Daily Memo: Envisioning The U.S. Domestic Market’s Recovery

North American carriers, led by U.S. operators, generated nearly 60% of 2019’s combined estimated global airline profits of $29.3 billion, IATA figures show.
Credit: Joe Pries

With 95% of the U.S. population under stay-at-home orders, predicting when regular trips to the pub might resume is senseless enough. 

Accurately forecasting how the world’s biggest airline passenger market will recover is a non-starter. But a look at where the airlines stood just a few weeks ago, how they got there, and the lingering issues of the coronavirus offers insight into what parts of the recovery could look like.

Most post-pandemic analysis starts with looking at the aftermath of recent economic shocks, charting key metrics and their time from trough to pre-downturn recovery—a reasonable approach. But the post-Great Recession recovery is likely the most instructive, for one simple reason: U.S. airlines changed the way they did business. The biggest carriers stuck to a plan—product, people, and balance sheets out-weighed metrics like market share, and they made money. Lots of money.  

North American carriers, led by U.S. operators, generated nearly 60% of 2019’s combined estimated global airline profits of $29.3 billion, IATA figures show. The performance capped 10 consecutive years of profitability, with the last six topping $10 billion annually.  

More importantly, for post-pandemic purposes, they did it while exercising capacity discipline. Year-over-year annual domestic seat growth exceeded 3% only once from 2010-2019, a Delta Airport Consultants analysis shows—a notable contrast from the strategies employed following the 1991 and 2001 downturns.  

This time around, they have a steep hill to climb. U.S. airline domestic departures were down 52% year-over-year for the week ended April 5, Airlines for America (A4A) data show, and most flights weren’t necessary. Domestic load factors for the week were a mind-numbing 10%. The carriers had 36% of their active fleet—2,240 aircraft—on the ground as of April 9, A4A said. 

Despite the rapid ramp-down, the success of the previous decade argues against a rapid rebuild. Rather, methodical expansion via profitable flights, not simply additional network feed, is a solid bet. 

Geography will play a major factor how airlines grow. Hubs and focus cities place a natural reliance on specific stations, and local health conditions will pace ramp-ups. If Atlanta becomes a major COVID-19 outbreak hotspot, for example, Delta Air Lines would be hard-pressed to fill flights. Conversely, if the West Coast sees its virus threat fade before other parts of the country, Seattle-based Alaska Airlines, with a heavy California presence and little reliance on international traffic, could get a head-start on piecing together its next viable network.

The traditional hub-and-spoke system’s interconnectivity makes a point-to-point-like ramp-up all but inevitable. Carriers will add where there is demand (which, short-term, will be influenced by COVID-19 outbreak statistics), leaving gaps in previously well-constructed hub-and-spoke networks. Airlines with a heavy reliance on international feed will have even larger gaps. Entire hubs (or, in the case of carriers like JetBlue Airways and Frontier Airlines, focus cities) may find themselves left out of the rebuild, at least initially.  

Building networks with point-to-point service favors ULCCs. But business travel returning before leisure would create a headwind for carriers that thrive on infrequent service to largely discretionary destinations. 

A methodical ramp-up by majors combined with surplus aircraft, layoffs, low fuel prices, and evidence that the domestic network has pent-up demand could open the door for upstarts. Finding markets for David Neeleman’s Breeze Airways or Andrew Levy’s proposed Houston-based startup to serve is much easier now than it was two months ago.  

While Neeleman and Levy have their funding, other aspiring airline barons would struggle to raise capital in the near future—a calamitous collapse tends to shake investor confidence. But some of the hardest elements of a successful start-up—identifying good markets, sourcing cheap but desirable aircraft, and finding qualified people—are about to become non-issues.

Sean Broderick

Senior Air Transport & Safety Editor Sean Broderick covers aviation safety, MRO, and the airline business from Aviation Week Network's Washington, D.C. office.