US air traffic growth and implications for airlines

Data has shown that GDP is the closest guide to air travel growth. Here is an example of the research. ICAO also offers some valuable charts backing this up. This is all great, but what happens as traffic growth continues? There isn't an airport with perpetual construction. However, in almost every case, that construction is not adding runway capacity. This is not unique to the United States. The poster child for this problem is London Heathrow. Airport capacity is a real issue at Heathrow and is increasing at other mega hubs. The problem also manifests itself in smaller airports. Airline economics is a peculiar science. The US DoT offers this neat page to check the trends between any of the top 100 US airports. Business Insider produced this helpful chart illustrating US airfare trends. Traffic is growing while fares are declining? That does not make sense in any other business. More demand, all things being equal, means higher prices. Welcome to airline economics, where ceteris paribus does not apply. We will share a data model later in the story. Let's start with a few more charts. The first chart lists passengers per flight from 1995 through August 2024. The black dashed line shows the trend, and the pink is a forecast looking five years out. [caption id="attachment_88751" align="aligncenter" width="640"] US DoT T-100; AirInsight[/caption] The curve hints at a crucial metric—aircraft have been getting bigger, with more seats. Airlines must upsize their fleet if runway capacity growth is limited and traffic is growing. The following chart lists the industry load factor with a five-year projection. Again, the trend is unmistakable. Even with larger aircraft, traffic growth has been fast enough to allow larger aircraft to operate at rising load factors. [caption id="attachment_88752" align="aligncenter" width="640"] US DoT T-100; AirInsight[/caption] Let's look at the load factor across the industry. Not every airline reacted to market opportunities the same way. This chart allows city pair selection to drive this point home in the model. [caption id="attachment_88753" align="aligncenter" width="640"] US DoT T-100; AirInsight[/caption] The US airline industry has consolidated and shown tighter capacity discipline. There was a moment after the pandemic when American grew faster than its peers, but that did not last long. Consolidation meant the industry settled into its established pattern. We will explore this dataset in more detail and update the model as we do so. This note aims to provide subscribers with a starting point for assessing how the US airline industry is evolving and reacting to traffic growth as infrastructure constraints inevitably tighten. Here is the model, and all three pages allow for user interaction.

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