S&P: Air Travel Demand Even Worse Than Expected

After a flurry of second-quarter results showed that the airline industry is worse off than we thought, out comes a new report that makes the bad news even more grim. S&P Global now expects air travel demand to be down 60-70% this year compared with last year. This is a downgrade from S&P's previous forecast of demand this year being down 50-55%, compared with 2019.

And demand in 2021 is expected 30-40% compared with 2019. S&P does not expect demand to recover until 2024, which tracks with IATA's forecast.

International demand, measured in RPKs, collapsed in April and May, and improved only slightly in June (to -87%, compared with 2019). Ever-shifting travel restrictions are to blame, S&P says, and corporate demand has all but evaporated, with no recovery in sight. Leisure demand is showing signs of life, as people take their summer vacations and visit friends and family.

Domestic demand is faring better but still was down almost 70% in June. Throughput at Transportation Security Administration (TSA) checkpoints in the U.S. has been inching back up in the summer, fueled by domestic leisure travel. Although throughput has topped 700,000 daily passengers on several days recently, it's still a fraction of what it was. Throughput on a typical August day last year topped 2.5 million daily passengers.

Government aid has helped airlines survive, S&P notes, in every region except Latin America, where governments have not opened their checkbooks. Airlines also have not shelled out as much in ticket refunds as had been expected. The industry also has been right-sizing itself for what it expects will be a much smaller near-term future.

And how does that near term future look to S&P? Compared with 2019 levels, demand is expected to be down 15-20% in 2022 and 10-15% in 2023. Recovery worldwide could be uneven, dictated by the pandemic and the availability of effective vaccines or therapeutics.