The encouraging news from June has given away to something like despair.  The world’s airlines are being hammered as never before.  This pandemic was not their doing, yet it was the airlines that carried the pandemic around the world.  The damage is now starting to be better defined in terms of numbers – the tens of thousands of people (richly talented and until very recently working like trojans) with specialized skills are losing jobs or if they are lucky, being furloughed.

What caused the airlines to misread the situation in June as a recovery?  Let’s take a look at the data. If we go back to April 1, we can see that there was a definite upswing in traffic.  The airlines were still offering too many flights for demand, but then again schedules are hard to “switch off”.   The business does have momentum.  As we look further into the month we can see the traffic trend was steeper than flights – and airlines were naturally going to anticipate the growth would continue.  Besides, airlines had their infrastructure to protect and preserve.  How were they to know they were clutching at straws?  Everyone was cheering the nascent recovery.

The red arrow shows the crossover point for the two trends as late in June.  As things stood, airlines were going to have too few .  So they juiced their schedules – and this takes time to get sorted as we see in early July there was a spike in flights.

Now looking from May 1st, we see the crossover point came on June 1st.  Airlines added flights for the holiday weekend which was logical – it was the traffic highpoint since the pandemic hit.  But then the wheels fell off.  Many people took that holiday weekend too far and forgot about social distancing and other precautions.  Within the next ten days, as made a comeback and spiked, air travel dropped off fast.

But schedules had already been set.  Airlines were caught with far too many seats where they were expecting a stronger recovery.  All the carefully calibrated calculations were off.  Who was expecting a spike? Things were looking better after all. 

In an industry focused on preservation, airlines are going to cut back schedules severely.  Typically this industry makes rational moves, so as one big airline cuts back, so should the others.

Balancing the supply of seats with demand is hard in good times. In good times you have a demand trend that is reasonably stable and you worry about exogenous items like the oil price spiking.  That hits your costs but you have some revenue to cushion the shock.  Now there is no danger of an oil price spike.  But you also have hardly any traffic to provide a cushion.

Traffic will recover, but when and by how much?  We don’t see fare wars overcoming pandemic fears for most people. The sharp drop in air travel demand after the latest spike is our evidence.  The airline industry challenges are symptomatic of the economy as a whole.  This great uncertainty is exhausting and the urgency to find a vaccine becomes ever more intense.

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