Airlines seek 2019 rebound, but fares are missing link to recovery

Log-in here if you’re already a subscriber

• The COVID-19 pandemic has reset the economics of the airline business.
• Airlines are burning the candle at both ends, adding back expensive capacity while cutting fares to fill planes and win market share.
• As passenger numbers continue their recovery, the lower fares to entice back passengers will weigh on the airlines for the foreseeable future.

There are three steps to an airline industry recovery. First, airlines have to return capacity to the sky. Second, passengers need to fill those airplanes. Lastly, the fares those passengers pay must be economically sustainable. The industry has not yet reached the first step.

For the United States, the once-and-future largest aviation market, the recovery is threatened by being home to the highest number of confirmed COVID-19 infections. Yet, even though the recovery in the number of passengers screened by the Transportation Security Administration has stalled, there is some optimism warranted that at least the numbers have not retreated.

Related: As coronavirus pummels air travel, lessons from 9/11 on what may come next

Once the U.S. gets control of the rate of infections, air traffic will restart its recovery in earnest. However, the depressant effect on fares could last years, delaying a complete return to overall 2019 demand even as traffic numbers return. The trick in running an airline in a COVID-19 world isn’t in getting passengers to fly, it’s in getting them to pay you to do it.

Related: U.S. airlines are having a knife fight on a life raft

The first signs of overcapacity in the market are beginning to take hold. Rather than focusing on capacity or traffic itself, as we have done in numerous previous analyses, this TAC Analysis looks at the great equalizer, fares, and particularly how those fares are being used to signal a shift from survival, to that of the proverbial ‘knife fight’ between airlines.

Continue Reading...