US airline traffic remained stalled through Labor Day, as demand for the second half of 2022 has not increased to pre-pandemic levels as once expected. The chart below, using TSA data, shows 2022 traffic in red, compared with 2019 traffic in blue, with 2020 in gold and 2021 in green. It is quite clear that a gap still remains between the 2022 and pre-pandemic 2019 levels.
The trend, which earlier in the year showed the gap closing in the first quarter has leveled off in the second and third quarters. There are a number of factors that are slowing the recovery, which we will address below:
The rise in inflation, a rise in interest rates, and the end of pandemic-related stimulus packages have left consumers with less disposable income to spend on travel. The pent-up demand that fueled the strong recovery in 2021 has been slowed by high prices for air travel and a lack of disposable income. This will impact leisure demand through the remainder of 2022 and into early 2023.
While business travel has begun to return, airlines are experiencing about 70% of pre-pandemic levels for this key demographic that generates higher yields and cash flows. We continue to believe that a 10%-15% portion of business travel will be replaced by desktop videoconferencing, resulting in business traffic not rebounding to 2019 levels before 2025. Business traffic remains stalled.
Most of the major US airlines reduced their planned capacity in the second half of 2022, as airlines have been unable to meet their schedules without significant delays and cancellations. The reductions in the schedule helped the industry improve operational performance and reduce delays but still haven’t solved the staffing issues. There is a shortage of pilots at the low end of the market, and regional airline partners are suffering as major airlines recruit their pilots with higher wages.
Without an adequate number of reserve crews, airlines are finding that scheduling has become difficult, particularly after weather delays make it difficult to get crews to their intended locations. As a result, service disruptions climbed and on-time performance has fallen in 2022. Without pilots, airline capacity, and thereby traffic remains stalled.
The following chart compares on-time performance for the US industry from 2019 through 2022. During the peak of the pandemic in 2020, flights were curtailed but those that operated had a very high on-time percentage with little competing traffic, as shown in the orange line. Performance in 2022, through June shown by the red line, indicates fewer on-time flights than the pre-pandemic levels of 2019, shown in blue. This reflects the current capacity constraints on the industry and will likely linger into 2023.
Many airlines find themselves short of aircraft, as new deliveries have been delayed by supply chain issues, and in the case of the 737 MAX and 787, extended periods with no aircraft deliveries. Some airlines extended leases and placed aircraft that were once leaving through major maintenance cycle checks to continue operations as they await new aircraft, some of which are now being deferred.
Airlines want to take new aircraft, as they are more efficient and have substantial environmental benefits over older models. Supply chain problems that prevent deliveries from taking place have significant impacts on airlines, from pilot training to scheduling to maintaining older aircraft. To date in 2022, the two major OEMs have had significant difficulties in ramping up the production of new aircraft.
When will Traffic Rebound?
Air traffic has historically rebounded from every crisis to resume a seeming inexorable 4-5% annual growth rate worldwide. We’ve seen the resiliency post 9-11, after SARS, after the great recession of 2008, and other events. To date, the pandemic has had the greatest impact, and recovery, while substantial, is still not yet to pre-pandemic levels. Many had thought that 2023 for domestic traffic and 2024 for international traffic would be the time frame for a full recovery. But since traffic remains stalled, our outlook has been revised to 2024 for full domestic recovery and 2025 for international traffic recovery.