The airline recovery has been put on hold as Covid-19 strikes again

Opinion by Khalid Usman, Andrew Buchanan and Tom Stalnaker for CNN Business Perspectives

There were moments in the spring and early summer when US airlines saw a chance for domestic leisure air traffic to recover to 2019 levels by the end of this year — and for a significant pickup in both business and international travel.

However, thanks to Covid-19’s Delta variant, hospitalizations are once again approaching peak pandemic numbers in several parts of the United States, and those hopeful moments have been quashed for now. Even though the Delta variant has inconsistently affected various regions, it has managed to introduce an element of uncertainty that looks to reverse the comeback of business and international travel, and at least stall the growth in the domestic leisure market.

Domestic

After a busy summer season, US leisure travelers began hunkering down again last month, likely because of rising Covid cases. More than two million passed through Transportation Security Administration (TSA) checkpoints each day for much of June and July, but the volume dropped well below the two million mark in the second half of August and almost every day in September so far.

Airlines, meanwhile, are seeing an increase in cancellations and a decline in bookings. Earlier this month, major US carriers warned investors that third-quarter results would not be as upbeat as anticipated, blaming the weakness on a general deceleration in demand connected to the Delta variant and Hurricane Ida. And while children’s return to school has always tended to shrink leisure travel demand, the industry would normally expect some of that to be offset by an uptick in domestic and international business travel. That’s not happening this year.

Domestic demand probably won’t pick back up until Thanksgiving or Christmas. Based on this softening, we now project US domestic leisure travel to recover to 2019 levels by next summer — essentially on the same timetable as before vaccinations took off. That, of course, could be upended by another variant if a sizable number of unvaccinated Americans continue to resist getting a shot.

International

Internationally, the outlook for recovery to 2019 demand levels is somewhat bleaker, largely thanks to new travel restrictions in Europe — conveniently enacted at the end of vacation season. But even before the hammer came down, particularly on US travelers, international capacity worldwide — the measure of seats deployed and the distance they’ve flown — had only increased to 44% of 2019 levels by September of this year, according to our own analysis of flight data. US capacity on international flights stood at 53%.

Simultaneously, once strong travel segments, such as beach trips to Cancun and the Caribbean, are also being hurt by a raft of powerful hurricanes. While hurricane season is never a popular time to fly to these places, the worse than usual weather outlook, and the fact that Florida is a Covid hotspot, are expected to compound the seasonal dip.

Lastly, as long as Covid outbreaks occur, it’s hard to see how governments can lift travel restrictions until there is a smarter, less cumbersome way to prevent cross-border infections than mandating quarantining and testing. The Biden administration recently said it would ease travel restrictions on vaccinated foreign visitors beginning in November, but even so, we don’t expect international travel to recover to 2019 levels until sometime between 2023 and 2024.

Business

Probably the biggest disappointment for airlines is the failure of business travel to recover as companies nationwide — even in states where the percentage of vaccinated people is high and Delta is more contained — are pulling back on office reopenings.

Before the variant took off, the outlook was optimistic, with corporate travel beginning to pick up in March. Corporate ticket sales peaked at about 49% of 2019 levels the week of July 11, up from 17% the week of March 14, according to the Airlines Reporting Corporation.

In our own survey this June, nearly 80% of US business travelers who responded said they expected to book a business trip within the next three months. But by August, that sentiment was beginning to wane, according to a Global Business Travel Association survey, with the number of people willing to travel down by five percentage points from July. The anticipated uptick in business travel was tamped down by the Covid-19 surge and corporate decisions to continue to rely on videoconferencing rather than expose employees to Delta. By the week of September 19 — a time when business travel normally picks up — corporate ticket sales were only at 38% of 2019 sales.

The bottom line for travel may seem obvious, but recovery to 2019 demand levels will be difficult to achieve — even amid an impressive economic recovery — if large numbers of people remain unvaccinated and Covid-19 is uncontained. Until we get ahead of the spread through vaccination, increases in demand will remain vulnerable to variant outbreaks and any signs of a Covid comeback.

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