As the Covid-19 delta variant continues to spread aggressively in countries around the world, the outlook for a full recovery of global airline passenger traffic and revenues is cloudy, with some analysts arguing that it will take longer than previously estimated.
IATA's new economic forecast, which was released on Oct. 4, upped projected global losses for the industry this year to $51.8 billion compared to the trade group's April projection of $47.7 billion in losses.
The new forecast also offered a weakened projection in terms of passenger numbers. IATA now predicts that airlines will carry 3.4 billion passengers in 2022, or 75.5% of the 2019 total, down from the trade group's May estimate that airlines would carry 88% of the 2019 total in 2022.
Though the IATA projection does not extend beyond next year, the spread of the delta variant has caused the investment firm Bain Capital to elongate its forecast window for the recovery of global air traffic revenue. Bain’s monthly forecast revision, which was published Sept. 15, knocked down its global airline revenue projection for 2021 by $12 billion, to $243 billion, which is just 36% of the industry’s total revenue in 2019.
Under its baseline scenario, Bain’s September forecast projects that global demand will reach 91.2% of the 2019 level by the end of 2023. The company’s baseline air travel projections for this year and next are now below below the projections it made in January under its more pessimistic scenario.
Analyst Kevin Michaels, who is the managing director of AeroDynamic Advisory in Ann Arbor, Mich., also sees the recovery taking longer than previously expected.
In an early September Aviation Week column, Michaels said that AeroDynamic had predicted a late-2023 return to pre-Covid flying levels after undertaking a thorough analysis last year. But Michaels sees the delta variant as a game changer, and not just because of the current situation, in which confirmed Covid-19 deaths amount to approximately 1,500 daily in the U.S. and more than 60,000 weekly worldwide.
The delta variant, Michaels said in the column, is far more infectious than earlier Covid-19 strains and has therefore raised the global vaccination threshold for herd immunity to more than 80% versus previous estimates of approximately 70%.
“It is against this backdrop that the return of air travel has to be evaluated,” he wrote. “Global air travel in 2019 was 8.7 trillion revenue passenger kilometers, with about 65% for international travel. International travel remains moribund.”
Government policy’s role
Government policies, of course, will play a huge role in air traffic recovery, with travel restrictions mostly impacting cross-border flights. That’s the primary reason that global domestic flight demand in July was down only 15.6% compared with July 2019, according to IATA, while demand for international flights still lagged 2019 by 73.6%.
As such, the recent decision by the Biden administration to reopen the U.S. to vaccinated flyers from Europe, China, India, Brazil and other countries beginning in November was not only welcome news to airlines but also represents a structural improvement in the international travel landscape.
“This announcement marks a key shift in managing the risks of Covid-19 from blanket considerations at the national level to assessment of individual risk,” IATA director general Willie Walsh said of Biden’s move.
Other recent developments have also been positive for the global tourism industry. Notably, England this week will simplify its Covid-related entry policies, including accepting vaccinations from a larger list of countries and doing away with pre-entry testing for doubly vaccinated individuals from countries not on England’s red list of no-travel destinations.
Still, Walsh emphasized that world governments must accelerate the rollout of vaccines and agree to a global framework in which testing resources are focused on unvaccinated travelers.
“We must get back to a situation where the freedom to travel is available to all,” he said.
Such a situation is likely a ways off, a reality that the FAA recently responded to by extending its waiver of slot usage requirements for international flights in and out of seven crowded U.S. airports, among them New York JFK, San Francisco, Los Angeles and Chicago O’Hare.
“Covid-19 continues to present a highly unusual and unpredictable condition for international operations that is beyond the control of carriers,” the FAA said. “Indeed, foreign carriers in many parts of the world are prevented from operating to the United States due to governmental restrictions.”
Such restrictions could persist, in large part due to the continued dearth of vaccines in much of the world. According to Our World in Data, 44.5% of the world’s population had received at least one Covid-19 vaccine dose as of Sept. 27. But just 2.2% of people in low-income countries had received their first jab. The popular African tourist destinations of Kenya, Tanzania and South Africa each had fully vaccinated rates of 14% or less, including less than 2% in Kenya. With public health still a major concern, countries continue to deploy a wide variety of travel restrictions, including outright bans on visitors, mandatory quarantines, travel bubbles with specific countries, vaccination requirements and testing requirements.
“International travel therefore entails a major ‘hassle factor,’” Michaels said. “Business executives must not only deal with the logistics of different test requirements but also factor in the risk of a lengthy quarantine should they acquire the virus during travel. “
Some domestic markets also continue to display significant instability. China, notably, saw domestic capacity dip 16% between July and September, OAG data shows, after local Covid transmission reemerged.
Michaels said he now believes a full recovery in air travel won’t happen until the first half of 2024.
What’s the future of business travel?
But even when passenger numbers have fully rebounded, some analysts say, airlines can expect diminished revenues, especially on a per passenger basis, due to structural changes that will reduce business travel over the long-term.
“You will never see any of the large network carriers getting back to where they were in 2019 on an inflation-adjusted basis, and even in raw numbers it will be the latter half of the decade,” said Judson Rollins of the consultancy Propel Revenue Solutions. “There is a whole class of business travel that frankly wasn’t necessary before Covid, and companies are finding other ways to do business.”
Some airlines contest that view; United CEO Scott Kirby has been especially vocal on the matter. Betting early on a business travel recovery, United resumed retrofitting its Boeing 787 interiors with Polaris business class cabins in August of last year.
In a July appearance on CBS News’ “Face the Nation,” Kirby predicted a full recovery of business traffic in 2023.
In a recent episode of the Folo by Travel Weekly, Delta’s executive vice president of sales, Steve Sear, also sounded a bullish note about the return of business travel. Delta, he said, had seen a “more natural mix” of types of business travel earlier in the summer. “I’ve been 29 years in this business, and through bankruptcies and recessions and 9/11, and it always comes back; it doesn’t matter if there’s new technology,” he said. “There might be pauses or declines, but people need and want to connect. It’s in our human nature.”
Rollins, though, pointed to a unique analysis done by the consulting firm IdeaWorks last December, which found that between 19% and 36% of business travel won’t return. The study’s authors concluded that travel related to sales could make a full comeback. But other types of business travel will be replaced by remote communication or simply be reduced, including drops of 40% to 60% for intracompany meetings and commuting by air.
Backing up IdeaWorks’ findings are statements made by a number of multinational companies. To cite one example, Mars announced in August that it will cut global business travel by at least half compared with 2019 levels going forward.
In making the announcement, the multinational food and pet food producer referenced its corporate sustainability targets among the reasons for the move.
“We will travel for purpose rather than presence,” Mars said.