US air traffic is closing in on pre-pandemic levels, but still falling just short. Nonetheless, with four of the last seven days reporting more than 2 million daily passengers, the industry is now closer to pre-pandemic levels than it has been for a non-holiday week since the beginning of the pandemic. What’s missing, of course, is international traffic, as Asia remains mostly closed, particularly China, and the conflict in Ukraine may impact transatlantic demand.

Business traffic is also returning slower than hoped, and it appears video conferencing may have a long-term substitution effect, as businesses discover they can make fewer in-person visits and still maintain relationships. It may take another five years for business traffic to close in on pre-pandemic levels, resulting in lower yield leisure traffic-driving demand. That alters route profitability and likely favors low-cost carriers.

The following chart shows overall traffic levels through 8 March 2022, with 2022 traffic in red. The former gaps between the red 2022 and blue 2019 levels are shrinking, as levels approach pre-pandemic levels.

closing in
Our US airline performance index is also up, after a nadir in mid-February. The upward trend in our index is noticeable and continues in early March.

closing in

For those who prefer data, the following table shows our index for the last three weeks, and the index has been rising consistently through late February and early March. In the last week, the index has gained 8.6%closing in
Worrisome Risks

But before we celebrate the increase in demand closing in on pre-pandemic levels, risks abound. While the pandemic is winding down in the United States, it is not yet fully risk-free, and mask mandates remain in place at airports and onboard aircraft.

Internationally, trends are also positive but on different timelines. Some Pacific islands are now seeing a new wave of cases, as the geographic travel of the latest variants continues to differ across the world. It may take another six months to see a full restoration of international traffic, and demand is unlikely to return to full pre-pandemic levels until 2024.

The conflict in Ukraine resulted in a dramatic increase in oil prices, which could trigger an economic recession. With inflation due to pandemic-induced supply chain constraints that could now be exacerbated by higher shipping costs, leisure travelers may be forced into a decision of whether they can afford a vacation after paying for gas to drive to work each day while continuing to purchase higher-priced groceries.

With an embargo on Russian oil, and an apparent reluctance from OPEC to raise production levels to make up the difference, it appears that economic difficulties will continue through 2022. The unexpected consequences of the Ukrainian conflict will negatively impact both the economy and commercial aviation in 2022, causing fares to rise and demand to adjust accordingly. Airlines are going to find margins squeezed as they try to maintain load factors during the remainder of the year, and likely push back the timing of additional capacity.

The Bottom Line

The risk of an economic impact on airlines resulting from both high oil prices and a potential economic slowdown are key concerns in 2022. The recovery to pre-pandemic traffic levels by the second half of 2022 may now be slowed to 2023 domestically and 2024 internationally as the impacts of conflict bubble through global economies. While we are closing in today, we expect the pace of recovery to slow, and remain at “closing in, but not quite there” levels through the remainder of 2022.

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Ernest Arvai
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President AirInsight Group LLC

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