WEBVTT - This Is What's Next for the Future of Air Travel 0:00:10.760 --> 0:00:14.760 Hello, and welcome to another episode of the Odd Lots podcast. 0:00:14.800 --> 0:00:19.120 I'm Joe Wasn't, and I'm Tracy Alloway. Tracy, I, I 0:00:19.160 --> 0:00:23.120 flew recently on my first flight without a mask mandate. 0:00:23.840 --> 0:00:27.720 How was it? Was it a totally different experience. I 0:00:27.840 --> 0:00:30.440 actually it was more different than I would have expected. 0:00:30.560 --> 0:00:32.600 Like I got on the plane and I was like, oh, 0:00:32.640 --> 0:00:35.479 this is so like something just felt like it was 0:00:35.520 --> 0:00:37.519 like I knew the different thing, which is that no 0:00:37.560 --> 0:00:40.400 one was wearing masks, but also like it just felt 0:00:40.760 --> 0:00:43.120 everything just felt like a little bit freer and different. 0:00:43.159 --> 0:00:45.280 It was very like it was. It was noticed. It 0:00:45.360 --> 0:00:47.280 was very noticeable in a way that's a really hard 0:00:47.320 --> 0:00:51.879 door to look. I grew up in Tokyo and wearing 0:00:52.000 --> 0:00:55.440 masks was not a massive issue. It was just something 0:00:55.440 --> 0:00:58.360 that people did when they were sick on public transport 0:00:58.560 --> 0:01:01.080 or in an office or place with lots of people. 0:01:01.200 --> 0:01:03.240 So I don't know, I have mixed feelings about it, 0:01:03.240 --> 0:01:06.960 but I'm glad you enjoyed the maskless feeling. It makes 0:01:07.000 --> 0:01:09.160 traveling with kids a lot easier to not have to 0:01:09.200 --> 0:01:11.960 like always be adjusting their their ear strap on their 0:01:12.000 --> 0:01:14.200 mask or something. I can see that, and obviously you 0:01:14.240 --> 0:01:18.800 can drink and eat as much as you want, exactly right. So, UH, 0:01:19.000 --> 0:01:21.160 lots going on though in air travel, because we know 0:01:21.240 --> 0:01:24.360 that it's booming. We know that things are picking up, 0:01:24.400 --> 0:01:27.480 although I don't know about business class or sorry business travel, 0:01:27.520 --> 0:01:30.120 but we know travel is picking up. We know that 0:01:30.200 --> 0:01:33.920 the mask mandate is gone. Um. We also know that 0:01:34.000 --> 0:01:37.280 oil prices like jet fuel costs have gone up a lot, 0:01:37.440 --> 0:01:39.960 and actually in some places there's even a shortage. There 0:01:40.000 --> 0:01:43.679 was a story recently that the airport in Austin actually 0:01:43.959 --> 0:01:46.440 had to cancel some flights because there literally wasn't a 0:01:46.560 --> 0:01:49.360 jet fuel available. And it sort of speaks to one 0:01:49.400 --> 0:01:51.560 of our themes that we have about, you know, the 0:01:51.880 --> 0:01:53.840 revenge of the real Like it doesn't matter what the 0:01:53.880 --> 0:01:56.320 price of jet fuel is if there's simply not enough 0:01:56.320 --> 0:01:58.920 of it in a specific location. Yeah, it's also sort 0:01:58.960 --> 0:02:02.240 of like a list of times, worst of time scenario 0:02:02.400 --> 0:02:06.000 for the airline industry. So lockdowns are ending, at least 0:02:06.040 --> 0:02:09.720 in the West. The mass mandates are being lifted. People 0:02:09.800 --> 0:02:11.919 are getting out and traveling again. But at the same 0:02:11.960 --> 0:02:15.040 time you might have higher costs. Well, you do have 0:02:15.120 --> 0:02:19.120 higher costs with his UH air fuel, right, air fuel 0:02:19.160 --> 0:02:22.000 is high and inflation is high, and that you know, 0:02:22.040 --> 0:02:24.880 obviously burdened people. But it feels like after two years, 0:02:25.320 --> 0:02:29.959 even with inflation, even with economic uncertainty of various sorts, 0:02:29.960 --> 0:02:32.200 like people really want to travel at least for leisure. 0:02:32.400 --> 0:02:35.560 I would like to travel. That is true, I recommend it. 0:02:35.680 --> 0:02:39.520 So today we're gonna be speaking. So we actually had 0:02:39.560 --> 0:02:43.720 this guest on recently, I think in February, but we 0:02:43.800 --> 0:02:49.359 recorded the episode about a week before the war, before 0:02:49.400 --> 0:02:53.320 the invasion. We had to change up our schedule due 0:02:53.360 --> 0:02:55.800 to news, and then so much happened that we're like, 0:02:55.840 --> 0:02:58.720 you know what, rather than trying to find just like 0:02:58.800 --> 0:03:01.480 the right time to publish it, so much is going on, 0:03:01.560 --> 0:03:03.640 all the things we talked about, why don't we just 0:03:03.680 --> 0:03:06.440 have them back on for a fresh episode, a take 0:03:06.520 --> 0:03:10.880 to the episode, the public episode of the of the 0:03:10.919 --> 0:03:13.560 conversation that never got out there. So this is either 0:03:13.639 --> 0:03:17.760 a signal of a return to normality or something major 0:03:17.800 --> 0:03:19.280 is going to happen in the next week again and 0:03:19.280 --> 0:03:22.000 we're going to have to re record well hopefully this 0:03:22.520 --> 0:03:25.959 hopefully the public here's this conversation. I'm very excited we're 0:03:25.960 --> 0:03:29.000 going to bring back to the show. H Scott Kays 0:03:29.120 --> 0:03:32.240 He is the founder of the website Scott's Cheap Flights, 0:03:32.320 --> 0:03:35.880 and he knows everything about how the airline aviation industry 0:03:35.920 --> 0:03:38.360 works and what's going on to us. Scott, thank you 0:03:38.440 --> 0:03:41.720 for coming back on odd lots. So great to be here. 0:03:41.800 --> 0:03:45.600 Thank you both for having me. What happened with Austin? 0:03:45.920 --> 0:03:47.960 And there was I don't know if it was just Austin, 0:03:48.000 --> 0:03:50.040 but there was something like there wasn't enough jet fuel. 0:03:50.160 --> 0:03:52.600 They're like, what happened there? Yeah, Austin is a little 0:03:52.600 --> 0:03:56.680 bit of a special case. The Austin bergs from airport because, uh, 0:03:56.800 --> 0:03:58.880 for a couple of reasons. One, it is one of 0:03:58.920 --> 0:04:02.760 the fastest expanding airports in the country, one of the 0:04:02.760 --> 0:04:06.480 fast expanding metro areas in the country, and so the 0:04:06.560 --> 0:04:09.920 airlines and the infrastructure in place that the airport is 0:04:09.960 --> 0:04:12.440 having trouble keeping up. And so where you see that 0:04:12.480 --> 0:04:15.560 come to a head recently is with jet fuel, where, 0:04:15.680 --> 0:04:19.440 unlike most major airports which are actually directly connected to 0:04:20.200 --> 0:04:24.599 fuel pipelines, the Austin airport is actually not connected to one. 0:04:24.760 --> 0:04:27.920 Fuel actually has to be trucked in from a pipeline 0:04:27.960 --> 0:04:30.680 I believe about fifteen miles away or so, and so 0:04:31.040 --> 0:04:34.000 with the expansion not only of the number of planes, 0:04:34.040 --> 0:04:37.440 but with larger and larger planes, more international flights, you know, 0:04:37.480 --> 0:04:41.080 flights to the Netherlands and elsewhere. What you're seeing is 0:04:41.120 --> 0:04:45.039 that the airport infrastructure just can't provide the fuel necessary 0:04:45.040 --> 0:04:47.600 and airlines having to take some pretty extraordinary steps as 0:04:47.640 --> 0:04:51.839 a result, including flying in airplanes with enough fuel to 0:04:51.880 --> 0:04:54.640 be able to fly out to their destination. They call 0:04:54.720 --> 0:04:58.880 that tankering or other sorts of mitigation tactics. Unfortunately, this 0:04:58.960 --> 0:05:02.040 is something that is not especially widespread. Austin is a 0:05:02.120 --> 0:05:05.200 little bit of a special case. But you know, look 0:05:05.200 --> 0:05:08.840 there's some concern that between jet fuel prices and jet 0:05:08.880 --> 0:05:12.760 fuel availability, that's become a larger and larger problem in 0:05:12.880 --> 0:05:15.960 other areas as kind of we get back to a 0:05:16.000 --> 0:05:18.400 new normal after the past couple of years. So I 0:05:18.440 --> 0:05:20.960 wanted to like stay on the topic, but I actually 0:05:21.040 --> 0:05:24.400 just flew out of Austin. I mentioned an intro, and 0:05:24.560 --> 0:05:27.000 I took a flight recently, but actually, like one more 0:05:27.080 --> 0:05:29.160 question about this, and I know it's not that timely, 0:05:29.240 --> 0:05:33.480 but I'm curious, Like Austin has grown just an insane 0:05:33.480 --> 0:05:36.880 amount in the last twenty years, particularly ten years, just 0:05:36.920 --> 0:05:39.480 like unbelievable at the number of conferences and events and 0:05:39.720 --> 0:05:43.239 population growth, Like what does that due to it an airport, 0:05:43.279 --> 0:05:45.599 because I can't imagine that like airports are easy to 0:05:45.680 --> 0:05:49.000 just like build more gags on. It is very difficult 0:05:49.080 --> 0:05:52.080 to and and and a time consuming process to expand 0:05:52.120 --> 0:05:57.920 in airport's capacity. Now, the Austin situation is especially different 0:05:57.960 --> 0:06:00.800 than in many cases, in part because they an old terminal, 0:06:00.880 --> 0:06:04.279 the South Terminal, that is not exactly sufficient for today's 0:06:04.600 --> 0:06:06.720 demand out of flights in there, and so there's been 0:06:06.760 --> 0:06:08.960 a lot of discussion with the local government of trying 0:06:09.000 --> 0:06:11.440 to expand it, but been a lot of kind of 0:06:11.720 --> 0:06:15.320 regulatory roadblocks and doing that. Even in the best of times, 0:06:15.680 --> 0:06:19.599 trying to expand airports and build new infrastructure is not 0:06:19.680 --> 0:06:22.279 a month's process. It's not a one or two year process. 0:06:22.279 --> 0:06:24.839 It tends to be a five to ten year uh 0:06:24.920 --> 0:06:27.679 project and sides and part why it takes goes so slow. 0:06:27.760 --> 0:06:31.359 A funny thing though, happened early in the pandemic where 0:06:31.960 --> 0:06:34.760 airports like Salt Lake City again another one that has 0:06:34.800 --> 0:06:39.600 expanded the metro population significantly over the past decade, they 0:06:39.720 --> 0:06:44.080 were already undergoing an airport expansion process that they're actually 0:06:44.480 --> 0:06:46.800 you know, you never hear these words so much in 0:06:46.800 --> 0:06:50.120 infrastructure these days, but they have completed it ahead of schedule. 0:06:50.480 --> 0:06:54.480 And the reason why was because the passenger volume, obviously 0:06:54.480 --> 0:06:58.640 early in the pandemic dropped and so what that meant 0:06:58.680 --> 0:07:02.720 was that they could shut down airport for significantly more 0:07:02.760 --> 0:07:05.839 greater swaths of time, significantly greater parts of the day 0:07:06.000 --> 0:07:09.640 in order to complete the construction and not disrupt air 0:07:09.680 --> 0:07:12.200 travel the way it would have in normal times. So 0:07:12.280 --> 0:07:14.600 there was a kind of a brief window there where 0:07:14.640 --> 0:07:18.320 you could actually complete some of this airport infrastructure projects 0:07:18.360 --> 0:07:22.640 ahead of schedule. That that window is fortunately closed as 0:07:22.680 --> 0:07:25.360 air air travel is rebounding. But it's a it's a 0:07:25.400 --> 0:07:30.280 difficult timely thing. I'm getting a flashbacks to covering keythrow 0:07:30.360 --> 0:07:33.240 airport slots in the building of Terminal five as a 0:07:33.320 --> 0:07:38.440 baby transport reporter in London. But uh, nevertheless, um, you 0:07:38.480 --> 0:07:42.920 mentioned mitigation of fuel costs there, and you know this 0:07:43.000 --> 0:07:46.440 is something airlines do, being large consumers of jet fuel, 0:07:46.600 --> 0:07:49.880 They buy their future needs and they hedge what they 0:07:49.920 --> 0:07:52.240 need to get what does it look like right now 0:07:52.400 --> 0:07:54.920 in terms of hedging. So we have this big spike 0:07:55.400 --> 0:07:58.160 in the price of crude oil. Is all of that 0:07:58.240 --> 0:08:01.240 going to flow through into airline underlying costs or is 0:08:01.280 --> 0:08:05.960 there some mitigation here. There's gonna be a significant amount 0:08:06.000 --> 0:08:09.040 that flows through to the airline's costs, and then obviously 0:08:09.080 --> 0:08:11.720 some of that will get passed onto consumers. I mean, 0:08:11.800 --> 0:08:15.400 just to take stock today, the price, the spot price 0:08:15.440 --> 0:08:18.000 of a gallon of jet fuel is three dollars uh 0:08:18.040 --> 0:08:22.679 and one cents, which is almost at least when nominal terms, 0:08:22.720 --> 0:08:24.800 where it was at that record high in two thousand 0:08:24.800 --> 0:08:27.400 and eight when it reached three dollars and eighty nine cents, 0:08:27.400 --> 0:08:29.960 and so it is very, very high. And just to 0:08:30.040 --> 0:08:33.559 underscore how important this is for airlines, jet fuel is 0:08:33.600 --> 0:08:37.160 the number two expense at airlines. There are no airlines 0:08:37.200 --> 0:08:39.760 with significant you know, there are no airlines with electric 0:08:39.840 --> 0:08:46.079 airplanes and commercial operation, no airlines with significant sustainable aviation 0:08:46.120 --> 0:08:49.960 fuel or all other alternative fuels. They're all basically exposed 0:08:50.240 --> 0:08:52.880 to the price of oil in a pretty major way. 0:08:53.160 --> 0:08:55.880 But I'm glad you brought up hedging because that's historically 0:08:55.920 --> 0:08:58.760 one of the ways that airlines have tried to navigate 0:08:58.800 --> 0:09:01.720 this world where they have are exposed to the price 0:09:01.760 --> 0:09:04.920 of oil. Where you saw this really come to a 0:09:05.000 --> 0:09:07.280 head was during the oh eight oil seven O eight 0:09:07.280 --> 0:09:11.160 oil crisis, where a lot of the airlines we're seeing, 0:09:11.600 --> 0:09:14.720 even in the face of a recession, their prices be 0:09:15.120 --> 0:09:18.200 going way way up again because the price of a 0:09:18.200 --> 0:09:20.880 barrel of oil hit a hundred and forty seven dollars. 0:09:20.880 --> 0:09:22.840 So as a result, the airlines were actually kind of 0:09:22.920 --> 0:09:26.439 late to the game of oil hedging, and they frankly 0:09:26.480 --> 0:09:29.320 had a pretty bad experience dipping their toes in andto 0:09:29.360 --> 0:09:32.160 they got into it too late. They ended up timing 0:09:32.200 --> 0:09:35.959 it just they basically started hedging right around the peak 0:09:36.360 --> 0:09:39.080 and ended up losing billions and billions and billions of 0:09:39.120 --> 0:09:42.040 dollars in the process. Uh. And so there are a 0:09:42.040 --> 0:09:46.080 few kind of legacy effects of that experience for the airline. 0:09:46.480 --> 0:09:49.200 For most of the US airlines, they just got out 0:09:49.200 --> 0:09:51.920 of hedging entirely after the experience. They said, this is just, 0:09:52.040 --> 0:09:55.040 you know, a sort of scheme to enrich Wall Street 0:09:55.040 --> 0:09:57.320 bankers were not going to play it anymore, will mostly 0:09:57.360 --> 0:09:59.920 just rely on the spot price of jet fuel dealt 0:10:00.040 --> 0:10:03.640 them took a slightly different path and actually purchasing an 0:10:03.640 --> 0:10:06.920 oil refinery in Pennsylvania so they could have at least 0:10:07.000 --> 0:10:12.200 some control over the UH sort of production and refining process, 0:10:12.240 --> 0:10:14.640 and this still kind of helps supply some of their 0:10:14.679 --> 0:10:17.880 airplanes in the New York City metro area. But by 0:10:17.960 --> 0:10:20.959 and large, the airlines just decide we are getting out 0:10:20.960 --> 0:10:23.920 of with the major exception of Southwest, which still engages 0:10:23.920 --> 0:10:27.320 in hedging today. But where you see this conduct having 0:10:27.320 --> 0:10:30.280 an interesting ripple effect is that is not the case 0:10:30.360 --> 0:10:34.040 with European airlines. European airlines by and large do still 0:10:34.160 --> 0:10:36.800 do a lot of fuel hedging, and so what that 0:10:36.880 --> 0:10:39.160 ends up meaning is that the European airlines are obviously 0:10:39.160 --> 0:10:44.640 seeing much lower fuel costs today compared to the US airlines, 0:10:44.720 --> 0:10:47.160 which are having to pay the spot price. So if 0:10:47.160 --> 0:10:50.240 you think about a flight between the US and Europe, 0:10:50.800 --> 0:10:54.720 most of the cheapest fares today on flights to Europe 0:10:54.720 --> 0:10:57.920 are actually on European airlines. Like I was teching a 0:10:57.960 --> 0:11:01.000 look at a flight from New York to Switzerland, cheapest 0:11:01.040 --> 0:11:03.160 airline to fly on it right now is s A 0:11:03.440 --> 0:11:06.640 S with a Scandinavian airline, And many of those European 0:11:06.679 --> 0:11:09.600 airlines are able to offer lower fares as a result 0:11:09.679 --> 0:11:13.280 because they're not paying the current inflated prices of jet 0:11:13.320 --> 0:11:16.280 fuel and so that ends up having ripple effects for 0:11:16.400 --> 0:11:19.320 your Deltas and your Americans and your Uniteds which have 0:11:19.400 --> 0:11:22.640 to decide do we charge a more expensive fair and 0:11:22.800 --> 0:11:25.320 risk you know, being undercut on price and all our 0:11:25.360 --> 0:11:28.679 customers buying their flights on s A S or Lufthansa 0:11:28.800 --> 0:11:32.640 or British Airways, or do we lower our fares and 0:11:32.720 --> 0:11:35.000 compete on price but then end up having to eat 0:11:35.040 --> 0:11:37.440 the cost of higher fuel. And it's a I don't 0:11:37.600 --> 0:11:40.000 envy the folks in revenue management who are having to 0:11:40.040 --> 0:11:43.720 make these decisions today. I'm kind of surprised. I would have, like, 0:11:43.800 --> 0:11:47.080 my assumption would be that there's a market price of 0:11:47.440 --> 0:11:51.720 a ticket or you know, roughly, and that the company 0:11:51.760 --> 0:11:54.839 and the airlines that are paying uh that are hedged 0:11:54.920 --> 0:11:56.920 or making more money, and the airlines that are spot 0:11:56.920 --> 0:11:58.920 are going to pay less. I'm kind of surprised that 0:11:58.960 --> 0:12:02.079 there is a noticeable enough difference or that companies or 0:12:02.120 --> 0:12:06.840 that airlines can afford to charge significantly more for a 0:12:06.880 --> 0:12:10.040 given route than their competitors just because they happen to 0:12:10.040 --> 0:12:12.199 be paying more at a given moment for their their 0:12:12.200 --> 0:12:14.960 fuel cost. Yeah, one of the one of the most 0:12:15.120 --> 0:12:18.040 interesting things. And I would say, most unique things about 0:12:18.080 --> 0:12:21.920 the airline industry compared to other industries is just the 0:12:22.040 --> 0:12:26.240 volatility of airfare. It is unlike anything else we purchase. 0:12:26.320 --> 0:12:30.400 It is the most volatile purchase that consumers regularly make. 0:12:30.400 --> 0:12:32.880 And there are a few kind of unique challenges for 0:12:32.920 --> 0:12:36.720 the airlines and why that's the case. One is air 0:12:36.880 --> 0:12:39.520 airplane seats are what are called rival goods. You know, 0:12:39.559 --> 0:12:42.160 if I buy a seat, that same seat can't be 0:12:42.240 --> 0:12:45.040 sold to someone else. It's only uh can be sold 0:12:45.040 --> 0:12:48.920 to one person. Two, you have spoilage. You know, as 0:12:48.920 --> 0:12:51.920 soon as the airplane door closes, any seats that are 0:12:52.000 --> 0:12:54.920 unsold are are are spoiled. You can't get any money 0:12:54.920 --> 0:12:57.000 for them, and so they have to try to sell 0:12:57.000 --> 0:12:59.000 them by that date. But then three, you have sort 0:12:59.000 --> 0:13:02.680 of unpredict stability of demand. When you know you have 0:13:02.760 --> 0:13:06.320 to kind of project forward when you think travelers are 0:13:06.360 --> 0:13:09.520 going to purchase, when you think business travelers might purchase, 0:13:09.840 --> 0:13:12.080 what you think the world will look like, three, six, 0:13:12.160 --> 0:13:14.960 nine months from now. It's almost akin to having to 0:13:15.040 --> 0:13:18.360 buying a futures contract where you have to guess today 0:13:18.400 --> 0:13:20.720 what the kind of outlook will look like nine months 0:13:20.720 --> 0:13:22.520 from now. And that's why it's such a difficult thing, 0:13:22.559 --> 0:13:26.640 and why airfare tends to be so so volatile. Yeah, 0:13:26.760 --> 0:13:29.640 there was a consultant I wish I could remember his name, 0:13:29.720 --> 0:13:33.320 but he used to describe airlines very similar to a 0:13:33.360 --> 0:13:35.560 grocery store in the sense that you know, you have 0:13:35.679 --> 0:13:38.800 a thing that might not be worth it, Well, it's 0:13:38.800 --> 0:13:40.679 not going to be worth as much in a day 0:13:40.760 --> 0:13:43.160 or two. You know, the plane is leaving, whether it's 0:13:43.160 --> 0:13:46.600 full or not, sort of similar to the way fruit 0:13:46.679 --> 0:13:49.680 or vegetables would spoil. So you kind of need to 0:13:49.880 --> 0:13:54.839 sell that produce or that product when you can. And 0:13:54.960 --> 0:13:57.000 on that note, one thing I was wondering is, okay, 0:13:57.080 --> 0:13:59.679 you have all this pent up. Well, first of all, 0:13:59.760 --> 0:14:02.600 how much pent up demand do you see for air travel? 0:14:02.640 --> 0:14:05.959 And then secondly, are you expecting a big ramp up 0:14:06.080 --> 0:14:09.840 in capacity by airlines to respond to it. Yes, So 0:14:10.120 --> 0:14:13.520 I would say that there has been a significant amount 0:14:13.559 --> 0:14:17.080 of pent up demand until pretty recently. I think it's 0:14:17.120 --> 0:14:20.480 really kind of getting released this spring and into this summer, 0:14:20.920 --> 0:14:23.120 and I think by the fall we're going to start 0:14:23.160 --> 0:14:26.560 to enter a sort of period of stability similar to 0:14:26.680 --> 0:14:29.600 like we saw pre pandemic. You know, I think these 0:14:29.680 --> 0:14:31.960 next kind of four or five six months or where 0:14:31.960 --> 0:14:35.520 we're seeing that pent up demand getting released. But I'm 0:14:35.520 --> 0:14:40.000 glad that you called out capacity, because while demand is 0:14:40.680 --> 0:14:44.520 close to recovered, especially domestic demand, and I would say 0:14:44.880 --> 0:14:50.120 leisure demand vacationers visiting families and relatives, is actually higher 0:14:50.160 --> 0:14:53.920 today than it was pre pandemic. And obviously it's just 0:14:54.040 --> 0:14:57.960 the dearth of business travel that's resulting in lower overall 0:14:58.160 --> 0:15:02.040 travel numbers. Capacity is actually still down quite a bit 0:15:02.120 --> 0:15:06.360 from where it was pre pandemic, about about fifteen percent, 0:15:06.600 --> 0:15:09.520 but some routes, you know, especially trans Pacific ones, still 0:15:09.600 --> 0:15:13.440 down as much as seventy from where it was. Think 0:15:13.480 --> 0:15:17.040 about flights to China. The actual volume of travel from 0:15:17.160 --> 0:15:20.720 US and China right now is down from where it 0:15:20.800 --> 0:15:25.480 was pre pandemic. It is unbelievable, both how important it 0:15:25.600 --> 0:15:29.840 was in and just how absent it is today. But 0:15:29.960 --> 0:15:32.880 that kind of diminishment, well, you know, the main story 0:15:32.920 --> 0:15:36.320 that get talk gets talked about is how travel demand 0:15:36.480 --> 0:15:39.720 is kind of rebounding very very quickly, much quicker than 0:15:39.800 --> 0:15:44.160 most analysts expected, and that's causing probably the single greatest 0:15:44.160 --> 0:15:47.720 cause of why we're seeing such a bump in overall 0:15:47.840 --> 0:15:52.920 airfare prices. The capacity not rebounding quite as quickly over 0:15:52.960 --> 0:15:56.640 the past six nine months, in large part due to 0:15:56.720 --> 0:16:00.200 this ongoing pilot shortage, is a pretty signific a con 0:16:00.280 --> 0:16:02.720 factor that I think ought to deserve a lot of 0:16:02.760 --> 0:16:05.920 credit for the higher fares as well, that the airline 0:16:06.200 --> 0:16:09.160 airlines aren't able to operate as many flights as they 0:16:09.200 --> 0:16:12.640 would like to because they just don't have the capacity, 0:16:12.720 --> 0:16:15.200 they don't have the crew, and in some cases they 0:16:15.200 --> 0:16:17.160 don't have the planes to be able to do so 0:16:17.240 --> 0:16:19.520 that they would like to. And that just gets into 0:16:19.880 --> 0:16:22.680 you know, our favorite topic of supply chains, whether it's 0:16:22.720 --> 0:16:26.720 the labor supply chain of training and certifying new pilots, 0:16:26.800 --> 0:16:30.160 or whether it's the aircraft supply chain of building and 0:16:30.240 --> 0:16:47.240 shipping out new planes. So I think this is actually 0:16:47.280 --> 0:16:50.200 a good spot to tell us where exactly do we 0:16:50.320 --> 0:16:53.360 stand in terms of relative levels. I mean, you mentioned 0:16:53.480 --> 0:16:56.680 U as China, but for the various categories, whether it's 0:16:57.000 --> 0:17:02.520 domestic leisure, international leisure, business travel, like, where are we 0:17:02.840 --> 0:17:09.000 versus I guess the benchmarks. Yeah, so compared to domestic 0:17:09.040 --> 0:17:13.200 air travel is currently down about five percent, but again 0:17:13.240 --> 0:17:15.880 I think that belies the the the sort of makeup 0:17:15.960 --> 0:17:19.760 difference today versus pre pandemic, where it's much more weighted 0:17:19.800 --> 0:17:23.520 towards leisure travel. Leisure travel is higher today than it 0:17:23.680 --> 0:17:27.200 was pre pandemic. One of the reasons actually, why when 0:17:27.280 --> 0:17:30.000 you got down an airplane I'm assuming Trason Joe, when 0:17:30.000 --> 0:17:32.640 you're going to be flying soon or when you flow recently, 0:17:32.920 --> 0:17:36.560 that airplane I can pretty safely guess was completely full 0:17:36.720 --> 0:17:39.440 or almost completely full. And the reason why is that 0:17:39.680 --> 0:17:44.080 airlines are having to sell far more seats today than 0:17:44.200 --> 0:17:49.000 they used to make up for that lack of business travel. 0:17:49.080 --> 0:17:51.879 You know, historically they would want to keep some number 0:17:51.920 --> 0:17:55.240 of seats unsold up until the last few weeks or 0:17:55.359 --> 0:17:58.920 last few days before departure in order to take advantage 0:17:58.920 --> 0:18:04.639 of those late per purchasing but price insensitive business travelers. Today, 0:18:04.680 --> 0:18:07.920 they know that those business travelers aren't quite as prevalent 0:18:08.000 --> 0:18:09.520 as they used to be, and so they have to 0:18:09.520 --> 0:18:12.639 sell more seats to account for that. They know leisure 0:18:12.640 --> 0:18:16.280 travels the ballgame, and that's why airplanes on average today 0:18:16.320 --> 0:18:19.119 are more full than they were pre pandemic. You know, 0:18:19.200 --> 0:18:22.600 today a planes eight nine percent full on average versus 0:18:22.640 --> 0:18:25.840 the same week in it was eighty six percent full. 0:18:26.320 --> 0:18:29.360 Not not a whole lot of elbow room. But international too, 0:18:29.560 --> 0:18:32.119 you know, just to touch briefly on it is still 0:18:32.240 --> 0:18:36.200 down quite a bit compared to pre pandemic. It depends 0:18:36.200 --> 0:18:40.000 a little bit region to region. Mexico is actually up 0:18:40.080 --> 0:18:43.080 and been one of these sort of success stories, and travel, 0:18:43.119 --> 0:18:46.439 if you will, over the past year is significantly higher 0:18:46.520 --> 0:18:50.680 today in terms of travel demand than it was pre pandemic. 0:18:50.720 --> 0:18:55.840 Actually higher more passenger volume between the US and Mexico 0:18:55.960 --> 0:19:01.159 today than the same month in But international to let's say, 0:19:01.200 --> 0:19:07.200 Europe still down, you know, to Canada down, close to down, 0:19:07.280 --> 0:19:11.679 over across the Pacific down, and so that's where you're starting. 0:19:11.720 --> 0:19:15.240 You're really seeing kind of airlines hoping that we're going 0:19:15.280 --> 0:19:18.000 to see a rebound, and especially hoping that we're going 0:19:18.040 --> 0:19:20.720 to see the end of the requirement that you show 0:19:20.800 --> 0:19:23.639 a recent negative test to get back into the US, 0:19:23.800 --> 0:19:26.920 even if you've been fully vaccinated. I want to ask 0:19:26.920 --> 0:19:29.879 you more about testing your harms and also labor shortages. 0:19:29.920 --> 0:19:33.800 But before we do, there was a moment post two 0:19:33.840 --> 0:19:37.720 thousand eight when a bunch of airlines started or new 0:19:37.760 --> 0:19:43.040 startups began experimenting with business class only airlines, and part 0:19:43.040 --> 0:19:45.679 of that was in response to higher oil prices, and 0:19:45.680 --> 0:19:50.320 the thinking was, well, most planes, most airlines make the 0:19:50.359 --> 0:19:53.960 majority of their money from business class passion passengers. The 0:19:54.000 --> 0:19:57.959 business class passengers are essentially subsidizing economy, so why not 0:19:58.080 --> 0:20:01.400 just cut out economy and have this class only carriers 0:20:01.440 --> 0:20:04.679 for popular roots like London to New York or London 0:20:04.720 --> 0:20:08.119 to Paris or wherever. And it didn't work out so well. 0:20:08.119 --> 0:20:12.200 But I'm wondering what happens in the current cycle, because 0:20:12.240 --> 0:20:16.280 on the one hand, you have very high fuel prices. 0:20:16.320 --> 0:20:19.560 On the other hand, you have business class travel still missing, 0:20:19.600 --> 0:20:22.320 and no one's quite sure whether or not it's coming back. 0:20:22.359 --> 0:20:25.119 So maybe airlines want to focus on leisure. But how 0:20:25.160 --> 0:20:27.840 did they do that? What sort of creative ways are 0:20:27.880 --> 0:20:32.480 you seeing of responding to the current environment. Yeah, let 0:20:32.520 --> 0:20:34.280 me let me give you just a brief Let me 0:20:34.320 --> 0:20:36.359 give you a couple of data points here. When you 0:20:36.359 --> 0:20:41.840 look at Delta's financials in versus the number of seats 0:20:41.880 --> 0:20:44.439 that they had on a plane that were premium, you know, 0:20:44.800 --> 0:20:48.600 premium economy business class first class in eleven was nine percent, 0:20:49.960 --> 0:20:54.560 that it almost tripled to and the percentage of the 0:20:54.640 --> 0:20:57.760 first class seats that they sold that they didn't give 0:20:57.760 --> 0:21:00.000 away for free or you know, giveaway to somebody who 0:21:00.080 --> 0:21:02.280 is well dressed or something like that that they actually 0:21:02.320 --> 0:21:07.639 sold and got money for. Inn was but En was 0:21:07.960 --> 0:21:11.760 six and so as what what that is telling us 0:21:11.880 --> 0:21:15.919 is that the premium section of the airlines are where 0:21:16.200 --> 0:21:20.720 the airlines are seeing the significant growth in their revenue. 0:21:21.119 --> 0:21:24.480 That it is becoming increasingly important to airlines to be 0:21:24.560 --> 0:21:27.159 able to monetize the front of the plane. And so 0:21:27.240 --> 0:21:31.160 that's why you see airlines not only building out larger 0:21:31.240 --> 0:21:34.880 business class cabins, but also building out you know, premium economy, 0:21:35.000 --> 0:21:38.840 something that didn't really exist a decade ago but now 0:21:39.600 --> 0:21:42.199 is a pretty it's a big money maker for the 0:21:42.240 --> 0:21:45.439 airlines because it only the premium economy seats are only 0:21:45.520 --> 0:21:49.080 about thirty to fifty larger than a regular economy seat, 0:21:49.119 --> 0:21:51.639 but they generally charged double the price for it. So 0:21:51.680 --> 0:21:53.399 you can see how that works out pretty well in 0:21:53.400 --> 0:21:57.639 the airline's favor. Singapore Airlines just announced in the past 0:21:57.680 --> 0:22:01.160 week that their business class section and of their airplanes 0:22:01.240 --> 0:22:05.000 was actually selling out now before economy was. And now 0:22:05.000 --> 0:22:08.000 it's a you know, stark reversal of what was happening 0:22:08.040 --> 0:22:11.320 pre pandemic. And so I think you're seeing a couple factors. 0:22:11.560 --> 0:22:16.040 By and large, the airlines are marketing more towards affluent 0:22:16.280 --> 0:22:20.439 leisure travelers rather than primarily business travelers in order to 0:22:20.480 --> 0:22:23.879 sell these premium seats. And secondarily, I think they're getting 0:22:23.960 --> 0:22:27.800 much better at sort of the pricing mechanisms to reach them, 0:22:27.840 --> 0:22:30.200 you know, not just having a sort of one size 0:22:30.200 --> 0:22:32.879 fits all, very high inflated price. And then there are 0:22:32.880 --> 0:22:34.920 a lot of unsold seats and maybe they'd give them 0:22:34.920 --> 0:22:38.439 away to two elite members and instead being able to 0:22:38.560 --> 0:22:41.760 do much more sort of dynamic pricing. I don't know 0:22:41.800 --> 0:22:45.320 if you had this offer one your recent flights, but 0:22:45.920 --> 0:22:48.040 what they'll do many times if they have a number 0:22:48.040 --> 0:22:50.919