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Did the Airline Industry Recover Yet?

As consumers continue to book domestic flights, leisure is driving the recovery from the impact of the COVID-19 pandemic. J.P. Morgan Global Research explores the future of air travel.

November 3, 2021

U.S. consumers want to fly, says Jamie Baker, U.S. Airlines and Aircraft Leasing Equity Research Senior Analyst. But while the airline industry is making steady progress toward recovery, key questions remain: Will corporate travel return to business as usual? What should consumers expect from international flights? Is the industry discounting ticket prices to incentivize bookings? Here, Jamie outlines the most significant changes to the sector and what consumers can expect from air travel next year.

Industry Insights

Watch time | 01:43 “We don't think the domestic landscape is going to look that much different, but internationally, it will.” Here’s why.

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Industry Insights

Watch time | 01:43 “We don't think the domestic landscape is going to look that much different, but internationally, it will.” Here’s why.

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Jamie: Early on in the pandemic, we really let our minds explore the possibility of lasting structural change. Balance sheets have come under pressure. M&A and Chapter 11, those are drivers for improved future performance. We didn’t see that domestically during COVID, largely because capital markets remained wide open. And the U.S. government unexpectedly stepped in with close to $75 billion of aid. The airline industry has become more efficient; every airline has a plan to grow back to its 2019 size. But the expect to be able to do so with a lower cost base. So going forward, we don’t think the domestic landscape is gonna look that much different. But internationally it will. I would fully expect to pay more to travel to Europe next summer than probably ever before because capacity is gonna be tighter. About half of Latin American capacity is going through Chapter 11 right now as those companies begin to emerge and they are more profitable. We think there are going to be higher fares there as well. Now from the shareholder perspective, we think it’s gonna be several years before the industry can earn back the confidence of longer-term investors. But in terms of winning back the confidence of the fliers, jury is in: U.S. consumers want to fly.

Consumer Demand

Watch time | 01:20 “We think the consumer is going to remain at the forefront of the recovery for the next several years.” Learn what’s driving the rebound in air travel.

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Jamie: We think the consumer is going to remain at the forefront of the recovery for the next several years. There’s potential upside to the leisure revenue estimates that we have. It’s really the domestic market that led many U.S. airlines to achieve profitability in certain months this summer. And at one point, there was, I’d say a consensus that the airlines would have to resort to deep discounts to really coax the populace out of their homes. And the exact opposite ended up happening because it wasn’t ticket pricing that was keeping people home; they were concerned about their health, or in the case of certain international markets, they just weren’t allowed in. Once those impediments began to wane, travelers came out of hibernation much more quickly than we anticipated. Discounting was not required. In fact, most instances this summer, consumers ended up paying more for their summer holidays than in the corresponding months in 2019 because there was so much pent-up demand.

Consumer Demand

Watch time | 01:20 “We think the consumer is going to remain at the forefront of the recovery for the next several years.” Learn what’s driving the rebound in air travel.

Business Travel

Watch time | 01:44 “Based on the booking data we're not going back in time in terms of seeing weaker demand. We're just seeing stagnant demand.” Will corporate travel make a comeback?

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Jamie: Corporate demand is still uneven and highly depressed, running at about 40 percent of 2019 levels. We’re hopeful that next year, the total corporate wallet, both domestic and international, recovers to about 60-65 percent of 2019 levels. But it’s probably not until 2023 that we see anything approaching corporate normalcy. But the concern that the market had over the summer was that the variant would cause demand to retrench. Businesses that had already returned to the office and redeployed their workforce, they would be called back. And there’s no data to support that. In fact, based on the booking data, we’re not going back in time in terms of seeing weaker demand; we’re just seeing stagnant demand. And that fact was greeted pretty enthusiastically by the equity market. As consumers have reconnected with loved ones and loved places this past summer, I think a lot of that…still translates into how business travelers do their business. But it still doesn’t answer the question: what level of impairment to corporate travel will ecological substitutes create? I do feel that we are more optimistic that by 2023, there won’t be any measurable difference in how the value of commercial air travel is perceived.

Business Travel

Watch time | 01:44 “Based on the booking data we're not going back in time in terms of seeing weaker demand. We're just seeing stagnant demand.” Will corporate travel make a comeback?

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