Regional Snapshot: the return of travel on the competitive trans-Atlantic

Transcript

Lori Ranson:I'm very pleased to have you all here to talk about the transatlantic rebound. We have Michèle Barre. She is VP Network and Revenue Management of Transat. We have Humberto Lopez Mata, who is Director International and Regulatory Affairs at Delta Air Transport World's editor-in-chief, Karen Walker. So thank you very much for joining us today. I just want to start off and get your perspectives on how you see the market rebounding. It seems to be pretty strong for the summertime period. So tell us what you see for the summer and beyond in the transatlantic market from your own perspectives, Michèle and Humberto.

Karen Walker:Okay, I'll start.

Michèle Barre:Good morning, everybody, first. Yeah, what we've seen is that there is a rebound, obviously, in the market on the transatlantic. And despite the fact that the bookings are very late, the new booking pattern is very, very short time. So you need to keep your nerves knowing the fact that your old revenue management algorithms are not working anymore. And that you should wait till the end, till the 60, 40 days before departure to really see the pickup. What we've been— what I've seen too recently, I mean, since the war in Ukraine started, is a little slowdown for willingness to travel to some countries in Europe. On the other side, we've seen a very strong recovery on the VFR side, meaning people want to travel They want to go and see their family in Europe. So they book and they are going to travel. The leisure part is, I would say, half-half. The ones who are more daring, they are going to fly. But some are just uncertain about the situation caused by Ukraine. So we may see bookings coming, but at a later stage.

Lori Ranson:Humberto, are you seeing any impact from the war in Ukraine? And just how are you seeing bookings at the moment?

Humberto Lopez Mata:So first of all, thank you for inviting me to this panel. I'm very honored to be here. We are not seeing so far an impact on demand due to the situation in Ukraine, to be honest. Fuel has been increasing as a result thereof. But we have been able to recapture a significant cost of that increase due to our premium focus on, you know, products that are premium, our growing brand preference, and also our discipline with respect to capacity. So, so far we're seeing a positive trend for us in the, in the transatlantic. We're not yet there, but, you know, we're— I think we're going in the correct path.

Lori Ranson:For each of you, sort of, can you tell us how much of your pre-pandemic network in the transatlantic that you've restored so far?

Michèle Barre:Okay. On our side, we've been recovering 75% for this summer. And we intend to go to 99% for the winter season.

Lori Ranson:And what about Delta?

Humberto Lopez Mata:So we have been very strict in, in, or very disciplined in how we are managing our capacity. So we are at 85% right now of capacity, generally speaking. For the, for the transatlantic, I believe that we are improving it. We have more than 501 flights right now per week to, to Europe. We are restarting services that we had pre-COVID from JFK to Copenhagen, Zurich, Prague. And for, for our Atlanta hub, we are increasing frequencies for our flights to, to Rome, to UK and to Amsterdam. So we are growing in a, in a sustainable way. We're just trying to not get ahead of demand and be very disciplined about our capacity.

Lori Ranson:Just in a post-COVID environment, are you seeing any regions in the market that are performing better post-pandemic than pre-pandemic?

Michèle Barre:Talking about Europe?

Humberto Lopez Mata:Yes.

Michèle Barre:I mean, on our side, I think that the cities or the countries where there are demand for VFR are stronger than the ones for leisure. I think the ones for leisure will come back, but will come back maybe at last minute. And the business is not there. As you know, it's really far, far behind.

Lori Ranson:Humberto, any surprises as the transatlantic rebounds this summer?

Humberto Lopez Mata:For the summer, you know, I believe that, you know, we are all very optimistic in the transatlantic, obviously. But, but during the pandemic, I believe that domestic and Latin America for us has led the recovery. But we are very optimistic in what's going on in the transatlantic. So far, for corporate travel, for instance, you know, domestic, I think, is pretty much back there with respect to in terms of revenue. For transatlantic, the international long haul, I believe that, you know, we have a recovery about 50%, you know, versus 2019.

Lori Ranson:So there is still room to improve, but we're Karen, I wanted to get your perspective on what the European carriers are saying about demand in their transatlantic markets for the summer and perhaps beyond in terms of bookings and, and leisure versus corporate and what's happening there.

Karen Walker:Yeah, thanks, Lori. Um, it's, it's interesting, I think, um, well, actually on both sides of the Atlantic, but certainly Europe 2022, the summer of 2022 is probably shaping up to be the summer that everybody hoped for in 2021. And the big killer for '21, you know, was, you know, obviously yet another version of COVID propped up. But I would say even more important than that, because by this time, you know, vaccinations were rolling out well on both sides of the Atlantic. But the big factor was that the US had not lifted, you know, you still needed exemptions to, to come into the US. So that was a real killer for, for that transatlantic traffic that they certainly, the European carriers, saw the effect. And, and, and the effect, of course, was that people said, okay, well, I can go on vacation. But I'm going to go, you know, just to Spain or anywhere but the US. So this has changed this year. And just certainly, you know, really reflecting what we've just heard is the same sort of levels of optimism. I'll quote one example. Very recently, last week, Carsten Spohr, the CEO of Lufthansa Group, was in the US and he gave a speech. And he said the highest single fare that they've got on their books right now is $24,000 fare Frankfurt to San Francisco. And it's first class, sold out for the summer. Yes, it is. Wow. So I think that's the other interesting aspect to, to where things are coming back this, this summer on that, you know, we all know that long-haul and corporate is, is still lagging, um, in the recovery. But where you're seeing some interesting differences is people, uh, trading up, buying premium economy. You know, a lot of these carriers are now expanding their premium economy, um, uh, products, cabins, upgrading their business, making announcements about that because they're seeing that demand. And it's not quite clear if that's because, you know, corporate travel is coming back or is it because people have, you know, they've postponed that big, you know, the family wedding, the this, the that, whatever they haven't seen. And they've got— they didn't travel. So they've got that money and they're saying, you know what, we're going to do it. We're going to do it in style.

Lori Ranson:I mean, that's part of a larger trend, don't you think, about sort of the whole buy-up experience and carriers sort of seeing a lot of leisure customers buy into premium products? And I know that Delta has really made a push in this. And I guess for both of you, do you think this is going to be a permanent fixture in the industry?

Humberto Lopez Mata:So just to follow on Thank you. I just want to add to what was said before. I do think that it's both. Like, you know, there is some corporate travel that is recovering. You know, that's what has indicated our quarter of March. We saw that. You know, we saw that increase in corporate travel. And we have also seen it in service to our corporate customers. You know, 90% of our corporate customers expected more travel during the quarter of June. So, so there is that part of corporate travel recovering. And also we have seen a high leisure growing segment where people, you know, were identified with, with the products that we were offering at Delta, the premium products. And, you know, they, they like it. They will— they felt comfortable, you know, with them and they just want to continue enjoying them. So, so we are seeing that too. So I think it's a little bit of both.

Michèle Barre:Yeah, we are, we are, we are having— I just want to add something. We are having the same on our premium. We don't have business class, but we have premium economy. And of course, premium economy is highly demanded at this time. Yeah. And I think you are right. People didn't travel, so they have the money for the time being and they want to spend it and to, you know, to relieve after the big—

Karen Walker:I think an add-on to that might be that, you know, all of us know if you fly at the front of the plane, it's really hard to do another long flight at the back of the plane. So it might be that that becomes a long-term trend.

Lori Ranson:Do you think that's going to be a long-term trend with the European Do you think they're going to see more people buying up?

Karen Walker:Again, I think it's going to be interesting to, to see. I mean, you know, you're out— you are seeing, you know, European carriers. Air France has just recently, very, very recently announced how it's upgrading its business cabin, extending the premier, you know, premier economy, you know, economy plus, however people want to has really sort of become a sort of like a winner out of COVID A lot of airlines that, you know, had sort of said, no, we're not going to do that, are really going ahead now with that. So I think it's just an interesting, interesting aspect to it.

Lori Ranson:And does this help yields during the recovery? Michèle and Humberto, in terms of this sort of buy-up to premium economy, is that helping you recover your yields in the transatlantic?

Michèle Barre:Oh, that's another story. You know, the problem today is the price of the oil, the fuel, and it impacts our P&L. For example, last month by 2 times more. So it's, it's really a lot. And it's really— I think it's difficult to transfer this surcharge or this higher cost to the customer because there are quite a lot of capacity also in the market. And everybody is now fighting for the economy leisure market. You know, you don't have as more as before as business markets. So everybody is concentrating concentrated on that and wants to get this, this piece of pie. So it's difficult to fight and it's difficult to increase the fares. When I hear— and I heard a lot— that easy yields are very high and recovering, etc., etc., I think that's maybe true on markets like domestic markets or on leisure short, medium-haul markets where the demand is very high, like for us, what we call the South Caribbean and Latin America, the demand is very, very high. So that's here, the yield is really popping up, but because of yield management, not because of, you know, you just increase the fares like this, you know. On the transatlantic, it's a little bit more difficult because as demand comes later on, It's difficult to yield your aircraft earlier and you have to wait till the end. So you may yield, but at the end, but not as much as what we were doing before. And trying to put more money and more— I mean, increase the fares. You know, you have to be cautious. It depends on your position. It depends on a lot of things.

Lori Ranson:Humberto, is that helping push up Yields that buy up to premium. Do you see that in the transatlantic market, or is that tough to say?

Humberto Lopez Mata:So I think we're, we're seeing a positive outcome of that, and I believe it's part of what we did during the pandemic. I think that our experience during COVID-19 allowed us to, to come out stronger, you know, And also different in the way that we are offering things that we were not offering before. You know, cleanliness and wellness, you know, is a huge part of that. We have a Delta Care standard now. So when you fly our aircraft, they're, you know, cleaner than have been ever before. We're operating state-of-the-art aircraft. You know, we just have the inaugural flight of the A321neo last Friday.

Karen Walker:Wow.

Humberto Lopez Mata:We, we have plant-based options now on board for certain flights. So we have adapted of what, you know, the customers have asked us that were relevant for them. You know, when we blocked the middle seat, you know, 14 months in a row was based on that, what we were listening from our customers. So all what we did during the pandemic, I believe, allowed us to connect with the customer. closer and, and being the premium brand of choice. And therefore we have been able to capitalize on that premium product that we offer. So, so I think that so far we are seeing that that has been a very good outcome for us.

Lori Ranson:I want to touch on the issue of testing just because a couple people have mentioned it throughout the morning and it's a big issue. So, Karen, first, can you just sort of shed some perspective maybe from the European side on how carriers view the testing requirements still being in place?

Karen Walker:Yeah, certainly. I mean, that's— I believe that's the big hurdle that's still got to come down. And I think there was a lot of people on both sides of the Atlantic had hoped that it looked like mass testing Yeah. And I think the expectation was that the masks, that, you know, the mask and testing rule would be dropped, you know, around about now, you know, around about Memorial Weekend, this weekend, or certainly by early June, especially as you've got some key moves, you know, in the UK and Europe, you know, dropping testing and mask requirements. Down so quick thanks to a federal— sorry, to a state judge in Florida ruling there and took everybody by surprise. What I'm hearing is that that's almost had the opposite effect of where the government now sits, the US government sits on sort of the testing requirement. It's a little bit of a backlash that they're sort of not as willing to talk anymore about when I mean, it is a question of when, not if, but when they stop the COVID testing rule, it's almost like they maybe want to sort of like show that they've still got control. I don't know. But I think people had hoped to hear more about that sooner. But, you know, that is particularly, you know, I mean, it's such a hassle. It's no— let's be honest about it. It's, you know, it's not just a case of, you know, oh yeah, I'll just get my test. People are still very confused about when and what time. And then if flights get delayed, you know, then what happens to the COVID test? It's, you know, if it's a family of 4, it's expensive, even if it's just the rapid antigen. But it's more the hassle, people having to work out, I'm in a foreign country, where do I get my test and, and, and how do I handle that?

Lori Ranson:So it is enough to Humberto, do you think demand would be even greater this summer if the testing requirement wasn't there?

Humberto Lopez Mata:I strongly believe it would be if the pre-departure test was not in place by the summer, and that's what we're urging the, the government to do. The U.S. government to eliminate that requirement. You know, all these travel requirements that were imposed during the last 2 years, they were meant to be, you know, lifted when it was safe to do so, right? And I believe science is indicating right now that it is, you know, and other countries are following that science. So, you know, it seems to us that We're a little bit behind what science is telling us. So hopefully, you know, it's lifted. I think it's the last part of the equation to allow demand to continue growing in a very strong fashion.

Lori Ranson:And Michèle, you can probably speak to this as well because Canada lifted its requirements. Did you see bookings jump after that?

Michèle Barre:Canada has been a disaster. We were the latest to have lifted And yes, as soon as it was released, we saw bookings climbing like this. So I confirm that's an impetus for the demand.

Karen Walker:And we've— in the US, it's to your point, Humberto, it's starting to horribly look like some of the post-9/11 thing where how long ago did they say, you know, we'd no longer be pulling back on domestic travel? Putting little things in gel bags and all the rest of it, and we still do it. That's, that's the concern, I think.

Lori Ranson:I want to touch on partnerships. And Michèle, you all have forged some interesting partnerships over the last year with Porter and WestJet. So can you tell us, you know, how that's working out in terms of feeding your transatlantic routes?

Michèle Barre:Okay. First of all, I would like to say that I mean, we have started thinking about building partnerships before COVID but then COVID came in and it just stopped everything, as you know. And we were also in talks with Air Canada. So, you know, it was a little bit messy, but now we are there and we have signed effectively a partnership, a codeshare partnership with WestJet and with Porter. The codeshare partnership with WestJet WestJet has just started by mid-May. So we already see, saw and see really good signs of connecting bookings on our transatlantic routes. So it's working. It's working very well for the time being. Porter will add, of course, with other parts of the network and contribute to feed the network. For me, this is crucial. And typically, you know, when you have things like COVID, I think companies like Delta or the big legacies which are part of big alliances may— were able to keep frequencies because they had traffic flows coming from a lot of parts of the network that we didn't have. So we were quite stuck with, you know, just fly a little bit or don't fly. As for you, I suppose it was a really strong asset to have these partners, right?

Humberto Lopez Mata:Yeah, for us has been an important part and will continue to be an important part of our recovery. You know, for the transatlantic, you know, through our partnership with Air France-KLM and Virgin, you know, we are able to offer about 200 destinations throughout Europe, you know, Middle East, Africa, India, thanks to this partnership. And also this partnership allows you synergies. So that's also important part of our recovery— synergies with respect to enhanced loyalty offers, with respect to seamless customer experience, ancillary business, you know, like MROs, or innovation, sustainability, you know, these days. So, so it's, it's really important, uh, for, for us, uh, the partnerships that we have with, uh, strategically, not only in for the transatlantic but also for the Asian market and for the Latin American market.

Michèle Barre:Maybe I, I can add something because there is something new in the market regarding partnership, regarding traditional partnership, which is virtual interline. And for us in Transat, we have We built a very nice platform with DOHUB, very easy to implement, very easy to connect with other airlines. And this is also working very well, I should say. So we are very— we are developing quite fast the number of new partners with our platform.

Lori Ranson:Can you just explain to us how that virtual interlining works?

Michèle Barre:How that works? Yes, of course. Maybe DOHUB could do it better than me, but I can explain. It's just, you just put 2 airlines together and you sell 2 tickets. Okay. With the intermediate who is DOAP and who is taking care of the connection. The 2 airlines are not at all busy with, with the connecting problem. That's very easy. You just connect. You just, you know, you want to sell via DoHop to, for example, we have something with EasyJet in Europe. So you can jump to the, to the, to the, the, the site, the website of DoHop, and you can then select flights with EasyJet in Europe. So the customer pays 2 tickets which are not an agreed fare, I would say, which are the actual fares for each leg, plus there is a fee to take care of the connecting. And he has 2 tickets, but it's not seamless. You were speaking about seamless. That's what Coachshare provides. Here you have to take your baggage, to pick up your baggage at the first point and rebook, recheck for the second leg. But it's very easy to implement. That's the difference. You don't need to, to, to have contracts, agreements, or whatever. You decide to do it, you agree with a letter, and it's done.

Lori Ranson:And this is something that you all have done since COVID or was this—

Michèle Barre:Yes, yes, we've been implementing that, and it's really powerful. I would say it's really, really nice. And even though it can be a first step in a cooperation mode, you just, you know, you can just start easily with this kind of cooperation mode. And if it works, then you can densify and go for codeshare or whatever more you want.

Lori Ranson:I mean, how fast do you see that growing, or how many partners would you—

Michèle Barre:Oh, we are, we are adding— I mean, we, we, we— Catherine is there, maybe she could tell me more. But I think we are adding like, I mean, like one partner per month or something like that. Currently, it's very easy to do it. And if you needed to do it, to go with the usual process, it's taking months to build the codeshare agreement.

Lori Ranson:That's really interesting. I want to touch on maybe some new competition in the transatlantic. It's been well publicized, especially Norse, and now JetBlue has launched transatlantic Atlantic flights, and how do you see those perhaps lower-cost competitors competing in the market or changing the marketplace?

Michèle Barre:You talking about the low-cost and the transatlantic?

Lori Ranson:Yeah.

Michèle Barre:What we've seen so far is that wasn't a successful story. Norwegian was—I mean—it was really promising, but it didn't work. And I think that, you know, given the facts that today the fuel is very high, that the debt, I mean, is increasing for airlines, that the inflation is like a dream for the demon also, the shortage of pilots, whatever we know, This is going to increase the cost for the airline. So being a low cost, that's the question I ask myself. Being a low cost in such condition and the market where people are willing to buy premium economy, are willing to get more space, etc., I don't see personally a big penetration of low cost again on the transatlantic. But maybe I'm wrong. Maybe future will tell me the contrary. But for the time being, I think there is room for the leisure market because the leisure market, the leisure demand has rebounded very well and extremely nicely. But low cost is another thing. I think low cost is very useful for short, medium-haul market. It's where, you know, it's, it's, I mean, you don't spend so much time in the aircraft. It's, it's a commodity.

Karen Walker:I think with these new players, it's sort of interesting to also, you know, JetBlue's plan to go transatlantic was, you know, in the works before the, before the pandemic. So they were sort of, you know, well along with that plan, you know, and, and They went ahead with it pretty much on schedule, even though everything was still very much shut down rule-wise and everything. So, so, and then, and also JetBlue, of course, you know, has come into that with a very nice, very nice premium, you know, lie-flat cabin on that service. Norse is an interesting one in that they, that really That has been created in the pandemic. It's all—

Michèle Barre:Yeah.

Karen Walker:It's the sort of like seeing an opportunity there. And, you know, Norwegian had come out of the— pulled out of the transatlantic market. They were able to get 787s through that happening. And so there's sort of different business models. You know, it's It's— everybody wants that transatlantic market to come back, no more so than the established players in that. It's a very, very important market. Again, going back to Carsten Spohr last week, he said the US is our number one market, international market. That's our—

Lori Ranson:Yeah.

Karen Walker:And so it's going to be very competitive as as things come back, right? And then you saw this sort of, it's not exactly transatlantic, maybe you call it half Atlantic, but PLAY, the Icelandic new low-cost carrier, again, you know, coming from Iceland to the US, has just actually suspended those routes, citing the high fuel prices.

Michèle Barre:Yeah.

Karen Walker:And, um, you know, it, it's just a very difficult market to, to come into right now, given how big the competition is, given that there is still sort of COVID strict rules, and, um, and given just how complicated it is to operate in the transatlantic market.

Lori Ranson:Yeah, yeah. What are your thoughts on—

Humberto Lopez Mata:oh, you want to ask a follow-up question?

Lori Ranson:No, no, no, I just wanted to get your thoughts on that.

Humberto Lopez Mata:What do you think about that? So I agree, you know, there are different factors I believe that will play into this, but I believe one of the key factors would be that customer loyalty, and there is where I believe Delta is uniquely positioned to be successfully navigating this return of the business and international travel. But I agree that, you know, the factors that are in play, you know, it's a little bit uncertain how competition is going to manage that.

Lori Ranson:And Michèle, just finally, you all have built up your domestic network over the last year or so. I mean, more so than historically. And can you just tell us how those routes are sort of performing to support your transatlantic markets?

Michèle Barre:Very nicely. I would say that when we started to really develop in the domestic market in Canada, where there are already 2 big players, Air Canada and WestJet, paving the ground. It was tough, but we decided to really start to develop the big markets to feed our European network. And it is— it was before pandemic, and it is now a We can see it now in the bookings. It's good. It's, it's moving back. If you talk about local traffic, it's another thing because we have new entrants, ultra-low-cost new entrants in Canada, and it's another story. That's, that's something else. But for connecting traffic, very nice.

Lori Ranson:We have a couple of minutes left. I don't know if there are any questions from the audience. It's hard to see, and I know that it's just nearing lunchtime. So are there any questions? No questions? Question here in the front.

Karen Walker:Hi, Dan Weber from OAG. Just a quick question in terms of how do you track the success when you have 2 separate tickets with the partnerships that you were talking about?

Michèle Barre:You don't track the success. You track a passenger on your leg. I mean, it's one more passenger in your flight, even though he's connecting to another airline after. So it's exactly the same for us as if you were selling your single-leg packs. Exactly the same fare. is the current fare. So it helps to fill the aircraft.

Lori Ranson:Any other questions? Well, thank you all very, very much.

Michèle Barre:Thank you. Thank you.

Humberto Lopez Mata:Thank you.

Lori Ranson:Thank you.

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