A Full COVID-19 Travel Recovery By August? One Forecast Proves Too Optimistic

Half a million passengers travelled in the U.S. on June 11, continuing a travel rebound that would mean, one commentator says, a full return to normal by the end of summer.

The proclamation defies near universal expectations of a multi-year recovery from coronavirus.

“The trendline of TSA passenger traffic implies a recovery to pre-COVID-19 levels by August,” Carl Quintanilla of CNBC said.

It is a simple argument: the recovery we’ve had indicates the recovery to come.

Consider the last two weeks. Air passengers have increased around 3% every day in June, passing the 400,000 traveller mark on June 5 and the 500,000 milestone six days later. Continuing this growth would give a full rebound in August.

The fallacy is expecting continuous growth. Other domestic travel markets in the world (see chart below) show initial jumps like in the U.S. as lockdowns ease or holidays arise. But then growth slows and plateaus below recovery thresholds. There is no evidence to suggest the U.S. will fare better.

Quintanilla’s forecast was widely criticized for using a logarithmic display. Using the same data but in a linear presentation, as Deutsche Bank did, gives a June 2021 recovery – but that is also not without fallbacks.

Having half a million daily passengers in the U.S. may seem large. But it is still far from the nearly 2.7 million daily passengers a year ago. The mid-June recovery is only 19%. Having such a small base should give caution before extrapolating long-term forecasts.

Passengers now returning to the skies may have urgent reasons to fly or be less financially impacted from COVID-19. There will be more passengers who have pressing business needs to address or want to take a holiday.

Travel demand is pent-up, so it is relatively easy to get 60% or more of passengers back in the air once health conditions allow. The challenge is regaining the last portion of passengers.

Business travel will decrease due to budgets and making more use of platforms like Zoom. Discretionary leisure travel will not be an option for many due to the economic damage already sustained.

That pushes the August recovery prediction far, far out. Quintanilla partially concedes, quoting market advisory Fundstrat’s Thomas Lee, who says the full recovery in August is “not necessarily” what will happen. But that still leaves a degree of possibility greater than what reality will permit.

Airlines are retiring aircraft and offering voluntary departures, likely followed by layoffs. Even if the recovery continues at the same rate, despite all logic to the contrary, there will not be enough aircraft or employees to carry the same number of passengers as a year ago.

Reduced capacity is a response to weakened demand but also wanting to guarantee profits to quickly pay off recently-accumulated debt. More nuanced a consideration is that passengers are coming back partially due to cheap tickets (even accounting for the low price of fuel). Traveller volume will need to rebound with less discounting.