PCR test & US proposed quarantine: Impact on the MEX-USA cross border market and Latin America carriers
Yesterday, we read the news about a potential new quarantine requirement for passengers flying to the US. As observed in the past, the need to show a negative PCR test before a flight coupled with a quarantine requirement upon landing are measures that many countries have taken in order to slow down new waves of infection (2nd, 3rd and 4th ones i.e. Hong Kong) and at least two suspected virus mutations.
Like any new measure, they increase passengers and visitors anxieties and fears to travel. Therefore, booking curves will begin to decelerate as soon as next week for inbound travel to the US and therefore global airlines will react and adjust capacity and fares accordingly.
For the Latin American market, the impact is expected to be a large one both for airlines and tourism businesses especially when considering the MEX-USA cross border traffic. Based on OAG, the market had recovered close to 90% pre-pandemic capacity level by the end of 2020 and it ranked No. 3 among the top 20 global country pair markets. The strong growth was associated with a combination of factors including: Key and sought-after beach destinations in MEX (Cancun, San José Cabos and Puerto Vallarta), US fall/winter season leisure travel and the close proximity between the two countries. Besides, both countries keep their border and markets open for international travel while at the same time many others implemented travel restrictions and quarantines especially in Europe and Asia while many countries in Latin America shut down their airspaces. Therefore, both US and Mexican carriers strategically shift capacity inward and cross border especially boosting growth between the two countries for the latter.
Related to other markets in Latin America and the potential impact of a dual PCR testing and quarantine for international traffic, they will be felt as well. Again, capacity may have to be shifted more inward and regionally. Related to US carriers and as many global travel restrictions limiting passenger movements are observed, latest generation aircraft (B787-8 / 9) were place in long range Latin American routes in order to keep those asset flying. However, those fuel-efficient assets are typically placed in more “product competitive and premium” routes outside the Latin America region.
Besides, it seems that airlines such as SKY Airline may have to "pause" its strategy to penetrate the US in 2021 while the two largest ULCC MEX players will need to shift more capacity inward. Likewise, Aeromexico could be the MEX carrier most impacted as premium cross border traffic may vanished and further travel restrictions in Europe may be in the horizon.
Nonetheless and based on booking curves performance in other markets when measures like those ones were implemented, my opinion is that these new requirements may end up impacting cross border bookings between 75% (optimistic) to 90% (pessimistic). However, it will be still key to continue aligning customer confidence tactics with commercial strategies (booking flexibility, fare refundability, extending the offer to waive change fees, etc.) to diminish anxieties to travel and impact until better days come.
Thoughts?