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Analysis

US airlines make leisure passengers the new priority class

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US airlines are fighting over leisure travellers, the historic second-class citizens of flight, like passengers on a crowded plane angling for the last available overhead bin.

United, American and Delta airlines have all discounted fares, eliminated change fees and revamped their networks to add more flights to holiday destinations as they seek to appeal to the only people flying right now.

The pandemic has forced large airlines to focus on winning business from the roughly 80 per cent of passengers who bring in just 50 per cent of the revenue with corporate travellers staying home — except when they, too, are tempted by a sun-and-surf getaway.

While the strategy has yielded working capital for airlines and decent deals for would-be holidaymakers, analysts said it is a long-term loser for the largest US carriers because it cannot cover the costs that accompany running a network for business travellers.

“It’s a comeuppance, if you will, of these companies which have been very focused on frequent customer relationships to the exclusion of everybody else,” said airline consultant Robert Mann. “So that is a bit of irony.”

The spread of Covid-19 has caused catastrophic disruption to airlines worldwide this year. Fear of contagion combined with governmental restrictions caused US passenger traffic to drop 96 per cent in April, according to data from the US Transportation Security Administration. It has recovered some but remains two-thirds less than October last year.

In September, capacity at the three largest US carriers by revenue was down 50 per cent for domestic flights and more than 70 per cent for international routes, according to data from aviation consultancy OAG.

Charts showing that flights are well below last year's level

Business travel has not rebounded as quickly as leisure, and airlines expect that some portion of that travel on pricier tickets will never return. So the largest airlines are pumping their schedules full of point-to-point flights to holiday destinations, bringing them into direct competition with smaller low-cost airlines.

Alaska Airlines, citing a “sun and snow strategy”, increased offerings to Mexico and the nearest airport to Lake Tahoe. United said on October 2 that it will increase its service to more than 40 Caribbean and Mexican beaches in November, after previously adding more flights to Florida. American Airlines has added 33 new routes since June, plus two new destinations in Mexico.

Southwest Airlines’ addition of flights to Palm Springs, California and Miami “will bring us access to additional revenue at a critical time”, said chief executive Gary Kelly.

The current competition for infrequent travellers shows “an extraordinary effort” from airlines, Mr Mann said, with pricing “somewhere between attractive and smokin’ hot attractive”.

Meanwhile, dropping $200 fees to change a ticket reassures customers they will not be penalised if their plans change, encouraging them to book a trip. Simply getting bookings is important for airlines, because it gives them customers’ money to use as working capital, Mr Mann said.

Chart showing that major US airlines have dropped change fees

The move creates goodwill, even as more lucrative fees, like for checking baggage, remain in place. US airlines brought in $2.8bn from change fees in 2019, compared with $5.8bn from bag fees.

The airlines are seeking potential customers like Juliana Mazzone. After the pandemic scuttled her previously planned trips this year, Ms Mazzone found herself itching to go somewhere. She and her sister found a $300 flight to Aruba on United from Newark, New Jersey, packaged with a five-day stay in a resort for another $1,000.

They chose the Caribbean island because the package offered a deal for a destination that in normal times seemed more out-of-reach than Mexico’s beaches. A year ago, a round-trip ticket from the New York area to Aruba would have cost 18 per cent more.

“It was a bang for your buck situation,” she said.

American Airlines chief revenue officer Vasu Raja said the company is attempting to build relationships with current flyers and “graduating them to higher tiers of loyalty”.

“There is simply not enough traffic,” he said last month. “It’s causing us to really rethink how we approach leisure and business.”

The largest airlines did not until now view leisure travellers as “the top priority — that’s a nice way to put it”, said Savanthi Syth, an analyst at Raymond James. But as they attempt to change strategy, they are saddled by the costs associated with catering to corporate travellers, everything from first-class lounges to networks built around multiple daily flights between business hubs.

Charts showing that US airline ticket prices have been hit hard

“Those are all higher costs things, but when you have business travellers, you can sustain that because they tend to be more premium fares,” she said. “They can’t sustain this longer term unless they remove some of those things.”

Airlines’ efforts to court leisure travellers has encountered some scepticism. Dave Mason has racked up miles with United as a strategy director at a Chicago brand communication firm, but even before the pandemic, an industry shift toward remote work meant that when he flew, it was usually for leisure.

The airlines have neglected leisure travellers, he said.

“I won’t say mistreated them, but you were definitely the bottom of the barrel if you were not a business traveller in the past,” he said. “People get jaded by that. You’re going to gravitate toward the airlines that treated you least worst.”

Courting leisure travellers, he added, is “the only avenue they’ve got left, so I can see why they’re doing it, but it just seems like desperation”.



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Analysis

Can plant-based milk beat conventional dairy?

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Plant-based milk brands are churning up the global dairy business, with a surge in sales, investment, and new products coming to market. The plant derived dairy trade is now worth an estimated $17bn worldwide.

Growing consumer demand has boosted investment. According to data firm Dealroom, venture capital funding across the plant-based dairy and egg sector has skyrocketed, from $64m in 2015 to $1.6bn in 2020.

The world’s biggest food company, Nestle, recently launched its first international plant-based dairy brand, a cow’s milk substitute made from yellow peas. Wonder will come in a variety of flavours, competing with established brands like Oatly oat-based milk. Founded in Sweden in the 1990s, that company is now valued at around $15bn. Demand for alternatives to soya, which once dominated the dairy free market, continues to escalate.

In the west, sales for other plant-based milks, including oat, cashew, coconut, hemp, and other seeds overtook soya back in 2014. Since then, they’ve raced ahead to be worth almost three times as much as soya products, with a combined projected value of more than $5bn in sales by 2022.

Advocates argue that plant-based production emits less greenhouse gas than cattle, making it the way forward to help feed the world and curb global warming. But dairy groups are fighting back with their own sustainability campaigns. And cow’s milk is hard to beat when it comes to naturally occurring nutrients, like protein, vitamins and minerals.

The average 100 millilitre glass of cow’s milk contains three grammes of protein, compared to 2.2 grammes in pea milk and just one gramme in oat-based substitutes.

Dairy producers have also won a legal bid, preventing vegan competitors in the EU from calling their products milk and yoghurt. Despite their growing popularity, plant-based brands are a long way from displacing conventional milk products. Their current $17bn turnover is still a drop in the pail, compared with the traditional cattle-based dairy trade, which is worth an estimated $650bn worldwide.



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'It’s more than sport – every day we are fighting for our rights to be equal’

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French pro basketball player and podcaster Diandra Tchatchouang on her role beyond the court



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Emily Dean on how allyship amplifies the female experience on film

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When I was six years old, I decided to be an artist. When I was 12, I decided to be a filmmaker. And instead of saying no, you can’t do that, or it’s not possible, my mum bought me a video camera.

After several years of working in the industry, I’m working with a female director for the first time. And it’s been such a gratifying experience. Women express leadership in different ways. Maybe you don’t have to be the loudest person in the room. But you can have great ideas.

And the best thing about being mentored by women and being a mentor to women is that make friends with women.

There’s something so powerful the women coming alongside other women, especially in a group setting. Because it means that you can and back each other up. You can support each other’s decisions, and you can amplify each other’s voices.

It’s about seeing yourself in your work. Seeing some part of yourself reflected is really gratifying. It’s also important that we speak up for female characters. I want to see girls and women on screen who have the whole cacophony of experience of what it’s like to be female.

I want to see their flaws. I want to feel their struggles. I want to see their joy. That is so important to making a character feel real. And it took me a little while to settle into myself and realise, if the characters I like to come up with are not your everyday run of the mill characters you see in animation, that’s fine. Because this is who I am.

When you walk into a story room, when you’re working on a film, you have to leave your ego at the door. I think that can be interpreted like keep your ego out of the work. But I’d also say for women who are maybe more shy that leaving your ego at the door means you walk in. And your job is to focus on what’s best for the story and for the film.

The story needs you. The film needs you, and it needs your best ideas. It won’t thrive unless you speak up.



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