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Airlines Ready to Put Green Shoots Behind for Permanent Recovery

Madhu Unnikrishnan

April 7th, 2021

A year ago, airline industry leaders were excited by “green shoots” of emerging demand for summer travel. After a relatively busy summer season, the Covid pandemic surged, showing it wasn’t done, and those green shoots withered. Now, with increasing vaccinations and rebounding economies worldwide, the industry is more cautiously optimistic that the shoots they see now will endure and grow.

The U.S. domestic airline market, in particular, is likely to recover by the middle of 2022, consultancy Oliver Wyman predicts, and the restart will be “less gradual” than originally forecast. As the federal government’s $1.9 trillion stimulus package trickles through the economy, more people will have the discretionary income to travel. And as travel restrictions fall around the country and attractions open, more leisure travelers will take to the skies, Oliver Wyman said.

Consumer confidence also is rising in the U.S. as the pace of vaccinations accelerates, the report said.

Business travel, however, will lag and is not expected to rebound more meaningfully until companies start bringing workers back to offices full time and trade shows resume. International travel, similarly, will remain constrained until worldwide vaccinations rise and travel restrictions are eased.

The International Monetary Fund expects global GDP to rise by 6 percent this year, up from the 5.5 percent it forecast earlier, and after contracting by 3.3 percent last year — the worst annual contraction since the Great Depression. This growth will moderate to 4.4 percent in 2022, still higher than historic norms.

This rapid economic growth is redounding to the benefit of air cargo. Air freight traffic rose by 9 percent in February over 2019’s pre-pandemic levels, the group reported. Air freight lanes from Asia, particularly to Africa, and from the Middle East to North America were heavily trafficked. IATA reports that freight traffic among Asia-Pacific carriers grew by 11 percent in February.

This growth is expected to continue as companies respond to increasing demand and restock inventory. Goods that ordinarily would have gone by sea are now going by air, as maritime shipping remains constrained and companies seek faster deliveries. The recent days-long blockage of the Suez Canal by a grounded container ship is likely to cause a spike in air freight demand in the next few months, IATA said.

The picture for global passenger traffic was murkier, IATA reported. February passenger traffic worldwide was down 75 percent from 2019 levels, off slightly from January, when traffic was down 72 percent from 2019. Bookings worldwide fell 30 percent between December and February.

A major factor in the decline was the fall in China domestic traffic, due to government restrictions on travel during the Lunar New Year in February. March demand in China is looking up, with flights matching pre-pandemic levels.

Domestic U.S., Australia, and India also showed signs of rebounding in March. U.S. airlines are confident, with airlines like Southwest and American among those recalling furloughed pilots to meet expected demand. International traffic is expected to take longer to recover as border restrictions remain in place.

The trajectory of the pandemic is a mitigating factor in the airline industry’s recovery, Oliver Wyman noted. New variants continue to pose challenges and could cause fresh outbreaks of the disease. Countries that have successful vaccination programs are racing against new coronavirus variants, and it remains to be seen if vaccines will outpace Covid’s progression. And several countries in Asia and Africa have not yet begun meaningful vaccine programs, which will hamper those countries’ recovery.

Madhu Unnikrishnan

April 7th, 2021

Photo credit:  Boeing

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