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.