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Lagging business travel takes shine off transatlantic restart

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November 8, 2021

By Sarah Young and Rajesh Kumar Singh

LONDON/CHICAGO (Reuters) – Planes will fill the skies above the North Atlantic again from Monday, a boon for airlines after 19 months of restrictions, but that alone won’t be enough for carriers whose profits depend on filling the most expensive seats.

The real battle of the transatlantic, the world’s most lucrative travel market, takes place at the front of the plane, in first, business, and premium economy class, where those paying the top prices help drive airline profits.

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Question marks remain over the pace and extent of the return of corporate travel budgets, after the pandemic showed online calls and virtual meetings offered a workable alternative.

That’s bad news for the likes of British Airways parent company IAG and Germany’s Lufthansa, whose profits have in the past been buoyed by corporates spending more by booking closer to departure and flying at more convenient times.

Some travellers are desperate to get back over the pond.

“We are in a relationship business and travelling is necessary to meet clients, to win deals,” said Anthony Diamandakis, Citi’s co-global head of Global Asset Managers.

For smaller, non-financial businesses too, travel is essential for trade.

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“In my experience of the USA, it’s a people market – deals get done face to face, with a handshake and looking into each other’s eyes,” Tony Kinsella, chief executive of UK-based materials development and testing company Lucideon, said.

The United States will allow fully-vaccinated Britons and Europeans to enter from Monday, fully re-opening to two-way traffic for the first time since the pandemic started.

“USA, here we come,” said Kinsella, who already has his tickets booked.

LONG SLOG

Most experts believe that corporate travel will lag the recovery in leisure travel.

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U.S. spending on corporate travel is expected to reach only 25%–35% of 2019 levels by the fourth quarter of 2021, and 65%–80% a year later, according to a Deloitte survey of 150 travel managers.

One British FTSE 100-listed company, which did not want to be named, said it planned to reduce travel for internal meetings next year by two-thirds on 2019 levels, and by one-third for external meetings.

That means the full transatlantic restart might not be as lucrative as airlines would hope.

Europe-based carriers tend to be more reliant on transatlantic revenues than their U.S. competitors.

Pre-pandemic, those routes accounted for more than 26% of IAG’s revenues and over 24% of Lufthansa’s, according to Bernstein analyst estimates.

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That compares with between 11% and 17% of passenger revenues at U.S. carriers American Airlines, United Airlines and Delta Air Lines, and 16% of Air France-KLM’s.

UK-based Virgin Atlantic is even more exposed, with an estimated 60-70% of its revenues coming from transatlantic routes.

Airlines do not break down transatlantic profitability, but one analyst estimates that at IAG for instance, first class, business class and premium economy flying account for more than half of the profits it makes from transatlantic flying.

John Grant of global travel data specialist OAG does not expect transatlantic business travel to start to show any significant recovery until the second quarter of 2022.

“Major conferences in the first quarter of next year have already in many cases been cancelled since the planning cycle is so long,” he said.

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“Companies want to be sure that there is revenue to be had from such trips, so they will be waiting to see how economies and trade recover.”

LEISURE UPGRADE

Airlines are going to be looking to leisure travellers https://www.reuters.com/world/the-great-reboot/grandmother-grandson-finally-meet-us-flights-reopen-2021-11-05 to fill the gap left by corporates, and after months of lockdowns their pockets will be deeper, encouraging them to splash out on that premium economy or business class seat.

According to Willie Walsh, IAG’s former chief executive who now heads up global airlines body IATA, the importance of corporate travel to airlines is often overstated.

“Everybody assumes that people travelling in the premium cabins are travelling for business. They’re not,” he told a recent industry event.

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Airlines are trying harder than usual to entice leisure customers to upgrade given the dearth of business travellers.

“We’re seeing when people do take that trip, they’re thinking more of the experience,” said Virgin Atlantic’s CEO Shai Weiss.

IAG, Lufthansa and Virgin have spoken of strong demand for premium travel, and said that there are also signs that business travel is returning.

Delta also said last month that its corporate bookings for Europe doubled to 30% of 2019 levels following the reopening announcement.

OAG’s Grant said pent-up demand and seasonal holidays had helped lift fares on transatlantic routes in recent weeks, and the market would likely remain strong until mid-January.

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“The absence of business travel will make the airlines wary of adding capacity back too quickly in the first three months of next year,” he said.

(Writing by Sarah Young; Additional reporting by Rajesh Kumar Singh, Andres Gonzalez and Kate Holton; Editing by Jan Harvey)

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Apple starts legal action against Russian regulator in App Store dispute -RIA

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December 6, 2021

MOSCOW (Reuters) – Apple has started legal proceedings against Russia’s anti-monopoly regulator in a dispute concerning alternative payment options on its App Store platform, the RIA news agency reported on Sunday citing court filings.

Russia opened an antitrust case against Apple in late October, accusing it of failing to allow app developers to tell customers about alternative payment options when using its App Store. It said Apple could face a fine based on its revenue in Russia if found guilty.

In documents published on Dec. 1, the Moscow Arbitration Court listed Apple as a claimant and Russia’s Federal Anti-monopoly Service (FAS) as a defendant in “economic disputes over administrative legal relations.”

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Apple, which did not immediately respond to a Reuters request for comment, demanded that additional documents be added to the case on Dec. 2, RIA reported.

Forbes Russia cited a FAS representative as saying that the proceedings related to a warning it issued on Aug. 30 over Apple’s alleged failure to inform users they could also pay for purchases outside the App Store.

The FAS did not immediately respond to a request for comment.

Apple faced pushback over its App Store rules in the United States in September when a federal judge issued a ruling forcing the company to allow developers to send their users to other payment systems.

(Reporting by Alexander Marrow; Editing by Andrew Osborn)

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Weaker foreign demand sinks German industrial orders in October

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December 6, 2021

By Michael Nienaber

BERLIN (Reuters) -Weaker demand from abroad drove a much bigger than expected drop in German industrial orders, including cars, in October, data showed on Monday, further clouding the growth outlook for manufacturers in Europe’s largest economy.

A pandemic-related scarcity of microchips and other electronic components has caused massive supply bottlenecks and production problems in Germany’s mighty automobile industry and other important sectors of the economy.

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Orders for goods ‘Made in Germany’ dropped 6.9% on the month in seasonally adjusted terms after a revised rise of 1.8% in September and a plunge of 8.8% in August, figures from the Federal Statistics Office showed.

A Reuters poll of analysts had pointed to a smaller decline of 0.5% on the month in October.

“After incoming orders climbed to an all-time high in mid-2021, the index has lost more than 16 points in recent months,” the economy ministry said, adding that the second sharp decline within three months put a further damper on the economic outlook.

Excluding distorting factors from bookings for big ticket items such as planes, industrial orders were still down 1.8%, the data showed.

The drop was driven by a decline in foreign orders of more than 13% on the month, with demand from countries outside the euro zone such as China particularly weak. Orders from domestic clients rose 3.4%.

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“New lockdowns in Asia are slowing industry in Germany,” VP Bank analyst Thomas Gitzel said. He added that the current wave of coronavirus infections across the globe was putting a renewed burden on the world economy.

Gitzel said that domestic demand should remain strong, helped by the new ruling coalition’s commitment to massive investment in the green economy.

“The decarbonization of the economy requires major investments in new technologies. German industry can and will benefit from this,” Gitzel said.

The weak orders data suggest that manufacturing will hamper overall economic growth in the coming months, with analysts expecting stagnation at best in the final quarter of this year.

(Reporting by Michael Nienaber, editing by Kirsti Knolle and Philippa Fletcher)

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Marketmind: Chasing the Omicron dip

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December 6, 2021

A look at the day ahead from Julien Ponthus.

Buying the dip triggered by the Omicron COVID-19 variant across global markets has proven a costly strategy so far. But some investors seem determined to have another go.

European and U.S. stocks futures are trading sharply higher after ending last week on a sour note and notwithstanding a dismal day in Asia where an MSCI index of Asia-Pacific shares outside Japan lost about 0.9%.

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The region has seen a series of corporate setbacks after ride-hailing giant Didi decided to withdraw from the New York stock exchange last week.

Shares in China Evergrande, the world’s most indebted developer, plunged 14% after it said there was no guarantee it would have enough funds to meet debt repayments.

Another giant, Alibaba dropped 5% after announcing it would reorganise its international and domestic e-commerce businesses. And U.S. regulatory opposition to the sale of Softbank-owned chip firm Arm pushed the Japanese conglomerate 8% lower.

But the mood is lighter already across Europe, allowing 10-year Treasury yields to claw back some of Friday’s falls which took them below 1.4% for the first time since late September.

There are five trading sessions left before Friday’s U.S. consumer price report which some reckon will provide the green light for the Federal Reserve to accelerate its tapering of bond purchases.

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Oil prices too rose by more than $1 a barrel after Saudi Arabia raised prices for its crude sold to Asia and the United States.

And if the market mood is perking up, there is no sign of that in Bitcoin which has fallen further and is now at $48,244 — some $20,000 below peaks hit a month ago.

Key developments that should provide more direction to markets on Monday:

-Vivendi is open to discuss with Rome over state control on TIM’s network

-Alibaba overhauls e-commerce businesses, names new CFO

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-Swiss National Bank Vice Chairman Zurbruegg to retire in July 2022

-Weaker foreign demand sinks German industrial orders in October

-CBI cuts UK economic growth forecasts on supply chain hit

-Euro zone finance ministers to discuss 2022 draft budgets, euro summit

– Russian President Vladimir Putin visits India

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– UK construction PMI/new car sales

-Euro zone finance ministers to discuss 2022 draft budgets, euro summit

BOE deputy Governor Broadbent, ECB Governor Lagarde and board member Panetta speak:

(Reporting by Julien Ponthus; editing by Sujata Rao)

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