Several major U.S. airlines have reported worse-than-expected August performance amid the surge in Covid-19 cases caused by the Delta variant across the country. But the bite of the latest surge may prove short-lived as case numbers in early hotspots have already peaked and Americans try to cram in one last summer trip this September.
“While the Delta-variant has caused August to underperform expectations and the anticipated step function improvement in business travel likely to be delayed, encouragingly, the demand impact has not been as big as prior Covid waves,” wrote Raymond James Analyst Savanthi Syth in a report on August 29.
Citing restaurant data, Syth noted that where the surge has peaked consumers are “quickly returning to ‘normal,'” where normal is pre-surge levels.
And, in a report on August 26 citing similar Covid-19 case trends, Cowen Analyst Helane Becker said the trend “could drive a demand rebound as travelers look to squeeze in a vacation before the end of summer.”
A last-minute bump in September leisure travel could be one reason why American Airlines declined to revise its guidance for the rest of the year after missing revenue its forecast in August. Speaking on August 25, American Chief Revenue Officer Vasu Raja reiterated that the recovery is and will be “very choppy” but added that, despite the slowdown, “there will still be a recovery.”
This is not to say airlines will avoid a fall slowdown. Historically, capacity decreases after Labor Day as leisure demand drops with kids returning to school. Business travel typically picks up some of that slack but not enough to avoid schedule reductions; however, it is unclear when this will occur due to later-than-expected return to office plans at many large companies. In 2019, domestic capacity decreased 10 percent from August to September, according to Cirium schedule data.
This nexus of historic trends and the Delta variant all come at the same time. Barring Becker’s possible last minute leisure travel surge scenario, airlines were already pruning their schedules for the seasonal slowdown. Cirium data show capacity dropping 8.6 percent from August to September in published schedules this week, slightly more than the 8.2 percent drop in schedules last week.
Southwest Airlines cited operational challenges as the main driver in its decision to cut more than 5,000 flights from its schedule this fall. However, the cuts simply reduce the amount of capacity growth the carrier planned this fall with its schedule still back to 2019 levels, Syth wrote in a report on August 27. Southwest has added 18 new destinations to its map, and greatly expanded its Hawaii flying, in a drive to capture new travelers and expand its domestic share coming out of the crisis.
Frontier Airlines and Spirit Airlines have also revised down their growth plans for the fall due to the surge in Covid-19 cases. However, the latter was also battered by severe operational issues due to staffing issues in early August. The combined fallout of the variant and its operational distress put the kibosh on Spirit’s expectations of a third-quarter profit.
More U.S. carriers, including giants Delta Air Lines and United Airlines, are expected to provide updated fall guidance — including just how much the variant hit the broader industry — after Labor Day.