of the scientific community in overcoming a seemingly insurmountable challenge, but they’ve managed to do so at a record pace. The vaccine announcements towards the latter half of the year brought cheer across markets, but there are still battle scars from the pandemic that will continue to shape certain sectors – and the travel industry is one of them.
The airline industry may shrink, and smaller operators may take over
There is some good news and some bad news for airlines in the wake of start-stop-start resumption to air travel. Let’s start with the good news.
The good news is that things surely can’t get any worse, so if an airline has survived this year, there is a high possibility that it will thrive in the coming months and years. The pandemic has resulted in numerous airlines winding-up or filing for bankruptcy protection, so the competition for market share of the skies has significantly reduced. Moreover, the cost of aviation turbine fuel (ATF) is anticipated to remain steady or further reduce as oil markets continue to experience a glut. So, there may be even more operational savings to be realized.
Now for the bad news. The number of flying passengers may not recover to pre-coronavirus levels immediately. This may be because business travel, one of the most profitable segments for airlines, will not be as comprehensive as it was due to the advent of remote culture and the focus on virtual calls. In fact, the Wall Street Journal recently reported that 19% to 36% of business travel could disappear permanently. With the rollout of vaccines globally, we now play the waiting game to wait to see how fares are effected as the supply-demand drivers play out through 2021.
In the fight to maintain demand, many US airlines have reformed their cancellation policies and have done away with ancillary charges permanently. Similarly, airlines are expected to reconfigure seating arrangements to cater for social distancing measures; for example, Emirates recently introduced a Premium Economy variant to its A380 fleet.
Perhaps there will be a flurry in mushrooming of smaller airlines (we’re betting on the “no-frills” category) catering to destinations that are largely deemed unprofitable for full-service airlines. If this happens, we may see some M&A activity across the industry to bring this trajectory to fruition.
Stocks to watch in the airline industry include United Airlines (UAL), Delta (DAL) and Boeing (BA).
Hotels will have to revisit their operating and booking models
With reinstated travel bans around the world, vacations abroad will likely continue to be replaced with intra-country staycations, as people hunt for their next insta-worthy pictures. However, regardless of where hotel guests are coming from, it seems that hotels will have to enhance their appeal to attract them.
First would come the added attention to cleanliness that larger hotel chains will have to institute, which otherwise comes across as more natural to smaller boutique hotels that benefit from tighter oversight. These hotels may also have to get creative with their traditional 3pm check-in / 11am check-out standards to cater to new types of customer demand. Take work-from-home professionals, for example, who are seeking a place other than their living rooms to work out of during standard working hours only.
It would be worthwhile for hotels to brainstorm how to diversify their revenues away from customer bookings. A few emerging trends include the optimization of in-house restaurants for deliveries and utilization of laundry services by non-staying guests.
Stocks to watch in the hotel industry include Wyndham (WYND), Hyatt (H), and Marriott (MAR).
People will be able to “travel” without actually traveling
To make up for the lost travel opportunities in 2020, people are expected to gravitate towards “bucket lists” trips or seek unique experiences in 2021. To bank on this opportunity, Airbnb, for instance, has taken the lead on making such activities available to the masses by extending its platform to offer location-specific thematic events and online activities.
Never got the chance to take that “gap year” you’ve always wanted to take? Well, now’s your chance. As the development of the culture of remote working is expected to continue, numerous jobs are becoming location-agnostic. This allows people to work from locations around the world, which makes it possible for people to be in a constant state of “travel”. Governments across the world are catching-up on this new type of temporary residency demand, and countries such as Barbados, Bermuda, Georgia, and the United Arab Emirates have all introduced “digital nomad” visas to facilitate movement for the contemporary nomad community.
Other travel-related companies to keep your eye on this year include Carnival (CCL), Royal Caribbean (RCL), Booking.com (BKNG), and Expedia (EXPE).