Why Airline Traffic Won’t Fully Recover Soon
Leeham News discusses Why Airline Traffic Won’t Fully Recover Until the Mid-Late 2020’s.
Many journalists and industry observers have been obsessively searching for “green shoots” indicating the beginning of a recovery, but much of this commentary misses the mark.
Last month, investment research firm Bernstein published an analysis calling for narrowbody traffic to recover by 2023 and widebody traffic by 2025.
Lehman Offers This Assessment
- Bureaucratic caution will lead most countries to take an additional 6-12 months after herd immunity is achieved before reopening to most inbound non-resident passengers.
- Even for domestic or regional travel, passengers must feel safe from infection before they’ll fly again.
- Countries with greater internal consumption of domestic production should recover sooner than trade-dependent countries. Accordingly, domestic travel in the US, EU, and China is likely to return sooner than in most other regions.
- Getting business travelers back on airplanes will require renewed economic activity, in addition to the obvious safety requirements.
- Improved video conferencing technologies like Zoom, Skype, and Google Meet make a similar structural shift all but inevitable as businesses learn how to operate in a COVID-impaired world where air travel is challenging and inconvenient.
- As long as travel demand remains depressed, supply will fall in other parts of the travel ecosystem, especially hotels.
- Airlines that restore capacity too quickly will see their profitability dented as too many seats chase too few passengers.Bottom line: Global air travel won’t be back to pre-COVID volume for several years
I selected the above bullet points from a long article. Here is Leeham’s Bottom line: “Global air travel won’t be back to pre-COVID volume for several years”
That assessment was from July and it did not change on September 7 in an article that discussed Twin-Aisle Leasing Market Challenges.
The timeline for a passenger traffic recovery remains uncertain. The IATA does not expect passenger traffic to return to pre-COVID-19 levels until 2024. Leeham Co. predicts that it will take four to eight years before traffic returns to pre-COVID-19 levels.
Long-haul markets, where airlines almost exclusively operate twin-aisle aircraft, witnessed the sharpest drop in passenger traffic. As outlined in a previous article, airlines already retired significant numbers of older aircraft. Due to lingering travel restrictions, those markets should be the slowest to recover to pre-pandemic levels.
There are virtually no takers for second-hand widebody passenger aircraft now. Separately, Airbus and Boeing decreased their passenger twin-aisle production rates from a combined 28 to 15 per month from next year: 787 at six, A350 at five, 777 and A330 at two each.
Mish
Actually 12:45 from LAX, and while you wouldn’t take the flight, a lot of other people did. Flights are now 50% of normal. Sounds very bad, but when you consider that 5 months ago it was 10% of normal, that’s quite a jump. And that’s with the pandemic still around. While I can’t see the future, I can easily envision that the pandemic will be gone by this time next year. If so, I expect a steady increase in travel, although the economic hit will make travel impossible for many
Improved video conferencing technologies and flexible work locations could actually benefit airlines. Right now I live close to the office, but I’d rather flee the state, work remotely, and then fly in 2 or 3x per year when needed. For me, this whole thing might mean more flying, not less.
Not to be a wet blanket, but there is a good chance that airline traffic will never recover….not without bigger subsidies….Just my opinion, but that is based on several factors, including energy costs, technological developments, and a decline in real wages for ordinary working people.
I think air traffic will recover by next summer. Just a hunch.
I would guess the same. If not fully recovered then 80 to 90% of normal.
I live in a suburb just north of Orlando and in the flight path of Orlando International Airport. Orlando is a tourism mecca with Disneyworld, Universal Studios, Seaworld, and the cruise ships leaving adjacent Port Canaveral. Orlando International has 4 major runways. I used to see planes in the sky backed up coming in for landings. Now there is a landing about every 10 minutes. Air traffic is severely depressed.
A young neighbor is a pilot for Spirit Airlines. He says that their schedules have been cut by 75%. Air travel may come back but it won’t be anytime soon. I dumped my Alaskan Airlines stock a month ago. Good airline and primarily domestic routes. They will be burning $150 million per month. Airlines will need additional bailouts to stay afloat.
Our world has fundamentally changed, and it is naive to expect it to return to the past. The mass hypnosis is beginning to wear off, and people are waking up to a new reality.
Living beyond your income on borrowed money was yesterdays dream, and we have awoken to the new realization that we had better get our finances and our priorities straightened out if we expect to survive.
Things like cruises, and flying to far off destinations are for people with money, not the majority of people who need to borrow to do it. Bosses are realizing face time is not really important, and business trips can be replaced by emails and teleconferencing. Saving money is now the priority. Profit actually does matter.
As debt defaults in mass, the priority of lenders changes from chasing yield, to preservation of capital. That means less lending. Companies must cut costs to survive, and that will be the focus for the next decade or so….
Vegas was pretty busy over the Labor Day weekend, if that’s any barometer. I think inherently most people are over this scam, they want a normal life, and are ready to live it. On top of all that, there are way too many jobs on the line between airlines, aerospace contractors, etc. These are all well paying jobs nobody is trying to lose.
I’m more optimistic about return to travel. If you mean 100% of where we were in January of 2020, then maybe a couple of years. But I expect 80 to 90% of normal within 12 months and maybe sooner.
From personal observation, I returned from a 1 week trip to Turkey this past Sunday. Plenty of tourists already there now. Definitely less than normal season, but it was far from empty. Las Vegas McCarren airport looked busy when I left. The united flight to LAX was about 80% full. Transiting through LAX on the way there, it seemed fairly full. Istanbul airport was very busy. Although on the way back San Francisco airport was a ghost town.
Mexico is wide open and several friends of mine just returned and report substantial tourists and zero problems. Everything is open. Tourist dependent countries are opening up even now, and i expect more to join them.
Now, unfortunately a lot of people are wiped out and money for travel is a distant dream. But for others, traveling will resume.
Also, heard immunity is much closer than anyone thinks. Many of you might have seen this link through zero hedge:
Mexico? naw
And I will pass on the 10hr flight from Chicago to Istanbul
Tourist dependent countries might be open but that won’t guarantee tourists. In europe and elsewhere being stranded abroad or losing a holiday is still fresh, not to mention ever changing rules and new upsurges in virus. I guess another year for everything to settle a bit, then a few years to pick up fully, but even then I have the feeling the mood will be different – there are a lot of other changes going on over this time. Flights through August seem about 50%
In Spain surfing with virus is a no go
We are not getting on an airplane until:
In the meantime, we are stuffing money into our travel bucket every month so we can fly when we are ready. Our average trip to Europe costs $14K.
Wow, two people spending 14k USD? What ever country you go to must love you.
Why do we need airlines to “recover”? To what? Years ago I’ve heard that at any given moment, there are 5 million people in the air. I consider that number as part of the excesses of cheap money supported globe trotting.
I also know that a good part of those globe trotters are “greens”, on fact finding missions around the globe.
It could be decades. It really depends on how bad this depression turns out to be.
Covid is a part of life now. The vaccine may help people feel better but it’s effectiveness is completely unproven at this point and I see no indicators yet it will be successful. Also remember every late stage covid vaccine is basically the same thing. If one doesn’t work none of them will.
We should have 20 airlines anyways. The monopoly they hold at this point is anti consumer.
That is not true. The vaccines have very different mechanisms of action. So more likely than not, some will work and some won’t.
That is not true, the vaccines have different mechanisms of action. Most likely some will work and some won’t.
With more capacity, more flights could become direct or take fewer layovers.
Yep enjoy that flight of yours along with one and numerous other persons on your flight that are constantly hacking because they just cant seem to get their flem coughed up
The rich will flock to private airlines and take charter flights where they will have a higher level of confidence in health and safety protocols. I think that’s where the growth will be. People of means will pay up to take a small charter flight with just a few people.
You’ll see the near rich do this as well.
Recover?
If you are talking years … you are talking massive taxpayer bailout to keep airlines alive till then.
ANYONE asking how much? … and should we?
Let the shareholders / bondholders EAT IT. When the time comes, there will be plenty of capital for reboot. No need for taxpayer to prop up more zombies.
I agree with this. This constant bailing out just creates moral hazzard. We’ve seen it with the banks. The airlines squandered resources and paid out huge cash dividends and bought back stock with money they could have held onto.
I suspect if you subsidize the airlines and the traffic isn’ t there they will take the money , lay off the employees and enrich themselves.
“I suspect if you subsidize the airlines and the traffic isn’ t there they will take the money , lay off the employees and enrich themselves.
Nevertheless, the Congress will be happy to give them our money…..because they will be rewarded for doing it….
“Creates” moral hazard? It’s already here, and it’s entrenched.
Try “perpetuates”
I didn’t see Mish mention taxpayer subsidies, though I’m sure the airlines will ask for them.
Corporations are very eager to engage their clients face to face. As soon as its safe to do so I believe we will see companies resume face to face and that means air-travel.
The key will be a vaccine , how effective the vaccine will be and whether the population takes it. As a country we have too many anti-vax. The minimum efficacy for any vaccine before approval is set at 50%. First vaccines are often not that effective. It could take several years before we have a truly effective vaccine that the public signs up for.
Vacationers will respond to price and politics may play a role in wh and what groups return to travel and in what numbers.
I’m also very suspicious the 737-max really returns to service. We’re not talking about it in the age of covid-19 but I believe this is a broken brand. Nobody has confidence in the plane. I fully expect it will see an early death and be discontinued. They’ll probably fill whatever orders they can salvage and move on.
“Corporations are very eager to engage their clients face to face.”
…
Possibly. But if everyone gets comfortable working remote … and corporations can then save a boat load on (no) travel …
I don’t agee. working remote works fine in some circumstancs but zoom doesn’t produce the same level of sales. it doesn’t result in the same level of fund raising. It’s 2nd best.
I’m not strong in my conviction, so you may well be correct.
But I think the next couple of years will be rough on earnings … and the travel budget for many businesses will get a close look. Not eliminate but scale back (rep visits every 6 months rather than 3 months. Stuff like that).