Pent-up demand and access to vaccines creating faster than expected rebound
NEW YORK – Leisure travel in America will push the US domestic airline industry to a COVID recovery by early 2022 according to a new report from consulting firm Oliver Wyman.
“A year ago, we would have thought that a full domestic recovery in this timeframe for the US was almost impossible, but the combination of pent-up demand, economic stimulus, and access to vaccines is making a difference,” said Tom Stalnaker, a partner and global aviation practice leader at Oliver Wyman. “We are still far from a full recovery for the overall industry, but we expect some of the airlines to start turning cashflow positive in a matter of months, particularly in the US.”
The rapidly increasing availability of vaccines and economic stimulus from the $1.9 trillion American Rescue Plan Act are two reasons for the increase in domestic leisure travel in the US. Both factors also happened to coincide with the timing of spring break across many states, which caused a spike in demand. Consumers are also looking forward to summer travel, and Oliver Wyman’s Pandemic Navigator is now predicting that the US will reach herd immunity by mid-June to early July – three to six weeks ahead of earlier forecasts.
- In mid-March, US travel demand rose to more than 50 percent of 2019 levels, which is the highest it has been on a sustained basis since the start of the pandemic.
- The opposite is true with corporate and international travel, which is still down more than 80 percent from 2019. These segments of the market will not recover before 2023.
- The loss of business travel is a real challenge for some full-service airlines, because they depend on high-yielding customers to provide more than half of their profits and a third of revenues in major economies such as the US. To compensate for the loss of business and international travelers, full-service carriers are starting to sell more services a la carte, aimed at a broader customer base with different needs and less willingness to pay.
Analysis of US Department of Transportation data reveals revenue per available seat mile (RASM) for full-service airlines fell 50 percent year-over-year in the second quarter of 2020, making it one of the darkest periods for US carriers. Meanwhile, the RASM for low-cost airlines fell 23 percent in the same three months. The third quarter of 2020 brought the performance of the two airline groups closer together, with full-service carriers declining 45 percent and low-cost carriers down 38 percent.
“The overall comeback of travel will depend on how fast nations get their populations vaccinated and standardize their health passport travel protocols and testing regulations.” Stalnaker said. “But make no mistake, the demand to travel is here and we don’t see it going away anytime soon.”
Tatiana is the news coordinator for TravelDailyNews Media Network (traveldailynews.gr, traveldailynews.com and traveldailynews.asia). Her role includes monitoring the hundreds of news sources of TravelDailyNews Media Network and skimming the most important according to our strategy.
She holds a Bachelor's degree in Communication & Mass Media from Panteion University of Political & Social Studies of Athens and she has been editor and editor-in-chief in various economic magazines and newspapers.