Earlier this summer Allegiant led the charge as leisure traffic drove the US airline industry’s early recovery efforts. Now, as the season draws to a close, airlines must face a harsh reality: The normal surge of cash did not arrive and it is going to be a long, cold winter.
Airline traffic is always seasonal, of course, with holiday-makers typically wrapping things up in early August as back-to-school season comes along. But this year there is minimal business traveler traffic to back fill that demand and the number of US travelers is dropping even from the relatively low recovery levels. It is not a good sign for an industry struggling to slash cash burn and find some semblance of reasonable traffic levels.
It is not just Allegiant affected. Nor is the challenge confined to the United States. Indeed, around the globe there is little good news available right now.
US recovery stalled
The TSA screening numbers tell a tough story, but not a completely unexpected one. The patterns for the summer draw parallels to 2019. A Memorial Day Weekend spike lead into a steady rise through the July 4th holiday. From there things plateau until August. As vacations wrap up the volumes drop. One smidgen of optimism could be drawn from the fact that the 2020 August drop didn’t come as sharply as the 2019 version. Indeed, the 2020 version saw an earlier plateau in July and a bit of extra traffic in August. But it is now waning.
Looking at a selection of individual airports the patterns are clear. Leisure travel demand is waning in key markets.
Allegiant’s main sun destinations saw traffic drop off precipitously following the highly successful July 4th weekend.
Legacy airline hubs are not fading as fast nor as consistently but some are showing weakness.
Similarly, larger non-hub airports tailed off from July 4th.
Mid-sized airports saw a more dramatic rise in some cases, but that often led to a disappointing August, relatively speaking.
As US carriers continue to scale back schedules for the last few months of the year it is clear now that any expectation of a quick recovery in the market is long gone. Hitting 50% of the 2019 numbers by the end of the year would be a massive and unexpected win for the industry at this point.
Beyond the US market
Industry trade group IATA echoed these concerns on a global scale in a briefing on Tuesday. The organization notes that July numbers were up slightly from the April low point but that the recovery is coming more slowly than its prior estimates.
Domestic recovery, primarily in China, is driving the improvements.
International traffic only really exists within Europe.
Nearly everywhere else around the globe international traffic remains below 10% of the 2019 numbers. And with most borders still closed that is unlikely to change.
That European international traffic recovery is a fragile one, however. It started later than the US recovery owing to closed borders and the frequently changing rules around quarantine and testing make it difficult for travelers to plan too far in advance. But, much like in the United States, there are signs that the recovery is faltering. Or at least holding to patterns similar to 2019 as demand wanes at the end of the summer. Frankfurt’s passenger and aircraft movement statistics tell that story well.
WizzAir led the recovery charge across the Continent. But it, too, now concedes that demand is not returning as fast as hoped. With travel restrictions popping back up across Europe the company will target a 40% YoY reduction for the fourth quarter rather than just 20% as previously planned. WizzAir may also park some aircraft over the winter to help preserve cash. Ryanair and EasyJet, previously more optimistic on recovery chances are also scaling back operations.
Eurocontrol, the airspace coordination group for Europe, expects to see flight operations at 55-60% of 2019 numbers for the coming months, revised lower from prior expectations. And load factors remain lower, leading to total passenger numbers even worse than those flight levels.
Who will survive the winter??
All of this leads to a very difficult question for airlines: Who will survive the winter ahead?
Many airlines typically take advantage of the summer rush to build up savings to ride out the leaner winter season. While government assistance or large reserves have helped ride out the summer the airlines have not restocked their savings. Instead most continue to burn cash. Furloughs and layoffs continue.The industry as we once knew it faces a dire situation. And none of the recent data offers much of the way in optimism for the coming months.
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