The COVID-19 pandemic looks to be over in the US based on the volume of air travel demand, which has been recovering almost nonstop since the mass dissemination of COVID vaccines began in the spring of 2021. While daily passenger traffic at US airports hasn’t yet reached 2019 levels, it has come close on many days in April and May, data from Transportation Security Administration (TSA) checkpoints show. Our Airline Economic Analysis 2021-2022 report examines global aviation recovery trends, including demand, costs, labor, and operational performance.
By summer travel season, we anticipate demand to be even more robust, essentially on the strength of the domestic and leisure travel segments, which have been driving revenue growth since the beginning of the pandemic. As of early May, business travel in the US was still stuck at 31% below pre-pandemic levels, and international travel continued to be stifled by outbreaks of COVID-19 around the world and pandemic travel restrictions. US airlines expect the second quarter to be one of their strongest in a long time after an active April and May.
While this sounds like good news for US carriers, the boom has come with some difficult-to-solve complications that are preventing airlines from fully capitalizing on the comeback. The busy summer season is only apt to exacerbate developing bottlenecks.
This isn’t only a US problem. European airlines are also having difficulty ramping up to meet demand, and at many airports long check-in and security lines are starting to appear as well as baggage delays.
Airlines need more workers to support the recovery in air travel demand
One of the most immediate challenges facing the global aviation industry today is a labor shortage. The shortfall is being felt in every category — from pilots and baggage handlers to ticket agents, flight attendants, and aircraft mechanics. Since these workers are responsible for the lives of millions of travelers every day, all must go through extensive background checks, drug testing, and training. It is especially tight for jobs like pilot and mechanic, which also require extensive certification and literally hundreds, if not thousands, of hours of training.
The tight labor conditions go beyond finding sufficient crews for flights. It also reflects staffing problems in the ranks of air traffic controllers, TSA agents, and vendors that help supply airlines and airports. Flights have been postponed for hours and canceled entirely because carriers have been unable to assemble the appropriate crew and support team at the right airport at the right time. The data reveal a growing problem that started manifesting itself last year. In 2021, the US rate of on-time arrivals within 15 minutes of schedule fell from 86% in February to 75% in July, at the height of the busy summer season.
Six of the 10 largest US airlines experienced double-digit drops in on-time performance.
In 2022, on-time performance has been equally disappointing. In February, the latest complete data available, on-time performance for reporting carriers was 76.8% — seven percentage points lower than in November 2021. Already this year, airlines are opting to trim schedules for the upcoming summer vacation season because of the lack of personnel. The summer is when a significant chunk of airline revenue is taken in.
Besides aircraft crews, there are also too few people to repair aircraft. A stunning 85% of senior executives in our annual maintenance, repair, and overhaul survey that was released in April ranked difficulty finding new hires as their biggest challenge. Especially in North America, airlines have been scrambling to find enough pilots after many retired or took early retirement during COVID. Our aviation team recently projected an official shortfall of more than 8,000 pilots in the region by 2023, with regional carriers that serve smaller cities expected to feel the worst of the pinch.
Rising labor and fuel costs are putting pressure on airline profits
The labor problems threaten to limit revenue growth if carriers are forced to cancel routes or reduce frequency. But they also will make it harder for airlines to show profits as the squeeze is expected to push up labor costs at a time when carriers face significantly higher fuel prices. Labor and fuel are by far the two biggest operating costs for airlines.
In March, following the Russian invasion of Ukraine, the International Air Transport Association (IATA) put out a statement warning that airline losses were likely to grow in 2022 because of oil prices. While the fighting hasn’t posed a direct threat to air travel so far, the conflict and trade sanctions imposed in its wake are placing additional stress on already challenged commodity markets and supply chains.
Even before the Ukrainian conflict, the aviation industry was plagued with rising operating costs, largely the result of the faster-than-expected rebound from COVID-19 in 2021 and the failure of the labor market and production capacity to keep up. The increase created temporary shortages of everything from semiconductors to cars.
Business travel demand continues to lag behind leisure travel recovery
Inflation and labor shortages aren’t the only lingering effects of COVID-19. For the travel sector, one of the more painful consequences has been the slow return of the business traveler. By mid-May, there was still more than a 34 percentage-point gap between the recoveries in the leisure and corporate travel segments, only slightly better than the spread that existed toward the end of 2021.
That gap is more reflective of the stunning spike in leisure travel demand than it is of any irretrievable losses in business travel. Starting in late April, leisure began regularly besting its performance in 2019, with the week of May 22 almost 4% higher than the same week pre-pandemic. Corporate travel, on the other hand, has seen a more gradual improvement, stuck at just under 31% below 2019 traffic for the same week in May.
On a positive note, several major carriers are now projecting a recovery in corporate travel by the end of the year. The business segment matters to airlines because it is by far the most profitable and generates a large chunk of revenue. Executives tend to fly business or first class and are often unable to take advantage of discounts, even in economy class, because of the short notice before many trips.
Net-zero targets will create long-term challenges for the aviation industry
On the horizon, aviation will also have to worry about the global push for net zero emissions by 2050. More than any other transportation mode, the goal is problematic for aviation at least into the mid-2030s, when breakthrough technology currently under development may allow the industry to eliminate or at least significantly reduce its dependence on fossil fuels.
