Travel is back, but Omicron could change everything

Just when US airlines thought they were on the verge of profitability again, along came the Omicron variant to put those hopes in doubt.

Leisure travel is back to near pre-Covid levels. This Thanksgiving marked the busiest week for air travel since the start of the pandemic. But major US airlines had been counting on a return of their most lucrative revenue sources: business and international passengers.

The emergence of the Omicron variant could put those passengers on hold, according to experts.

“I think the year-end holiday travel is booked and will go forward. But the plans for international travel and business travel, I would imagine there will be a wait and see attitude on those,” said Philip Baggaley, chief credit analyst for airlines at Standard & Poor’s.

Business travel has remained a fraction of its pre-pandemic level partly because many offices remain closed or have limited staffing. That had been expected to turn around in January with many major employers announcing return-to-office plans for after the holidays.

Airline analysts worry that the uncertainty about Omicron and the overall rise in Covid cases could delay those reopening plans.

“If offices are delaying reopening, there is less reason for business travel,” said J.P. Gownder, an analyst at Forrester.

Gownder said that it’s too soon for many businesses to have made a decision to delay the reopening. But the rise in new US cases as the weather has turned colder and people have moved inside has already prompted some delays, most prominently by Apple, which is reported to have pushed back its return to office plans from early January to February —even before the news of the Omicron variant. Gownder said the decision on having workers in the office will be a moving target for most major companies.

“Microsoft had some good language. It said, ‘our ability to be together in person will wax and wane,'” he said.

Many public health officials say it will take a couple of weeks to know the threat posed by Omicron. While there are no confirmed US cases of the variant yet, almost all experts believe it will find its way here, if it’s not here already.

Gownder said the risk posed by the variant, and the decision on when to reopen offices, will depend upon how resistant to existing vaccines the Omicron variant turns out to be, whether it becomes common, and whether it causes an increase in hospitalizations and deaths.

“The truth is it’s too early to know what the impact is going to be,” he said.

So far, so steady

But that uncertainty is not working in the airlines’ favor when it comes to travel plans going forward.

“Unknowns by themselves are bad news,” Baggaley said.

Data from Adobe show that US airline bookings are little changed so far in the days since the Omicron variant was disclosed. The four major airlines said they could not detail any changes in their plans or expectations at this point other than that they will comply with new rules restricting travel for those who have been in South Africa or seven other African countries to only US citizens, legal permanent US residents and their spouses.

But investors are running away from airline stocks. Shares of the NYSE ARCA airline index fell 6.5% in trading Friday, and was only narrowly higher in Monday trading as other US stock indexes enjoyed more solid rebounds. Shares of the index fell again in morning trading Tuesday.

Omicron will likely lead to a decline in bookings, but that decline should be short lived, predicted Helane Becker, airline analyst with Cowen.

“In the past year, each new variant has brought a decline in bookings, but then an increase once the surge dissipates,” Becker said in a note to clients Monday. She expects the same will occur this time, “as people begin to accept that we will have to learn to live with this indefinitely.”

Numerous countries besides the United States have placed restrictions on travel from South Africa and nearby countries. As cases rise, those kinds of travel restrictions are likely to spread, even if the variant is likely to be found worldwide in short order.

“I think you will see a patchwork of poorly executed travel bans,” said Gownder. “And there’s a certain stickiness to those kinds of travel bans.”

That would be particularly bad news for the nation’s three largest airlines — United, American and Delta — all of which depended greatly on international travelers before the pandemic started.

All had been counting on a strong rebound in international travel in 2022, mainly thanks to pent-up demand. United had been planning for its international business in 2022 to be above the levels it achieved in 2019.

“International travel is most vulnerable,” said Baggaley. “Governments are going to react more quickly than they have in the past with travel bans. Politicians are afraid of being second-guessed if they don’t act.”

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