Lagging Business Traffic Slowing Recovery

Lagging Business Traffic is slowing the recovery of the US airline industry in early 2022, as business travelers have not yet returned to the skies in anywhere near pre-pandemic levels. Having learned to cope by using desktop videoconferencing applications during the pandemic, many corporation find it less expensive to utilize this technology to maintain existing relationships, enabling them to avoid travel expense and fight inflationary pressures due to supply chain disruptions. Several airline executives have indicated that they are not expecting a full recovery in lagging business traffic to pre-pandemic levels until 2024 at the earliest. That means that we will likely continue to see a gap between pre-pandemic traffic levels in 2019 through February 2020 and today’s traffic levels, that are not quite there yet. The following chart, which illustrates 2019 in blue, 2020 in orange, and 2022 in red shows that traffic has still not recovered to prior levels, but appears to be following a similar seasonal pattern. On a monthly basis, the lagging business traffic is perhaps more visible, with the red line for 2022 contrasted against 2019 in blue and 2020 in orange. While traffic has improved over 2021, a full recovery to pre-pandemic levels has clearly a long way to go, as we remain about 75% of prior levels. While we have seen hopeful signs, the emergence of the Omicron variant in late fall had an additional impact on the market. The following chart, which shows the average number of passengers per flight, reflects the strong recovery trend in 2021 that unfortunately turned into an “M-shaped” curve with Omicron. With early February passengers per flight slightly higher through the 11 days, we are hopeful that an inflection point may soon be reached an that the upward trend will resume, but it is too early to tell. But it is clear that lagging business traffic has left us well below pre-pandemic levels. Our AirInsight performance index, as shown in the graph below, has continued its downward trend early in 2020. While we are hoping for a turnaround, we haven’t yet seen clear signs in our datasets to reverse the trend. Over the last three weeks, the daily index began to improve from 1 day above the prior week to five of seven days above the prior week last week, but this week fell back to 3 of 7 days above the prior week, as show in the following table. This indicates continued market volatility and the lack of a definitive trend towards an early recovery. Bottom Line: It is quite clear, based on traffic and passenger per flight data, that lagging business traffic is continuing its downward pull on the industry recovery. While leisure demand has risen to pre-pandemic levels for ultra low cost carriers, the major airlines and their low cost competitors, including Southwest, have not yet seen the bounce back the industry was hoping for during the summer, when the upward trend began to subside. Given the considerable size of the gap, it is clear that a complete recovery to pre-pandemic traffic levels is unlikely to occur in 2022, and that while overall traffic may reach pre-pandemic levels in 2023, the mix will likely be more heavily leisure than business, resulting in lower average yields. The question now facing airlines is to what degree will videoconference substitution for in-person travel level off at, and how will it impact the profitability of routes that depended on high yield business travelers. That is yet to be determined.

US Flight Planner - US DoT On-Time Data	Airbus vs Boeing - Official OEM Data
US Airline Schedule Performance - US DoT Data	Daily OEM Production & Deliveries -

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