This is an unwelcome and, almost certainly, an unpopular post. But somebody has to say it – people need to see the possibility of what is coming, as certain as seasons change. This is an election year and it is important to pay attention to what candidates are saying, or not saying. However, the crisis facing the US air travel market isn’t going to be solved by either party. This goes well beyond politics.
Air travel requires demand to recover, immediately. But that is not happening. We have three models you can view (bottom of the page) to see what the traffic demand looks like. We suggest you start with this one, as it provides a good summary of what is going on. Notice that US airlines have become much more efficient in flights offered to better match demand. The problem is that the industry is built around a daily travel demand of about 2.5 million people and now the daily traffic demand is less than half that. The daily average TSA checkpoint count from August 1st to 16th was 713,666.
We have a massive airline infrastructure capable of moving 2.5 million people each day running about 30% capacity. Government support helped to keep this infrastructure largely intact. But absent an immediate (and we mean like right now) booking surge that infrastructure is completely ill-sized for the market. The US airline industry has been restructuring with furloughs (something it knows well) and early retirements. The challenge is that in cutting fleets and people, there is a continuous looking over the shoulder in the hope that deliverance is on the horizon. It isn’t. There is no vaccine coming fast enough. Instead, there’s another rise in numbers of infected people even though, happily, fatalities are much lower. The healthcare industry is learning fast, but travel consumers are not satisfied with the risk profile to get on an airplane. The airlines have made tremendous strides in offering as safe an environment as they can for passengers. This is commendable but there are still so many variables.
The slow recovery in air travel volumes is insufficient to maintain the colossal US airline industry. It is our view that what we have seen to date in terms of industry restructuring will pale when we consider what may be necessary. What is happening at Boeing is symptomatic of what is coming to airlines worldwide.
Here is what we think people need to see, especially those in the US airline industry who are pondering their careers. The model below uses Form 41 US airline employee data and T-100 traffic data. We went back to 1995 to build a long history for context. What we see is that US airlines, as they consolidated, improved labor efficiencies. This was to be expected, and anyone working in the airline industry knows career ups and downs. Moreover, increased use of IT solutions to automate processes means fewer team members could handle growing traffic volumes.
Without electing an airline, we can see the overall ratios for the industry. Selecting an airline generates a focused view. The crossover in 2020 is brutal. It is clear that the adjustments required to keep a much smaller operation functioning are expected to be equally brutal.
Going to the second page we can see in more detail what one might expect. For example, the industry average number of people needed to keep the system functioning in 2019 (a great industry year) was about 73 people per flight. By the 2Q20 that number had shot up to 783, 973% too many people for the traffic. The number is stunning.
Reviewing each airline, we see a variation on this theme. Every US airline listed was overstaffed in 2Q20:
- Alaska by 1,172%
- Allegiant by 2,275%
- American by 820%
- Delta by 1,169%
- Frontier by 2,440%
- Hawaiian by 1,826%
- Jetblue by 1,568%
- Southwest by 644%
- Spirit by 1,050%
- United by 1,636%
If there’s any good news it is this – 2Q20 was the low point. Travel volumes are up from an industry low of an average of 11 passengers per domestic flight (on April 6, 7, and 8) to 51 as of August 14th. But the context here is that on August 16th, 2019 the US airlines averaged 117 passengers per domestic flight. And the industry we have is built around that 2019 number.
Absent a miracle, the US airline industry has at least twice as many employees as needed to serve the market. As the inevitability of the numbers plays out, we expect career destruction on an unprecedented scale. Highly skilled people, who are unreplaceable in the short run, will find themselves out of the airline industry probably by year’s end.