The TSA reported a low of 87,534 people passing through airport security checkpoints on April 14. That’s compared to 2.2 million the previous year.
Since then we’ve seen a bounce off of the bottom, and consistent growth. Some people thought that 340,000 people in a day over Memorial Day would represent a high, and indeed travel numbers dipped after that, but then started climbing. We saw 419,675 people through checkpoints on June 5; 441,225 on June 7; 430,414 on June 8. We crossed 500,000 passengers on June 11, still only 18% of comparable 2019 travel.
Then traffic dipped again to 338,382 on June 9 and 386,969 on June 10. There are still peak days of the week to travel, just like there were before the pandemic. Fridays and Sundays are still big travel days. Wednesdays are still slow.
Seeing the bounce off the bottom has led to a great deal of optimism – too much optimism – about how quickly travel will return.
The Case For A Quick Snap Back
Consultant Mike Boyd is doing a victory lap over his projection that travel would rebound quickly. He targeted 85% recovery in air passenger travel by the end of 2020, and says now that may have been ‘conservative’. He’s massively overstating his case.
For The Cassandras, Read’em And Weep. The indicators now are all very strong. We have seen Frontier adding new markets, Allegiant taking back airliners from the desert, American noting they will be back to 55% of pre-CCP-COVID capacity. We see Delta’s July schedule filings indicating a 70% increase in departures over June, and 146% more ASMs. Spirit is restoring capacity, also.
The fact is that the economy is coming back, and it is taking air transportation demand along with it.
American’s current domestic schedule for July is back to 55% of last year’s levels, overall they’re just at 40%. This tells us that some airlines are projecting to be able to pick up more passengers. American and Southwest were ahead of the curve here (taking advantage of the fact that Delta and United were being more conservative).
Allegiant’s numbers are too small to matter. Allegiant also is an all-leisure model with very little exposure to markets that had been heaviest hit by the virus early on.
And so far the single biggest air travel day was only 16.5% the number of people clearing security as in 2019.
We can play games and say that there’s been 400% growth in air travel in two months, and at that pace we’ll be back to 70% demand in mid-August, and we’ll have three times the size of an airline industry that we did before the pandemic in October! Of course that’s not how this works.
Business Travel Won’t Return This Year
Summer is traditionally peak travel season, with the greatest number of passengers. Come the fall we see business travel picking up the slack. But business travel will be slow to return.
- Companies are reticent to push employees back onto the road.
- Companies suffering in the economy find travel budgets an easy place to cut as they try to rebuild their balance sheets.
- Some trips do get replaced by online meetings. Not all, of course, but with the significant push three months ago towards work from home people were forced to incur the transaction costs to get acclimated to remote work. Indeed, many offices will continue remote work to some extent which means employees won’t be visiting headquarters or satellite offices, either.
- Conferences and conventions won’t return in person right away either. Gatherings of hundreds, thousands, and tens of thousands of people are exactly the events that will be avoided due to the virus. These events are planned years in advance, and have value mostly based on who else will be there so people won’t want to return until other people return. The coordination challenge involved will mean this segment returns last.
- Until offices are back at full capacity, and taking visitors, business travelers aren’t going to visit clients or prospects there either.
How Travel Opens Up And Recovers Has Too Many Unknowns Based on Spread Of The Virus
Overall how travel recovers will depend on developments with the economy and the virus. And while new cases have plateaued in the U.S. at the moment they aren’t falling.
- At one point it seemed like the whole country could experience the virus the way New York did, and that hasn’t happened.
- New York is recovering, and probably reached something close to herd immunity – which seems like it triggers at far less than a 60% infection rate. Super spreaders tend to get the virus first, some people are naturally immune (this may correlate with blood type), and others may retain some immunity from prior viral infections. What happens to New York though a year from now as temporary immunity subsides?
- Domestic leisure destinations have seem some of the recovery traffic, American Airlines touted itself as the biggest airline to Florida in July with growth also in Gulf markets. But Florida and Texas, along with states like Arizona, are seeing new growth in virus cases and also in hospitalizations. While there’s reason to believe in seasonality, when people retreat indoors from the heat into air conditioning that’s ripe for spread too.
- The best hope is that everything we’ve learned about the virus so far has improved patient treatments, which helps with better patient outcomes. And we’re not doing truly stupid stuff anymore, like New York ordering nursing homes to accept COVID-positive patients being discharged from hospitals. That’s a bridge to treatments on the horizon. Right now remdesivir is in short supply, and works best on patients early, but is just being given to the worst cases. We’ll soon have other treatments, not just repurposed drugs but new antibody treatments developed from the blood plasma of recovered patients. We won’t have enough of it, but it too will help us manage through to the point where there’s a vaccine (assuming there is one).
- We won’t shut down whole economies again, but the biggest challenge to more targeted policies is lack of good data on how the virus is really spreading – not just number of cases, but where those cases are coming from. In my home city many were showing up at construction sites (where non-employee undocumented workers, who can’t get unemployment or sick leave, were showing up to work sick). Knowing whether cases are coming from prisons, nursing homes, or people going out to bars gives us data on how to control spread.
So does the virus continue with a slow burn, or mini-fires – as it rushes into places that had previously been spared – dragging out the pandemic here in the U.S.? That will harm airline recovery.
And it isn’t just U.S. spread that matters. There are issues of countries that keep their borders closed, out of fear of bringing the virus back in, and countries that are effectively closed to visitors right now because of prevalence of spread.
It isn’t just Brazil, Russia and India. Did you know that Qatar has per capita confirmed spread four times the rate of the U.S.? They’ve had very few deaths, which I presume is because the virus has spread predominantly through their guest worker communities which skew much younger.
Even If Travel Snaps Back, It Only Does So Part WayBoyd writes, “One of the usual suspects is claiming it will take three or four years to get back to 2019 levels. It’s what happens when consultants rely on “models” instead of having a grasp of industry trends.”
However even if we take his claim at face value that travel returns 85% by end of 2020, at 6% annualized growth after that it’s still… 2023 before travel gets back to 2019 levels. And by the way you’ve lost out on the growth that would likely have happened without the virus.
Meanwhile it’s easy to conflate the effects of the virus and the economy but the U.S. economy is in a very deep recession. Just for order of magnitude and not suggesting that the numbers themselves are correct, the Federal Reserve Bank of Atlanta’s GDPNow forecast for June 9:
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2020 is -48.5 percent on June 9, up from -53.8 percent on June 4.
Ultimately once the effect of the virus trails off dragging down air travel, aviation growth tends to mirror the economy. How quickly air travel returns is both caused by, and in part determined by, growth in travel (especially business travel). I’ve been pessimistic about a ‘v-shaped recovery’ hope from the start though we’ve fallen far enough that initial growth numbers will look impressive. But I believe it will be some time before the economy returns to its previous trajectory.