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The future of air travel The economics of social distancing

6 feet apart?

UBS Evidence Lab

June 9, 2020

What is the practical way for airlines to implement social distancing, and how would it impact their profitability?

When will passengers take back to the skies, and at what price?

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UBS Evidence Lab just launched a new study of passenger seating demonstrating various scenarios for social distancing.

NEW study

Methodology Overlaid 6-feet-apart rules on CAD drawings for the most commonly used narrow- and wide-body planes Simulated seating scenarios using actual airline PNR booking data to determine the impact on load factors

Boeing 737 Airbus 320 Narrow body

Boeing 787 Airbus 350 Wide body

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For narrow- and wide-body planes with all passengers or groups of 1, 2 and 3 spaced 6 feet apart, airlines would be nowhere close to breakeven load factors.

Airbus A320 Load Factor 10.5%

Boeing 787 Load Factor 15.8%

Groups of 1

Breakeven load factor ~74%

Groups of 1, 2 and 3 (Based on real-world passenger distribution using PNR data)

Breakeven load factor ~74%

Airbus A320 Load Factor 16.4%

Boeing 787 Load Factor 21.2%

Source: UBS Evidence Lab 4

Airlines have chosen to adopt minimal social distancing (empty seat, wall or aisle next to those not traveling in groups) to get close to reaching their breakeven load factors.

Airbus A320 Load Factor 66.1%

Boeing 787 Load Factor 65.6%

Groups of 1, 2 and 3 (Based on real-world passenger distribution using PNR data)

Breakeven load factor ~74%

Total number of seats: 250 Occupied seats: 170

Percentage of seats occupied: 65.6%

Total number of seats: 171 Occupied seats: 113

Percentage of seats occupied: 66.1%

Source: UBS Evidence Lab 5

What do future bookings reveal?

US Airlines

European Airlines

Asia Airlines

South America Airlines

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US Airlines – prices for future departures

US carriers are offering fares per seat that are down ~13% y/y for flights departing in the next three months compared to a ~20% decline in April.

Prices for Delta and United flights are falling as the departure date approaches.

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y/y

Weeks until departure week

Delta, Cumulative average fare, y/y, May 2020

3-May-20 10-May-20 17-May-20

24-May-20 31-May-20

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y/y

Weeks until departure week

Delta, Cumulative average fare, y/y, June 2020

7-Jun-20 14-Jun-20 21-Jun-20

28-Jun-20 5-Jul-20

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% A

vg

y/y

Weeks until departure week

Delta, Cumulative average fare, y/y, July 2020

5-Jul-20 12-Jul-20 19-Jul-20

26-Jul-20 2-Aug-20

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% A

vg

y/y

Weeks until departure week

United, Cumulative average fare, y/y, May 2020

3-May-20 10-May-20 17-May-20

24-May-20 31-May-20

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0%

10%

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% A

vg

y/y

Weeks until departure week

United, Cumulative average fare, y/y, June 2020

7-Jun-20 14-Jun-20 21-Jun-20

28-Jun-20 5-Jul-20

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10%

% A

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y/y

Weeks until departure week

United, Cumulative average fare, y/y, July 2020

5-Jul-20 12-Jul-20 19-Jul-20

26-Jul-20 2-Aug-20

Source: UBS Evidence Lab Source: UBS Evidence Lab

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Feb2019

Apr2019

Jun2019

Aug2019

Oct2019

Dec2019

Feb2020

Apr2020

Jun2020

Aug2020

Hawaiian Airlines Spirit Airlines Alaska Airlines

Delta JetBlue United Airlines

US Carriers, Economy, Round Trip, Avg Yield, % y/y (Fwd departures as of 3-May-20)

Fwd curve, % y/y

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European Airlines – prices for future departures

Prices are slightly less negative for European carriers than for US carriers.

Budget airlines like RyanAir and easyJet have increased prices, while full-cost carriers like British Airways have reduced prices.

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% A

vg

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Weeks until departure week

EasyJet, Cumulative average fare, y/y, May 2020

3-May-20 10-May-20 17-May-20

24-May-20 31-May-20

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-13-12-11-10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0

% A

vg

y/y

Weeks until departure week

EasyJet, Cumulative average fare, y/y, June 2020

7-Jun-20 14-Jun-20 21-Jun-20

28-Jun-20 5-Jul-20

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0%

10%

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% A

vg

y/y

Weeks until departure week

EasyJet, Cumulative average fare, y/y, July 2020

5-Jul-20 12-Jul-20 19-Jul-20

26-Jul-20 2-Aug-20

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0%

10%

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% A

vg

y/y

Weeks until departure week

BA, Cumulative average fare, y/y, May 2020

3-May-20 10-May-20 17-May-20

24-May-20 31-May-20

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-13-12-11-10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0

% A

vg

y/y

Weeks until departure week

BA, Cumulative average fare, y/y, June 2020

7-Jun-20 14-Jun-20 21-Jun-20

28-Jun-20 5-Jul-20

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10%

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% A

vg

y/y

Weeks until departure week

BA, Cumulative average fare, y/y, July 2020

5-Jul-20 12-Jul-20 19-Jul-20

26-Jul-20 2-Aug-20

Source: UBS Evidence Lab Source: UBS Evidence Lab

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30%

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50%

60%

Feb2019

Apr2019

Jun2019

Aug2019

Oct2019

Dec2019

Feb2020

Apr2020

Jun2020

Aug2020

Air France Iberia Lufthansa

EasyJet RyanAir British Airways

EU Carriers, Economy, Round Trip, Avg Yield, % y/y (Fwd departures as of 3-May-20)

Fwd curve, % y/y

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Asia Airlines – prices for future departures

Fares for ANA's domestic flights in Japan fell 17% in April but are relatively stable for departures in July.

India domestic airfares declined ~35% y/y in April. Air India is offering higher prices than a year ago for July departures, while future prices for Go Air and SpiceJet are down y/y.

Source: UBS Evidence Lab Source: UBS Evidence Lab

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2/28/2019 6/30/2019 10/31/2019 2/29/2020 6/30/2020

Avg

y/y

%

Flight Departure Date

Avg Fare y/y for Origin: ALL; Destination: ALL; Stay Length: (All) days; One Way / Round Trip: RT; Outbound Sectors:1; Cabin Class: E; Carriers: ALL

Air India Go Air SpiceJet

Source: UBS Evidence Lab

Fwd curve, % y/y

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5%

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2/28/2019 7/31/2019 10/31/2019 3/31/2020 6/30/2020

Avg

y/y

%

Flight Departure DateANA

Source: UBS Evidence Lab

Fwd curve, % y/y

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2/28/2019 6/30/2019 10/31/2019 2/29/2020 6/30/2020

Avg

y/y

%

Flight Departure Date

Air India Go Air SpiceJet

Source: UBS Evidence Lab

Fwd curve, % y/y

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10%

20%

30%

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2/28/2019 6/30/2019 10/31/2019 2/29/2020 6/30/2020

Avg

y/y

%

Flight Departure Date

Avg Fare y/y for Origin: ALL; Destination: ALL; Stay Length: (All) days; One Way / Round Trip: RT; Outbound Sectors:1; Cabin Class: E; Carriers: ALL

Air India Go Air SpiceJet

Source: UBS Evidence Lab

Fwd curve, % y/y

ANA

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Asia Airlines – prices for future departures

ASEAN countries show a mixed price trend. Airlines in China are offering higher domestic fares y/y after declines earlier in the year.

Source: UBS Evidence Lab Source: UBS Evidence Lab

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2/28/2019 6/30/2019 10/31/2019 2/29/2020 6/30/2020

Avg

y/y

%

Flight Departure Date

AirAsia Cathay Pacific CEBU Pacific Air Singapore Airlines

Source: UBS Evidence Lab

Fwd curve, % y/y

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2/28/2019 6/30/2019 10/31/2019 2/29/2020 6/30/2020

Avg

y/y

%

Flight Departure Date

Air China China Eastern Airlines China Southern Airlines

Source: UBS Evidence Lab

Fwd curve, % y/y

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LATAM Airlines – prices for future departures

LATAM countries show a mixed price trend.

Source: UBS Evidence Lab

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2/28/2019 6/30/2019 10/31/2019 2/29/2020 6/30/2020

Avg

y/y

%

Flight Departure Date

Copa Air Volaris Azul Gol

Source: UBS Evidence Lab

Fwd curve, % y/y

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Are consumers ready to fly again?

US consumer sentiment

UK consumer sentiment

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US consumer sentiment

How soon from now would you be comfortable traveling and/or going on vacation?

How has the coronavirus affected your travel plans, if at all?

Source: UBS Evidence Lab, Civic Science Source: UBS Evidence Lab, Civic Science

19%

4%

8%

13%

13%

42%

0%

10%

20%

30%

40%

50%

Week of Apr 05 Week of Apr 12 Week of Apr 19 Week of Apr 26 Week of May 03 Week of May 10 Week of May 17 Week of May 24

I’d be / I am comfortable traveling now In 2-3 weeks In 1-2 months

In 2-4 months In 4-6 months In 6 or more months

In 6 or more months

Comfortable traveling now

36%

38%

15%

11%

0%

10%

20%

30%

40%

50%

60%

70%

Week ofFeb 23

Week ofMar 01

Week ofMar 08

Week ofMar 15

Week ofMar 22

Week ofMar 29

Week ofApr 05

Week ofApr 12

Week ofApr 19

Week ofApr 26

Week ofMay 03

Week ofMay 10

Week ofMay 17

Week ofMay 24

I've chosen not to plan any travel I've canceled my travel plansIt hasn't affected my travel plans I'm not sure yet

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UK consumer sentiment

Within 6-12 months after the coronavirus situation improves, do you expect to take more, the same, or fewer flights than you usually did before COVID-19?

Source: UBS Evidence Lab

0%

10%

20%

30%

40%

50%

60%

Fewer flights About the same More flights Haven't takenflights recently/no

plans in nearfuture

Within UK Within Europe Outside Europe

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UBS Evidence Lab Insight-ready datasets to help you answer the questions that matter to your decisions.

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