Why I'm Worried the Rise of Tesla and Zoom Will Be the Downfall of Domestic Airlines

It's not news that airlines are struggling. The pandemic is dragging out for longer than most of us expected, and while the rollout of vaccines provides a ray of hope, a full-blown rebound for domestic flights may not get under way until this summer, if then. In the meantime, it's dark days for what was a staple of the transportation infrastructure.

Don't get me wrong, I'm rooting for a recovery for airlines -- if for no other reason than to keep hundreds of thousands of people's jobs intact. However, I can't get on board the argument to buy airline stocks on the hopes of a rally later in 2021 or beyond. Zoom Video Communications (ZM -0.82%), Tesla (TSLA -1.92%), and other tech companies are the reason why.

The worst-case long-term scenario for airlines: Video conferencing while in a long-distance commute in an autonomous car. Image source: Getty Images.

Don't underestimate the headwinds facing business travel 

Airlines are trying to fly against a stronger headwind than many realize. But while 2020 revenue was just a fraction of 2019 levels thanks to COVID-19, pent-up demand among vacationers will turn into a boom sooner or later. It's assumed that will happen later this year. 

However, I'm not so sure about business travel, and leaders in the tech and digital payments world agree. Take this quote from Mastercard (MA 0.15%) CEO Michael Miebach: 

We continue to believe travel will improve, starting with personal travel as border restrictions ease and as vaccination efforts expand. We believe corporate travel will follow. As we said in the past, progress may not be linear, but we believe there is significant pent-up demand for travel. And we continue to expect to see improvements in the second half of the year. 

The above quote has a positive spin, but the key takeaway is that a recovery in business travel is expected to occur "later." Don't underestimate the impact delays in business travel will have on airlines. Here's a snapshot of Delta Air Lines (DAL -0.58%) and its full-year 2020 results compared with 2019. I'm not picking on Delta here, by the way, but using it as a proxy for the whole industry because of the extra insight that Delta provides about its revenue.

Data source: Delta Airlines. 

The good news is that main cabin travel was the bulk of Delta's revenue pre-pandemic, so a rallying travel industry bodes well for the company. However, business cabin and other premium sales were in a not-so-distant second place, even though only a small minority of an airline's seats are reserved for this class of passenger. The reason? Flying business and first class is expensive. It's also highly profitable, accounting for as much as three-quarters of pre-pandemic airline industry profits by some estimates.

That means it could take years for airlines to recover pre-pandemic profitability. United Airlines (UAL -0.08%) said it might not be until 2023, and even then on an adjusted basis that excludes interest costs from all the new debt it's had to take on in the last year. 

A one-two punch for the domestic travel status quo

Here's the thing: Money doesn't just disappear. It sits idle somewhere -- in a company or consumer's savings -- or it gets spent somewhere else. In many cases, money saved on business travel in the last year has gone towards Zoom. During its fiscal third quarter last year, Zoom said 60,000 new business customers signed up during that period alone. At the end of October 2020, the company reported having nearly 434,000 business customers with at least 10 employees. 

So what? Well, the longer the pandemic goes on, the more businesses will adjust to the "new normal." And this new normal is more profitable and efficient for many of these businesses. Turns out many of us were spending too much time and money commuting for business meetings that could have been conducted via video conference. Thus, I think Zoom, along with other video conferencing and virtual collaboration tools, will work against a rebound in airlines' most lucrative ticket sales.

I think there's disruption on the way longer-term, too. Tesla continues to roll out new autonomous vehicle options. Full autonomy (here meaning being able to tell a car where to go, then climb in the back seat and take a nap) is still a ways off, but there's steady progress in that direction. And Tesla isn't alone in developing the tech. Companies like semiconductor leader NVIDIA (NVDA -10.01%) are developing platforms to improve both teleconferencing software and vehicle autonomy. And if I was an automaker executive, I'd be eyeing eventual vehicle autonomy as a way to take a slice out of the lucrative domestic business travel market, not to mention vacation travel. It's often overlooked that Tesla in particular is gunning to reshape the economy at large -- not just the auto industry. Why not airlines too? 

A quick look at just Delta's pre-pandemic business class and premium sales illustrates the amount of spending that is suddenly up for grabs because of the disruption the pandemic has hastened. Between video conferencing for business meetings and autonomous driving tech, I see massive disruption for the domestic airline industry in the 2020s. A big recovery in vacation travel could certainly help airlines get back to break-even in 2021 and 2022, but the future beyond that is just too cloudy for my personal comfort. I think tech like Zoom and NVIDIA are the better long-term investments.