Oliver Wyman forecasts full recovery for domestic air travel by early 2022

12 April 2021 Consulting.us 3 min. read
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US domestic air travel is expected to make a full recovery by early 2022, according to a recent report from consulting firm Oliver Wyman.

The consulting firm says the country’s swift vaccine rollout and the $1.9 trillion economic stimulus bill will drive an increase in domestic leisure travel. The firm’s projections are also banking on pent-up travel demand from US vacationers.

“A year ago, we would have thought that a full domestic recovery in this timeframe for the US was almost impossible, but the combination of pent-up demand, economic stimulus, and access to vaccines is making a difference," said Tom Stalnaker, a partner and global aviation practice leader at Oliver Wyman. "We are still far from a full recovery for the overall industry, but we expect some of the airlines to start turning cashflow positive in a matter of months, particularly in the US."

The firm noted that US travel had already risen to over 50% of 2019 levels – its highest mark since the start of the pandemic.

Oliver Wyman forecasts full recovery for domestic air travel by early 2022

It’s no secret that Covid-19 has hobbled the aviation business in an historic manner. The Air Transport Association in November stated that the global aviation industry lost $118.5 billion in 2020 and is projected to lose $38.7 billion in 2021.

Impact among categories has varied, with business travel and international flights hit harder than domestic leisure travel. Corporate bookings fell by 85% in 2020 and have stayed at that level in 2021, according to Airlines Reporting Corp. data. Business travel typically accounts for half of airline earnings in major economies like the US.

International travel has also been heavily depressed, as countries put up national restrictions in response to the pandemic. Even in countries that largely contained the virus in a matter of months – such as China, South Korea, and Vietnam – international traffic is down more than 70%. This has been particularly devastating for carriers in Europe, the Middle East, and Africa, where only 10% of air travel is domestic. The US, in contrast, has approximately 60% domestic flights.

Domestic leisure travel suffered less than the two categories above, with US passenger traffic staying at approximately 40% of 2019 levels through most of the second half of 2020, and a little over 40% during the first two months of 2021.

Oliver Wyman forecasts full recovery for domestic air travel by early 2022

This unequal impact means that low-cost carriers that cater more to leisure travelers have suffered less than full-service carriers that rely more heavily on business travelers. The revenue per available seat mile (RASM) in Q2 and Q3 2020 declined by 45% for full-service airlines and 34% for low-cost airlines.

Reduced business travel will continue to be the largest drag on airline earnings, since the rebound in this category isn’t expected to happen soon – especially as firms mull a permanent shift to more teleconferencing and less air travel.

In contrast, US domestic leisure travel – urged on by a pace of vaccination that could reach 3 million doses per day – could drive a relatively rapid pickup in domestic flights by mid-summer, according to Oliver Wyman. The consulting firm points to the case of China, where domestic air travel recovered to 2019 levels in November 2020 on the back of aggressive containment measures.

International travel will take more time to rebound as restrictions continue and countries see varying vaccine rollout timelines. Countries that have low Covid-19 rates or mass vaccination may choose to make bilateral travel agreements in the coming months, however. New Zealand and Australia, for example, have agreed to allow travel without quarantine starting on April 19.