Podcast: Is U.S. Aviation Leading the Way out of the COVID Crisis?

Air travel is surging back in the U.S., but the opposite is happening in other regions. Aviation Week’s editors and forecasters explain why—and what it means for airlines and aircraft manufacturers.

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Rush transcript:

Joe Anselmo: 

Welcome to this week's Check 6 Podcast. I'm Joe Anselmo, Editorial Director for the Aviation Week Network.

Pent up demand for leisure travel, rapid vaccination rates and massive government stimulus spending are boosting demand for domestic air travel in the U.S. faster than expected. A new projection from Oliver Wyman projects domestic air traffic will rebound to 2019 levels by early next year -- a timeframe the firm said would have been ‘impossible’ just a year ago.

United Airlines has announced plans to hire 300 pilots to cope with surging passenger demand. And Delta Air Lines has been forced to cancel flights because of staff shortages. Even a beleaguered Boeing has received a shot in the arm in the form of a new order from Southwest Airlines for a hundred more 737 MAXs over the coming decade, boosting the MAX backlog to 349 firm orders and 270 options.

Unfortunately, the clouds are not lifting in other parts of the world. The International Air Traffic Association reported this week that global air traffic's decline from before the COVID crisis actually worsened in February. China's domestic travel, which had almost completely recovered in the second half of 2020, was a driving factor behind the worsening trend. But it wasn't the only factor. Continental Europe and Brazil continue to suffer from new waves of COVID outbreaks and slow vaccinations, delaying a recovery.

Joining me to sort through all this good news and bad news are Aviation Week air transport editors Sean Broderick and Ben Goldstein. And from London, we welcome Daniel Williams, a fleet, flight and forecast Analyst for Aviation Week.

Sean, let's start off with the good news. We have some good signs that U.S. Air traffic is on the rebound.

Sean Broderick:

Yeah, it looks like the domestic air traffic... We're starting to see a couple of very encouraging trends. Oliver Wyman is one of several groups that have come out and said that the path for 2019 levels by maybe as -- in Oliver Wyman's case – early 2022 seems within reach because of several factors. Everybody listening to this podcast I think understands that recovery is going to be led by leisure travel, simply because of the level of uncertainty on the business travel side.

There is pent up demand among people who want to go do things. In the U.S. many of us have received some stimulus money, which helps a little bit. And of course the vaccine rollout here in the U.S. is running at a pace that's above many countries. And so that is giving people more confidence. All that's adding up to more forward bookings, more seats being filled on available airplanes. Putting airplanes back into service isn't quite as simple as snapping your fingers. You have to have pilots and flight attendants, et cetera.

We're starting to see some positive momentum... again particularly in leisure markets. There's big disparity still between some coastal markets and some inland markets, because a lot of the coastal markets... airports I'm talking about are affected by international traffic. Still some disparity within that, but overall early 2022 seems at least within reach. But as we've seen throughout this pandemic, you can never be too careful to get out front with your predictions because this bug always seems to have a surprise in store.

Joe Anselmo:

Ben Goldstein. Sean mentioned advanced bookings. When airlines look out the next few months, the numbers of passengers keep going up, don't they?

Ben Goldstein:

Yeah, they do. And things are looking really optimistic. Right now we're at about two thirds of pre-crisis domestic demand. That figure was stalled for a long time last summer and fall at around 40% of 2019 levels. We hit 50% in February and now in March we hit 60%. Things are definitely looking up. In terms of advanced bookings, one phenomenon we saw last month was the compression of the booking curve. The booking curve is the window of time in which customers buy their tickets for travel. Typically in pre-pandemic times, most travelers buy their tickets between 90-120 days ahead of their flight.

However, during the pandemic people started buying their tickets much closer in. Really within two weeks and even as little as one week advanced notice. And the reason being is that people are concerned that their flights would be canceled and they would be stranded or out of luck. And that's why a lot of airlines waived change fees last year. However, what we're seeing now is the booking curve is beginning to stretch. Delta Air Lines says that bookings for 60 days out are now almost flat at 2019 levels. And that's really great for airlines. It's giving them a lot more visibility and it's making it a lot easier for them to plan their capacity. This is all adding up to a lot of optimism right now. People are getting more comfortable traveling. And barring any setbacks that should hopefully continue into this summer.

Joe Anselmo:

Ben, I think it's important to note that air travel is different from demand for new aircraft. And you reported last week on this Southwest order of MAXs, which was great news for Boeing. But this doesn't necessarily mean if airlines are pulling their parked planes out of storage and flying them again that they're going to be suddenly ordering new airplanes, right? There's still a ways to go there?

Ben Goldstein:

Right. Well we still have this large 100-aircraft order from Southwest, and we still have some smaller MAX orders from Alaska and United a few months ago. And I've talked to quite a few people, and the general consensus is there is no trend that has begun. There is already excess capacity. Carriers have plenty more aircraft than they currently need. People are not really expecting there to be a wave of buying this year or next. In all of those cases, these were for replacement needs that predate the pandemic. And in Southwest's case, they were going to replace some of their 737-700s, which they've needed to do for a long time. And in all three cases, Boeing probably offered up very attractive terms, partially in an effort to shore up the competitive position of its MAX program.

But among the major airlines, the Americans, Uniteds, Deltas, they've really invested a lot into their fleet even before the pandemic and they have excess aircraft now and a lot of debt. They're probably not going to be buying a whole lot of airplanes. We might see some buying on the low-cost carrier side, but even there the potential is kind of limited. Frontier and Spirit already have large Airbus order books. They could maybe add to those. But the chances of a real large order on par with what we saw from Southwest are kind of slim I think.

Joe Anselmo:

Let's head across the pond to our numbers guy, Dan Williams. What do you make of this whole situation? Can you broaden the outlook a little bit to go beyond the U.S.?

Dan Williams:

Yeah, sure. I'll piggyback on what the gents have been saying first. The Southwest order, totally right. That was just fleet replacements. And also what is interesting about that Southwest order was they switched 70 Max 8s to Max 7s. They've actually in some ways lessened their capacity in the future because they're taking a slightly smaller aircraft. So that reflects on their outlook of the market.

It's a great shot in the arm for not just Boeing, but for the industry as well. All new orders are. And I'm sure they got it at a nice discount as well because they're loyal Boeing customers. And it also keeps the Airbus A220 out of any competition with Southwest. So it's a very shrewd move on Boeing's behalf.

But taking a look at the global picture is very different than the U.S. domestic market. There is real optimism for the U.S. domestic market. There is real optimism for the Chinese domestic market. Yes, we saw that plunge. As you mentioned before, Joe, about the January, because there was a spike in COVID cases and there was a discouragement by the Chinese government for people not to travel for Chinese New Year. As a direct result of government involvement, yes, we saw a big drop in utilization. But that's rebounding. That's some great optimism there. But in terms of a European situation, as we stand right now, we have more European countries going back into lockdown. Italy's getting another wave. France is getting another wave. Paris has gone back into lockdown. We still in the UK are still under lockdown and we are not allowed to travel abroad for leisure purposes. You can travel abroad for business and for emergency family needs right now. But until May 17th we are still not allowed to travel for leisure purposes internationally.

And then there's still lots of debate about, will we require about vaccine passports or will we not? And then the problem comes with other countries. Do you look at our vaccination rates? We're doing pretty well in the UK. One thing we've done pretty well. The U.S. is doing pretty well as well. There are other countries. Israel has got a great uptake as well. However, you look in France and Italy, in Germany, the uptake isn't quite as quick. It's not necessarily our governments that will discourage travel, but there's also the European countries themselves. We as Brits like to go abroad to Spain and to Greece because we need some sunshine. And the governments have to decide between them how and when they're going to manage to facilitate that leisure travel coming up probably in this summer holiday season. It will be interesting to see how that pans out.

Joe Anselmo:

Dan, I had mentioned in the opening about this Oliver Wyman forecast that Sean reported on this week. Pretty optimistic. U.S. domestic travel back to so-called normal by the beginning of next year. What do Aviation Week forecasts say? We're not willing to go that far are we?

Dan Williams:

I think it's an incredibly optimistic outlook. Will some of U.S. domestic travel return to 2019 levels at some point in 2022? I suspect it probably will. However, I think we will be looking at more of those summer travel months, the July-August time. I think we shall see in terms of aircraft utilization, something that would resemble summer 2019 aircraft utilization.

However, that is going to be on a slightly smaller fleet than it was in 2019. Because you look across the board, American Airlines fleet as we stand right now is 120 down than it was at this time last year. Delta likewise is probably slightly more. It's about more like the 160 kind of mark. Jet Blue about the same. I was surprised to see that Jet Blue, as it stands right now, only have about 10 A320s left in storage. Everything else in their fleet is either active in service or parked reserve which are slight nuances that we push more toward in-service because they would naturally return to service quite quickly. Southwest are nearly at pre-pandemic levels. There are only about 40 aircraft away and United are down about 130 aircraft.

Yes, some more of those aircraft will come out of storage. However, some of those legacy allies have retired fleets. The MD80 fleets, the American 757 fleets and so on and so forth. There's going to be less aircraft to book. Those aircraft that are going to be around will probably have utilization similar to summer '19.

Joe Anselmo:

Dan, we just published an interview in Aviation Week with Scott Kirby, the CEO of United Airlines. He spoke at the CAPA Live event. And he is bucking the trend on international travel. United has actually increased its widebody fleet during this crisis by 5%. And he says, international travel is going to come back really strong. He says by 2023, it'll be much stronger than domestic. Do you buy that? When are we going to see international travel rebound?

Dan Williams:

Everything about COVID that has been either interesting there in terms of forecasting is the fact that there's so many outside influences that we have absolute zero control over. We had to wait for a long time for a vaccine. The vaccine arrives. Then we have to wait for the governments to approve it. The governments approve it. We have to wait for production to match demand. In some parts of the world production is matching demand, but we are not safe until we are all safe. Full international travel will not happen freely until we are all safe, I say in air quotes. There will be agreements between countries. I imagine that summer 2022 will be quite good for intra-European travel. We will see some trans-Atlantic travel. But will we see some travel to some other parts of the globe? Maybe not as much as we did do in the past. It probably would be more 2023 where this normal travel will be achieved again. But again, possibly on still a slightly smaller fleet size than 2019 levels.

Joe Anselmo:

Ben Goldstein, we had talked about a demand for new aircraft, and I know you're working on a story on that. What's your reporting telling you on when airlines' appetite for new airplanes is going to return in force?

Ben Goldstein:

Well right now we're seeing some appetite on the narrowbody side. Of course, the wide body side is going to be much further out. But I do think that where we're going to see appetite right now is going to be with the low cost carriers. Particularly the growth airlines. And I think we're going to see a lot less of that right now from the big Deltas and Americans who took on a lot of debt and like I had mentioned earlier, they already largely have their fleet needs in place. I think if we're going to see a substantial order activity, which I don't really expect in the next a couple of years, then it's probably going to be from the growth carriers.

Joe Anselmo:

Dan, does that match with your thinking?

Dan Williams:

Yeah, the narrowbodies are going to take the baton and run with it initially, for sure. There will be need for some widebodies later on, mainly, initially I should say in some freighter capacity. But you're going to see these... the A321 and all its letters, neo, LR, XLR that takes up of our 10 year forecast about a quarter of all single-aisle deliveries are the A321s. We were seeing this pre-pandemic, this shift away from wide bodies to these narrowbodies with long legs. And now Airbus have announced that the A220s can have slightly longer legs because they get higher takeoff weight. The world is at the minute lives with these narrowbody aircraft.

Joe Anselmo:

Well let's give the last word to Sean. Sean, you're actually getting on an airplane in a couple of weeks to fly to Aviation Week's MRO Americas Conference down in Orlando, Florida. How do you see the next few months unfolding?

Sean Broderick:

I think that markets that are both regaining comfort in terms of passengers' ability to travel safely again like the U.S., like between Australia and New Zealand, where they now have the bubble agreement down there and within Australia. Places where you can support robust flight activity without depending on others, as Dan was saying, are going to do okay.

The interesting thing to me though, going back to what Scott Kirby has said, we're not seeing any headwinds on people's desire to travel for leisure. What's holding them back is either inability to get places because of restrictions or fear. There's no ancillary headwind, unlike in the business travel world where we don't really know if all of the things that we've had to adapt to in the last year, Zoom meetings, et cetera, whether... If those things affect business travel at all, then the kind of rally that Kirby is seeing over the next couple of years really has to be driven even internationally by a bigger influx of leisure travel. To me that's going to be an interesting thing to watch. I'm not going to call it either way. I'm not going to say business travel is done, and I'm not going to say that Zoom is here to stay in any great percentage that's going to impact Business Class or First Class cabins.

But to get back to the kind of levels that Kirby is talking about, I think that leisure travel has to play a significant role if only because there are still going to be business restrictions I think for another year or so somewhere in the world where business travel originates where it ends up.

Joe Anselmo:

Okay, well, unfortunately we'll have to end it with that because we're running out of time. But guys I appreciate all of you taking the time to lend your insights to our listeners. That is a wrap for this week's Check 6 podcast, which is available for download on iTunes, Stitcher, Google Play, and Spotify. Special thanks to our producer in London, Guy Ferneyhough. Join us again next week for another Check 6.