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Good News for Airlines: The U.S. Will Open to More Foreign Visitors

Since early 2020, the federal government has maintained a ban on international travel to the U.S. affecting billions of foreigners. Naturally, these restrictions have drastically crimped demand for international travel to and from the U.S., hurting airlines like Delta Air Lines (NYSE: DAL), United Airlines (NASDAQ: UAL), and American Airlines (NASDAQ: AAL).

However, the U.S. is finally ready to relax these restrictions. That's great news for U.S. airlines with significant long-haul international operations.

Major travel restrictions remain in effect

As the COVID-19 pandemic spiraled out of control in 2020, the Trump Administration implemented severe restrictions on travel to the U.S. from 33 countries, accounting for a wide swath of the world (including China, India, Brazil, and most of Europe). The Biden Administration left those restrictions in place when it took office earlier this year.

Under current regulations, even fully vaccinated individuals (other than U.S. citizens and people qualifying for certain other exceptions) may not enter the U.S. if they have been in any of these 33 countries within the past 14 days.

Image source: Getty Images.

While most of Europe began allowing U.S. tourists to visit this summer, the U.S. didn't loosen its own regulations. The lack of reciprocity angered European leaders, particularly given that the novel coronavirus (especially the Delta variant) was already circulating widely in the U.S. this summer. Airline executives also protested the ongoing restrictions as being arbitrary and unscientific.

Relaxing the rules

On Monday, the Biden Administration confirmed that it will ease its travel restrictions later this year. Beginning in early November, fully vaccinated individuals will be able to travel to the U.S. by air -- even for non-essential purposes -- as long as they show proof of vaccination before boarding and provide a negative coronavirus test within three days of arrival in the U.S.

The new rules will potentially unlock a flood of international travel demand, particularly from Europe, where vaccination rates tend to be quite high. (To be fair, unvaccinated travelers from countries not covered by the current travel restrictions will no longer be able to visit the U.S. -- but the net effect will still be a significant increase in air travel demand.)

Naturally, this move represents a boon for the likes of Delta, American, and United. While the reopening of Europe to vaccinated Americans for tourism boosted transatlantic demand this summer, international travel demand as a whole remains far below pre-pandemic levels. As a result, the network airlines are struggling to utilize their pricey wide-body jet fleets productively.

Image source: Delta Air Lines.

Come November, Delta Air Lines, American Airlines, and United Airlines are poised to benefit from pent-up demand for visiting friends and relatives in the U.S., leisure travel, and even long-postponed international business travel. To be sure, demand won't return to 2019 levels immediately. However, full-service airlines would be able to resume many international flights that can't even break even today.

Much-needed good news

Airlines haven't gotten much good news recently. Oil prices have surged, erasing much of the cost savings they had enjoyed last year. Meanwhile, the end of the summer travel season and the spread of the Delta variant have combined to undermine the recovery in domestic air travel demand. Many businesses have postponed plans to reopen their offices, further delaying any recovery in business travel.

As a result, airlines (including American, Delta, and United) have reduced their Q3 revenue and earnings forecasts across the board. Many have warned that the outlook for the fourth quarter is worsening, too.

A reopening of the U.S. to vaccinated foreigners from major markets like Europe could help restart the recovery process. And if a recent decline in U.S. COVID-19 case counts and hospitalizations continues, most U.S. airlines could realistically return to consistent profitability in 2022.

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Adam Levine-Weinberg owns shares of Delta Air Lines. The Motley Fool recommends Delta Air Lines. The Motley Fool has a disclosure policy.


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