Networks Are Stabilizing: What About Cities?

The last five months (it's only been five months?) have been rough. Right now, we are currently in a cycle where legacies are rolling out massive cuts every couple of weeks. If you only read capacity change reports every couple of weeks, you would likely feel like the industry continues to spin in a downward spiral. While it often feels this way, I'm here to tell you airline networks are stabilizing. Yes, really. 

As an industry, network capacity has stabilized since July to around 14,000 average daily flights and 1.6M average daily seats. While this is nearly a 50% reduction in capacity, year-over-year, we are not seeing the continued decline in network capacity as we were seeing in March thru May, nor do we see a recovery that we saw in May thru July. Instead, we are stable at our 50% year-over-year decline. However, this stability is a hard pill for all of us to swallow with WARN notices spread across the industry. 

While I would expect some additional pruning of September capacity, I believe most of the legacy capacity was finalized over the weekend. If there are more substantial cuts coming, expect them from more point-to-point carriers such as B6, WN, and F9 as well as HA.

As networks have stabilized, legacy carriers have invested and often restructured their hubs. Since American's merger with US Airways, American has focused on building large, peaking banks rather than flatter rolling banks of the American-past. 

Let's take American's most bank dependent hub, Charlotte. Before the pandemic, American was running nine distinct banks within their CLT hub. Just two months later, American had gutted the structure to only four slightly smaller banks. American clearly positioned these banks within the core of the day as well. 

By July, seven of the banks had returned. Interestingly, these banks were largely restored to their March size, just fewer banks overall. As an example, the 9:30 departure bank peaks at 60 departures in both the March and July schedules. Finally, by September, the hub is still working with seven banks; however, American continues to adjust the bank sizes. The first two banks are slightly larger than their March compares, while there appears to be some horse-trading in the middle three banks. 

Delta, on the other hand, had historically used a blended, rolling bank within its Atlanta hub. Using March as an example, Delta only has a few peaks within its structure. Instead, there is more a continuous feed of flights throughout the day. However, by May, the rolling hub was gone, and Delta had switched the hub entirely to eight mini-peaked banks. Clearly, Delta was attempting to generate as many connections as possible for each flight. 

By July, each of the banks grew by at least ten additional flights with limited flights between each of the banks. This starts to change in the September schedule. In the September schedule, we can see Delta's willingness to grow outside of the peak bank structures starts to grow. 

While network planners are rebuilding banks, they are also examining how hubs are interacting with each other. Hopping back over to American's network, the makeup and proximity of CLT, DCA, and PHL to one another could create duplicate capacity on the network. As a planner, you are already competing with other carriers for scarce demand. You really do not want to be competing against yourself as well. 

When we examine American's leg passenger make up at CLT, DCA, and PHL, we quickly notice two things. One, from an absolute passenger count, CLT is massive compared to DCA and PHL. However, in terms of local passengers, all three hubs are roughly the same size. 

However, when we dig deeper, American is clearly treating each of these hubs independently. In September, DCA will only be operated at 29% of its last year's schedule. This compares CLT and PHL scheduled at 71% and 55% of their prior-year domestic trips, respectively. 

The significant DCA capacity decline is only possible thanks to FAA slot usage waivers that are currently extended through the end of October. Given the current level of passenger demand, I have to believe we will see the waiver extended at least thru the end of the year. With the September schedule, year-over-year, American will exit 21 markets and isolated their higher frequencies to American hubs, focus cities, and Portland, Maine. To be honest, I don't understand the last one. I suspect this might be an operational requirement, but it is difficult to know. 

When we take a look at the markets that American discontinued in September, we will quickly see two themes. Either American believes these markets can be recaptured, primarily via CLT or PHL, or American decided that the quality of the market demand is too low to warrant competing on these O&Ds. 

When we review both PHL and CLT, it is clear each of the cities offers distinct connecting patterns. When considering hub structure, PHL connects a lot of the Midwest and Mid-Atlantic to the Northeast and Europe (when it becomes available again...). PHL does overlap some with Northeast to Florida connectivity as well. 

CLT, on the other hand, offers a much larger breadth and depth of markets connecting the Midwest, Southeast, Florida, Mid-Atlantic, and the Northeast. This allows for robust connectivity and operational redundancy should it be needed. 

Interestingly, other than HPN, we do not see any domestic exits from CLT year-over-year. The reductions we do see are nearly entirely isolated to the number of banks planned this September vs. last September. 

This is likely a function of how American's network planners have structured the operation. Notice, CLT has limited Chicago and Dallas overflies. This again limits the amount of unnecessary redundancy within your own network, which would cause hubs to compete with themselves. 

While most hubs are starting to see capacity return, I do believe within the next month, barring an extension of the CARES Act, we will begin to see airlines remove spoke cities from their networks. If your city ended up on any of the carrier's DOT wish list, even if they are still operating there today, I would consider those cities the some of the first to be removed. 

Unfortunately, after that, we only need to go to our latest recession to see the standard targets, co-termed cities and small markets. In our next post (8/19), we will take a look at what airlines have historically dropped during network contractions. By then, it is very likely we will see Delta publish their revised October schedule, which is when CARES obligations expire and airlines can remove cities entirely from its networks. 

Delta's Cuts: Where's Everyone Else?

When Friday's schedule load was processed, it was clear airlines were starting to publish more realistic September schedules. Delta led the pack with the most capacity reduced week-over-week for September travel. In total, Delta removed 1,659 domestic flights per day or 36% of the week's September schedule. But as we discussed last week, what airlines had filed in September and beyond was a fantasy. 

We showed that before Delta's reduction, September was scheduled to be the highest number of expected seats since March 2020. Even as the industry showed some signs of recovering, for September seats to be higher than any month, especially all of the summer, would put us in the Twilight Zone. 

All of this surplus fall capacity is in a stalling recovery environment. As I predicted, we are starting to see TSA screenings flatten year-over-year. In the last three weeks, the seven-day moving average has stalled at -74% year-over-year. Unfortunately, if our forecast is correct, we may start to see a decline in screenings beginning around the second week of August and continue through September. 

  

Jumping back to Delta's schedule, the cuts should not catch anyone by surprise. The fall was and continues to be frothy. But Delta's cuts, as well as American's and United's are on a schedule. For August travel, Delta began their large cuts seven weeks before the start of the month, cutting domestic seats by 36% vs. what was filed the prior week. This is the same approach that Delta took with September, both in terms of timing and percentage seat decline. Further, Delta continued to adjust their seats downward another 12% between two and six weeks before the start of the month. I suspect we will continue to see this approach as Delta's revenue management analyzes booking trends.  

This raises the question, why have we not seen other large legacy carriers cut September similar to Delta? Well, its a week or two ahead of time before we would see those changes. Taking a look at American, American cut their August capacity in two waves: one at eight weeks out and another cut at four weeks out. If we take a look at September capacity, we see September's first, albeit a more significant reduction eight weeks prior to the month. It appears logical that we will see another round of cuts, not this Friday, but next Friday. The reductions could be loaded sooner due to American's earnings call is this Thursday. 

Interestingly, United follows a nearly mirrored pattern of American's capacity cuts at the system level. Like American, United started their first capacity cut at eight weeks out, with a much more aggressive cut at four weeks out. In United's earnings report, the carrier stated they expected capacity to be down 65% in the third quarter, so there is little reason to believe there will be a dramatic shift in United's September and October capacity patterns. 

Beyond the legacies, we are starting to see significant cuts at the smaller carriers. Over the weekend, Spirit cut 54% of the domestic capacity in September. This dramatic reduction is off-trend for Spirit and could raise red flags at the macro level. However, Spirit schedule is a prime example of worst-than wishful thinking and should have been removed quite some time ago. 

What do I mean? In the August schedule, Spirit waited until the absolute last minute to remove capacity from their domestic network. With only three weeks before the first August departure, Spirit removed 44% of their August flights. 

If other carriers are doing this, why am I singling out Spirit? American, Delta, and United have hub structures in place. While passengers might get displaced from their original flight, few will experience a significant change in their travel plans (i.e., nonstop to connecting). Spirit does not have the network structure to accommodate passengers into their original booked experience. Passengers booking Spirit to fly nonstop will likely find themselves connecting on Spirit (who doesn't have great connections) or being entirely canceled and refunded their booking, just three weeks before their flight. Either of these scenarios were completely unnecessary.

Spirit's schedule was never remotely realistic. While all carriers have bloated fall schedules (and they should all be publicly shamed for it), Spirit continues to publish a 17% increase in flights year-over-year for the fall. It has been evident since April or May that growth for the year was not in the deck of cards for anyone. Spirit had plenty of time to rebuild their network but failed to make the necessary modifications until the last minute and only for a month at a time. 

Finally, I want to take one quick look at another substantial capacity reduction, Alaska. In the latest schedule load, Alaska removed 38% of their September domestic seats. The cuts are spread throughout the system, hitting all major hubs (SEA, PDX, SFO, LAX, SAN, ANC). However, we can see Alaska starting to entrench around Seattle, with the main hub down only 26%. PDX and the California cities were down 40-50% in seats. 

Similar to Spirit, Alaska waited until the last minute to cut August. Unlike Spirit, however, Alaska has the depth (and now codeshares) to recover passengers much more with significantly less strain. Additionally, Alaska is pushing their cuts earlier into the booking curve.

 

As we progress closer to the fall, we will continue to see cuts from all carriers. And the numbers will likely be headline-grabbing, however, it is important to keep everything in context. Carriers are just now reducing their largely untouched fall and fourth quarter schedules. In terms of overall trends, capacity will likely be flat to up vs. summer capacity. 

As carriers start to work through the October schedule and beyond, the only outstanding question is which cities will stay on the network. Airlines that accepted the CARES Act funding can start dropping cities starting October 1. After that, I think it is anyone's guess if carriers start hacking off full appendages. 

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A couple of house keeping notes. Thank you for sticking with me even after my sabbatical. 

I want to make sure everyone is aware how to connect with me. First, in the top right corner of the page, you can submit your email address to have weekly post sent directly to you. If you sign up for the email list, you will receive a email confirmation where you will need to verify your email address. The list is only to deliver my weekly posts and you will not be hit up with marketing.

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Finally, please feel free to follow me on Twitter @FlyDataGuy. Please expect sarcasm and quick thoughts on the latest airline news. 

One Way or Another, Expect More Capacity Cuts

In last week's post, we highlighted TSA screening data that hypothesized both a lopsided summer recovered and forecasted upcoming demand weaknesses for travel in August and September. Over the weekend, domestic carriers started to back off many of their recent capacity increases, as well as started reducing early fall capacity as well. 

While these capacity reductions, which we will discuss, look dire, it is important to remember that the fall capacity window still has a lot of fat to trim compared to the summer. What do I mean, well, if September were to fly today September 2020 would have 60% more seats flown vs. July 2020. Typically, September capacity decreases as summer travel wanes from a more leisure focus to more business or required travel.  Last year, the largest carriers flew 10% fewer seats in September compared to July. 

As we discussed last week, the summer recovery appears to be leisure-focused. Leisure dries up significantly starting in the first week of August and declines through September. So, with a lack of business-related bookings, there is little reason to expect significant growth in the fall.

 

On Tuesday, Delta had their first earnings call since everything came apart. In an interview on CNBC, Ed Bastian stated Delta sees similar trends. According to the interview, summer volumes are roughly 20-25% of average volume, mostly due to relatively good, but stalling, leisure demand. Business, on the other hand, is around 5%. It is unclear in the interview if he means business is 5% of total bookings or 5% of the previous year. 

In the last two weeks, airlines have started to decrease their capacity, but all of these cuts are targeting August through September. Even with these reductions, capacity does gradually increase from ~50% down year-over-year in early July, to 25-30% down year-over-year in early September.  After Labor Day, seats are flat to up, year-over-year. 

As we dig deeper into the August values, we notice that most of the network carriers are currently scheduled to fly with 40-50% fewer seats in August. Southwest is the outlier dragging the entire industry capacity up. Southwest is currently expected to be down *only* 10% in seats. Considering the continued delays from the MAX flying and general conservative nature of their leadership to product their balance sheet, this honestly surprises me. 

With generally all carriers stating demand has started to plateau, Southwest's off-trend capacity approach doesn't add up to me. While it would be possible that Southwest sees a higher traffic return than other carriers, I do not believe this to be the cause. When we isolated predominately Southwest airports (DAL, OAK, MDW, and HOU), TSA screened passengers are only recovered to -75% year-over-year. I cannot imagine being down 10% in seats for August is sustainable.  

 

But, compared to other carriers, Southwest might be completely stuck with this situation. For those that know the Southwest network well, it can be best described as a giant spaghetti monster. What do I mean? Southwest does not have hubs, nor are they exactly a point-to-point carrier either. This causes the carrier not to have hubs in which aircraft can be terminated without impacted multiple down-line flights. This is generally not as difficult at network carriers or nearly pure point-to-point carriers such as Allegiant. 

The picture above is 10 random Southwest planes operated on March 10, 2020. 

When the virus started to impact customer demand, all carriers were forced to make day-of cancellation decisions. This was expected, given the dramatic decline in customer demand. Southwest canceled over 50% of its scheduled flights throughout much of April 2020. While all carriers saw a ramp-up in day of cancellations as well; however, others were able to more immediately cut their scheduled flights while Southwest was more delayed until late April and May before they were able to enact sustained cuts. 

If Southwest has bet wrong on the August schedule, it would not surprise me to see a spike in day-of-cancellations throughout the month. 

But it is important to remember, too much capacity in the fall is not just a Southwest problem. All major carriers are running extremely hot with capacity immediately following Labor Day. With lagging demand, we should expect to see capacity cuts start rolling in soon. 

As these capacity are announced, which I believe we will hear updated guidance anytime now, it is essential to note that even substantial capacity reductions could still keep airlines larger than they were in June and July. Until then, we all wait uncomfortably together. 

Repost: Behind the Cuts: Examining Why JetBlue is Cutting Long Beach

Normally, I stay away from recycling my old material, but with JetBlue's announce they are closing down Long Beach, I feel it is important to remember, JetBlue did everything they could to save the city. The economics simply were not there. 

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In the early winter of 2017, a small group of us Southwest Airlines network planners were gathered in a conference room. We were given our marching orders. The 737 classic fleet was headed into retirement on September 29th, moved the 30th, and the MAX would join the fleet on October 1st. With the reduction in airframes, we were going to have to reduce frequencies and eliminate routes to keep the network operational with balancing commercial constraints. After months of debating, it was time to decide.

Cutting sucks. There’s a good chance you had to eat crow after defending the poor performance as you believed the route just needed to mature. But it was finally time. Due to aircraft constraints, pressure to get network performance up, or this route’s performance just dragged for too long without meaningful long term strategic value, today is execution day for this route. Regardless of the reason, someone is going to be pissed at your decision.

In my time as a planner, I heard it all:

• This is the most short-sighted decision ever made 
• I am going to have (name the ULCC) enter the city and they will take all your customers
• You do not understand the city/market. 
• You are lying
• Well, I'll be calling (name the Leader) and they will be reversing this decision

Once, I heard three of these in just one 20 minute meeting.

I bring this up not for sympathy, but for understanding. I was fortunate enough to have and still maintain great industry relationships. I bring this up as JetBlue's network planners are likely experiencing this exact same reaction both internally and externally with their decision to cut Long Beach. JetBlue employees are likely being displaced or their hours reduced and front line employees may be feeling left in the dark. However, JetBlue has been struggling in Long Beach since 2008 and are executing on their fourth attempt at a city recovery.

The reality is there was little JetBlue could do with Long Beach that would make commercial and financial sense. Its commercial teams were left with no great options. It all likelihood, network planners could have been handicapped by constraints to delay what many may believe as an inevitable outcome.

With that digression, let's dig deeper into JetBlue's history and ultimate decision to reduce its operation to just 15 daily flights.

In August 2001, JetBlue entered Long Beach with twice daily JFK service, which was quickly accelerated to three times daily. After JetBlue's initial launch, B6 rapidly built up its position at Long Beach in response to their initial success in the market. This continued until 2008 when they topped out on slots and performance.

Depth to Breadth 

While the initial service into Long Beach appears to have been pretty successful for JetBlue, the performance love affair was shortlived. The Great Recession took a healthy bite into JetBlue’s revenue and in 2008 Long Beach's unit revenue production turned negative. Of the 14 routes, 12 were performing below the system RASM curve.

To counter the declining performance, JetBlue had to change something with the Long Beach service. Over a few years, JetBlue slowly began to transform Long Beach's network. The carrier believed their path to system returns lay with more markets at a lower frequency. The planners began to reduce higher frequency markets like IAD and JFK for lower frequency markets like AUS, PDX, SEA, and SFO.

Seasonalization 

Even with the breadth approach, the network performance in Long Beach still dragged on the network. In 2011, Long Beach's unit revenue performance really took a turn for the worst. At this point, most routes were double-digit negative compared to JetBlue's RASM curve. The only routes that appear to be working were back to the East Coast. All other Long Beach markets really pulled on the JetBlue network.

Without immediate action, this level of revenue performance would become quickly unsustainable. In 2012, JetBlue began aggressively cutting off-peak flying. Typically, JetBlue would reduce its seasonal schedule by 5-10% off the peak. However, in 2012 thru 2014 the carrier reduced its off-peak schedule by 20% of peak schedules. This approach trimmed JetBlue's yearly departures by as much as 10%.

Save the Slots 

In 2014, the Basin began to heat up as carriers started to fight for limited airport space. All secondary airports in the Basin, excluding ONT, are constrained by some type of noise controls. Orange County and Long Beach have slots, while Burbank has gate caps. As Orange County and Burbank started to fill, carriers began to shift their attention to Long Beach's limited slots.

Appetite for Long Beach began in earnest in late 2015 when the airport announced it would lift the noise cap to allow nine more flights into the airport. Of the nine new slots, JetBlue received three, Southwest four, and Delta two. Later, Southwest would use JetBlue’s underutilized slots to fuel additional growth in the city.

As is often the case with JetBlue’s focus city, these competitive incursions initiated a response from JetBlue. In August 2016, JetBlue announced its plans to fully utilize all of its slots. This shot JetBlue's departure count from ~23 daily flights in 2016 to 35 flights in 2017.

Plowing this much capacity into subpar routes is one heck of a way to start a turbine with cash. During this period, most routes moved further down the revenue production ladder. Long Beach now saw a sea of red as most routes were producing 20-40% below the system RASM curve.

The opportunity cost associated with operating these routes was astronomical. If these flights were deployed to routes that produced system average returns, JetBlue would have seen roughly $80M in additional ticket revenue. This value excludes all ancillary fees.

Now, I want to be extremely clear. The graph above does not state JetBlue lost $80M in Long Beach during their slot utilization ramp-up. Rather, the graph is an opportunity cost for flying underperforming routes. No one can say exactly how much money JetBlue made or lost in Long Beach except JetBlue. Please see my cost tangent if you receive airline "profitability reports". But the graph above can be used to understand the direction and magnitude of JetBlue's performance.

Slot Saving is Expensive 

After what appears to be a massive drop in Long Beach performance, JetBlue tossed in the towel. Twice. Kinda. In September 2018, JetBlue reduced flights by 30% but would not return the slots back to the airport until months later. Interestingly, the carrier decided to only exit FLL and removed frequencies across a variety of underperforming markets rather than more significant market exits.

This is the one time I’ll fault JetBlue’s logic in this entire process. Long Beach was bleeding cash and the first round of reductions really did not feel in line with the city’s performance. The first round of cuts announced by JetBlue were focused on stopping the hemorrhaging, but not on truly getting the city healthy.

The reductions in capacity greatly increased the performance of the city in terms of year-over-year unit revenue production. However, year-over-year RASM growth is largely meaningless when JetBlue's 2018 route performance is factored in.

This is where we found JetBlue until last week. Most routes continued to underperform their system RASM curve. Intra-California routes to SMF and SJC were particularly terrible. This is in line with JetBlue’s market exits.

Will Cutting to Profitability Work? 

After all the aggressive protectionism then retreating, do I think JetBlue may finally be stable within Long Beach? I give it a big maybe.

When we examine JetBlue as a whole, rather than just focusing on Long Beach, after the latest rounds of cuts, while still underperforming the system, Long Beach could be in much better financial position than it has been in quite some time. The routes that remain are generally within the tolerances of acceptable unit revenue performance. Don't get me wrong, the remaining routes are not stellar, but the entire system cannot be above system averages. Averages don't work that way.

Another thing to keep in mind, following this round of cuts, Long Beach is unlikely to have the JetBlue’s worst-performing routes attached to it. If JetBlue is looking to harvest and redistribute aircraft within their network, it appears they would have a healthy selection of other poor performers to sift through first.

Finally, there has to be consideration given to the logistics of routing crews out of the Long Beach crew base. Further cuts would make it nearly impossible for JetBlue to efficiently move crews. The costs associated with dislocating LGB based crews are might be prohibitive given the production of the remaining routes compared to extremes such as shutting down a flight crew station.

It is still very possible that we may see a reallocation of flights between the remaining markets, but I honestly do not expect any more earthshattering moves at least in the near term.

The only wildcard for Long Beach is competition, but I would not expect immediate meaningful competitive growth. Kate Kuykendall, Long Beach's public affairs officer, stated the airport has not received an official notice from JetBlue regarding their intention to relinquish slots at the airport. The airport is well aware of the announced reductions, however, until JetBlue returns slots, the airport cannot start the process of reallocating them to other carriers.

According to the Long Beach airport, JetBlue has 24 permanent flight slots. These slots have minimum usage requirements which JetBlue will dip below during the 3Q2020. This could mean, without JetBlue voluntarily surrendering their slots, it may be the 4Q2020 or 1Q2021 before slots are reallocated from this flight reduction. If the 14.8 average daily flights are the baseline for JetBlue's new slot allocation, we should expect to see JetBlue be allocated 17-18 slots, which free 6-7 slots for competitors.

JetBlue's potential delay in relinquishing slots should not come as a surprise. When JetBlue reduced capacity in September 2018, the carrier did not return its unused slots until the spring of 2019. Further, in New York, I suspect there are a lot of hard feelings following increases in curfew fines, increases in slot utilization requirements, and the city walking away from the international terminal. I do not expect JetBlue to play along nicely with its slots.

By the time the JetBlue surrenders the slots and the airport executes on the allocation process, we could be looking at early 2021 before Long Beach sees carriers backfill in the airport. In the more near term, the airport is already in the process to allocate three new noise supplemental slots. This process should be completed in February.

According to CrankyFlier, three carriers remain interested in additional Long Beach slots: Delta; Hawaiian; and Southwest. Based on JetBlue's remaining network, I believe there is limited exposure that you can reasonably see these three carriers overlapping with JetBlue.

If Delta were wanting to increase pressure in SLC, they already have the opportunity with their last slot allocation which they sent to Vegas. On the Southwest network, a reasonable person could argue for additional Las Vegas flights or maybe a long shot at Austin service. Otherwise, I’d expect the new capacity to be allocated away from JetBlue’s Long Beach network by these carriers.

Barring Alaska jumping into the mix, which is possible, but not likely, SEA, PDX, and SFO are unlikely to see additional competitive pressures. With Alaska exiting Long Beach in 2015, I do not see a large possibility of them wanting to relaunch the city.

This should for the time being bring stability to JetBlue in Long Beach.

Fall Travel Is Flashing Red

There's plenty to be worried about as an airline employee these days. As the coronavirus is spiking across much of the south, United just announced their bookings are off, and WARN will start heading to Delta and United employees in the next couple of weeks. This is not exactly the environment that I hoped to restart weekly posts. 

Unfortunately, this post will not bring the rays of hope that many might have wished for with this post. In fact, I, unfortunately, believe in the next few weeks, we will see additional bookings headwinds which should have been predictable and independent from the regionally impacted booking headwinds associated with coronavirus travel restrictions. The wishful thinking forecasts by some in the industry of V-shaped recoveries or 90% recovered by the end of the year will likely falter over the next few weeks.

I do want to be transparent in my research below. There are a some generalities discussed below. These generalities included business/leisure mix and travel trends. Typically, I stay away from these data points as they are impossible to prove at a market level with public data. However, I believe for my analysis, the value of these generalities significantly outweigh the risks. 

On Monday, CMT Engineering's Air Service group published an interestinganalysis digging into the TSA's daily screening data. Their conclusion, ULCC and LCC checkpoints, have higher year-over-year recovery rates compared to other security checkpoints. Thus, it is likely Allegiant and other ULCCs/LCCs are leading the travel recovery. 

I thought the whitepaper was quite interesting and wanted to dig deeper into their analysis and expand on it. Following the same methodology, if we segment cities into predominately Allegiant cities (90%+ of departing seats) and other cities, Allegiant cities took longer to experience the rapid decline in passenger demand and recovered quicker. 

The gaps in the lines are associated with weeks the TSA has not published data for airports. 

The above chart also validates with Allegiant's May traffic figures. According to the investor update, May traffic was down roughly 70%. The chart above estimates Allegiant’s May traffic would be down 69%. This indicates CMT's white paper methodology is reliable. 

In the last week of available TSA data (June 20th), Allegiant cities had recovered to be *only* 30-40% down in passengers year-over-year. This is not some fluke where the year-over-year compares were easier in the summer with these cities. As the cities move through the summer travel season, we see a steady rise in passengers at Allegiant dominate airports. 

So if Allegiant is outpacing other airlines with passenger recovery, why is there a concern? This is where the generalizations come in. First, it is essential to remember who Allegiant's core customer is: leisure customers. Allegiant makes this exact point in their 2020 Investor Day presentation. 

It appears the recovery in its current phase is entirely leisure-focused. Other carriers are reporting this as well. In Spirit's May 19th Investor Presentation, Spirit explicitly calls out leisure as being their most resilient customer segment. 

The lack of traditional business travel makes sense right now. Anecdotally, we have heard of travel freezes across a broad cross-section of the US economy. Businesses do not want to the liability if an employee were to get sick, nor do company finances support much discretionary spending. If you need further evidence that loyal business travelers are not hitting the road, ask yourself why every major airline extended loyalty statuses through 2021.  

So if the recovery is entirely leisurely focused, let's turn back to the Allegiant focused airports in an annual view. After the first week of August, demand across the Allegiant network significantly drops off and bottoms out around the first to the second week of September. At the Allegiant airports' lowest point, passenger demands are 40% off summer peaks. Let's also not forget after July 4th, passenger demand starts to wane across the network. 

When we take a look at onboard passenger trends by carrier segmentation, we can see ULCCs over-index summer travel in with their passenger demands compared to traditional legacy carriers and the industry as a whole. This is due to summer travel being focused much more heavily on leisure-oriented passenger demand. 

This, again, supports the notion that if we are in a leisure-based recovery, we will see better recovery rates in the summer, when leisure demand is typically the greatest. Following the same logic, when the business travel supports the industry in the fall, our recovery rates will likely flatten or decline. 

 

When we compare the prior Allegiant airports trends to legacy hubs, we see Allegiant airports significantly outperform large legacy hubs in terms of their recovery. For once, it is nice to be a small airport. It is also important to note, the three airports I selected to represent Delta, American, and United are in the South, which did not see the same virus-related travel restrictions as other parts of the country.

Yesterday, United held a town hall meeting with their employees. While I was not on the call, employees listening in reported the town hall as "sobering." On the call, United reported bookings across the network have started to slow once again. EWR, which has been hit with the hardest by local travel restrictions, has seen the most significant decline in net bookings in a short period of time. The rest of the network has also seen a noticeable decline as well. 

 

For the non-EWR bookings, we do not have enough information here to determine precisely the nature of the decline. It could be that we are starting to work our way into the August and September booking curve, which I would expect to see leisure travel weakness or the decline could be related to recent spikes in COVID cases. 

But what is certain, states that were driving the passenger recovery are now the states that are many of the states seeing spikes in cases. Exactly how the growth in COVID cases will impact passenger trends is still to be determined. Local travel restrictions clearly will have a negative impact; however, not all states are implementing restrictions. Further, it is difficult to measure the customer behavior change associated with a rise in cases. What we do know is any increase in COVID related activity won't help with passenger recoveries. 

While we won't know exactly how fall travel will shake out until after flights operate, we do know there are far more headwinds than tailwinds with the passenger recovery.... and we did not touch on what is happening on the revenue front. 

I do expect passenger growth trends to plateau or decline around late July and early August. If you are fed an overly rosy passenger trend forecast, take it with a large grain of salt. It appears we are in this recovery for the long haul.