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.
Good to see you back. I really enjoy reading your posts.
ReplyDelete