Propensity to Travel by Trip Type by U.S. Geographic Region
The region most impacted by the pandemic in the U.S. has been the Northeast U.S., while regions in the South and Midwest have been less affected. The chart above of travel intentions shows that consumer confidence to resume travel is lowest in the regions of the country that have had the highest volume of COVID-19 cases.
Currently, airline business confidence is low, but there are some encouraging signs. U.S. airlines are now indicating an uptick in booking activity and are experiencing load factors in the 30 to 40 percent range, up from single-digit load factors as recently as in April. TSA checkpoint traffic has also been trending higher. Airlines are indicating that improved traffic demand is being driven by leisure travel demand, specifically visiting friends and relatives traffic. Selectively, airlines are even adding back some longer-haul flights. In Europe, Ryanair recently announced they believe they can operate at 50 to 60 percent load factors this summer. Still, there is a long way to go.
Of the US airlines, Southwest has been the most aggressive with maintaining flown seat capacity, in large part due to having lower fixed costs/debt than the competition. Southwest has indicated that they are burning through roughly $25 million per day, while Delta and American have a daily burn of $50 million and $70 million, respectively. These burn rates will have a bearing on future outlook once the stimulus from the Cares Act ceases at the end of September in the USA.
More recently, U.S. airlines have become more optimistic. As an example, American now plans to fly July at 55% of pre-COVID levels, while Southwest is indicating that they plan to fly at or near pre-COVID capacity levels by year-end. This is much more aggressive than just two weeks ago. In general, leisure travel demand, particularly to outdoor destinations such as beaches and parks has been the strongest travel segment, as bookings continue to show improvement since bottoming in April. In general, ULCCs have been particularly optimistic, as noted by recent commentary from Allegiant Airlines:
“We are continuing to see material improvement in demand from April lows.”
Gregory Anderson, executive VP, CFO
United and Delta have been the most conservative about adding capacity back, as they appear more focused upon corporate travel demand, which continues to lag.
Over time, national approaches to containing the coronavirus and restarting national economies will see the eventual restoration of the travel and tourism industries. Domestic traffic will return faster than international. Short-haul international travel to neighboring countries with similar recovery progress and outlooks will occur ahead of longer haul travel. Several countries are currently exploring travel bubbles with countries with low or no reported COVID cases in recent weeks. Examples of countries looking to resume cross-border travel include the Baltic nations of Lithuania, Latvia and Estonia, and Australia, New Zealand and the Pacific island nations such as Fiji. Leisure traffic will return first, with visiting friends and relatives traffic generating early growth and more vacation travel taking place as tourism markets “open up.”
Airline hubs, in the short-term, will look different:
- Smaller banks with less frequency/connecting options
- Short haul flying into hubs will likely see the biggest capacity reductions
- Health-related requirements will significantly increase minimum connect times
- The result will be a heavier mix of local O&D traffic (passengers destined for the local market) relative to connecting traffic
The initial results from China indicate that Chinese airlines will operate near full schedules within nine months of reaching their lowest passenger and flight volumes. It is expected that air traffic demand will bounce back to 2019 levels faster for developing markets or markets with a large domestic network compared to mature markets.
U.S. airline capacity has been slowly building following a pattern similar to,but slower than the Chinese airlines. Depending on the success of vaccine development and rapid containment of new virus outbreaks, it may well take one to two years to achieve normal flight schedules in much of the world.