Lost airline revenues tip of the iceberg for domestic testing

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• New testing requirements for international travel to the United States has reduced overall travel.
• Possible domestic testing restrictions could impact airline revenues by $6 billion quarterly, adding additional costs beyond those addressed by the CARES Act.
• The long-term damage would further be felt through the uncertainty of travel domestic restrictions would bring to the flying public, further delaying the recovery and setting travel back to 20% of 2019 levels.

Through the myriad of challenges facing the airlines of the United States in the middle of the greatest downturn in air travel history comes a new question to be answered: What would mandatory COVID-19 testing for domestic travel do to the fragile U.S. airline industry? The testing for passengers bound for the United States from international departure points foreshadows the cost.

On January 12, 2021, the outgoing Trump Administration announced the new requirement in an effort to increase traveler confidence and later mandated as a means to curb the spread of new variants of the virus. The new testing requirement was followed by an immediate drop in air travel.

Related: The airlines are forked. Business and leisure flying split can heal

The U.S. air travel recovery, as followed daily through the now-familiar TSA daily screenings, abruptly reversed course from its gradual ascent to a weekly average of 47% of 2019 numbers in early January, to a new seven-day average of 35% by February 1. This 12 percentage point drop is especially impactful considering how little the total percentage the number of international travel represents.

With only 10% of all U.S. travel in 2021 anticipated to be international, the precipitous drop in demand following the announcement of testing requirements suggests a more damaging trend to the airlines than originally anticipated. The international component affecting overall traffic more than its share is creating a problem for airlines and lawmakers, alike. International travel is far more impacted than originally anticipated by the testing requirements. Additionally, the new order is having a negative effect on the confidence for consumers to book all travel, both international and domestic.

Now, with the amplified discussion of duplicating the international testing requirement to also apply to domestic travel, the incremental impact to an already fragile aviation industry has yet to be examined. Airlines and plane makers have submitted criticisms of the viability of a domestic testing requirement and its effectiveness at reducing viral spread as other methods of transportation continue unrestricted. As the debate continues, TAC Analysis looks deeper into the economic impact this could have on the U.S. airlines.

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