Lessons from the Past and China: How Air Service Might Recover After the Pandemic
The COVID-19 pandemic is a global health crisis – tragically taking many lives. Actions to contain the pandemic have also had severe economic consequences – in the United States, economists now predict that second quarter 2020 Gross Domestic Product (GDP) will decline 10 to 35 percent.
According to Transportation Security Administration (TSA), daily passenger volumes in the USA are now down 90 to 95 percent from the same time last year and similar drops are being experienced elsewhere. Airlines have already announced service cuts for April that range from 40 percent (Southwest) to 80 percent (Delta) and some, like Spirit Airlines, have suspended all service to cities with severe outbreaks.
Insights from China, In the Beginning of Service Recovery
While it is difficult to anticipate the overall peak of the pandemic, the state of preparedness in anticipation for the eventual recovery is of the upmost importance. To gain a better sense of how this might look, we have examined the experiences of the cities of Wuhan and Hong Kong that were severely affected at the start of the pandemic. Wuhan was the epicenter for COVID-19 at the start of the pandemic. Hong Kong, while part of China, imposed travel restrictions with the rest of China early into the pandemic and had far fewer COVID-19 cases; hence, their economy was less damaged than the city of Wuhan.
At the height of the slowdown, Wuhan experienced a 96 percent decrease in its daily departing flights and Hong Kong a 79 percent decrease. The reduction in passenger volumes are even more severe when last minute flight cancellations and lower load factors are considered. As shown in the illustration on the following page, air traffic activity is scheduled to rebound, albeit at a slower pace than occurred before the pandemic.
The carriers’ schedules indicate they plan to slowly add capacity back such that roughly half the reduction in February and March is back in service by May, followed by marginal capacity adds in subsequent months. As the virus has spread, other parts of the world have experienced similar trends. Another observed trend is the operation of a “bare bones” schedule, with one or possibly two daily frequencies, rather than eliminating service on many routes/cities.
It is expected that many parts of the world will generally follow similar trends resulting in drastic cuts during the first two months of the pandemic followed by moderate improvement in the third. This expectation may need to be tempered in the U.S. due to the severity of the outbreak which could push additional capacity to June or July. Assuming that the worst of the pandemic is over by the middle of May, scheduled airline capacity for the month of July could be at 50-75 percent of levels flown prior to the pandemic. If this is not the case, it would be expected that these capacity additions would be delayed until a time at which the threat of the virus is reduced.
The Climb Back to Normalcy
The post-9/11 air service experience, specifically as it pertains to the New York City (NYC) market, may be a useful gauge of how the industry could react to the current crisis. While COVID-19 has severely affected the nation’s air service more than 9/11, it could be argued that COVID-19 has had a similar impact on the rest of the U.S. as 9/11 did on NYC.
The following chart shows enplaned passenger traffic for NYC’s three major commercial airports, Newark Liberty International (EWR), John F. Kennedy International (JFK), and LaGuardia Airport (LGA) as a percentage of the same month for calendar year (CY) 2000. For example, passenger traffic for the month of August in the years of 2002, 2003, and 2004 are used as the numerator and are each separately divided by the passenger traffic in August 2000 which is the denominator. This approach factors out seasonality and shows how air travel demand has changed over time in NYC. Over a period of 12 months, NYC climbed back to about 80-85 percent of levels prior to 9/11. The full recovery period to pre-9/11 levels took three years.