Air travel is coming back.
On Thursday, the Transportation Security Administration screened 502,000 passengers, the first time travelers throughput have exceeded half a million since March 21. By ordinary measures, this is dismal volume — on a typical spring day last year, between 2 million and 2.5 million passengers passed through TSA checkpoints — but it’s way up from the depths of April, when there were several days with fewer than 100,000 travelers, volumes not typically seen since the 1950s.
Airlines have been responding to this trend by beefing up their schedules, especially for domestic travel. American Airlines announced earlier this month that its domestic schedule for July will offer 45 percent less capacity than last July’s — for comparison, May’s domestic schedule entailed an 80 percent year-over-year reduction. Rising passenger volumes also mean airlines have been losing less money every day than they expected to lose as of April, one of the factors recently pushing up airline stock prices (though they are down Monday morning).
As with so much of the economy, a key question for the airline industry is how long this better-than-expected trend will continue. A fraction of customers are demonstrating their eagerness to resume travel as soon as it is feasible. Forty-four percent of respondents to an ABC–Ipsos poll conducted this week said they were willing to fly at this time — up from 29 percent in May, but still seriously depressed. And travel volumes are not just a question of willingness, but also of interest. Certain activities that motivate air travel — conventions, weddings, festivals, nightlife, sporting events, even business meetings — are unlikely to return in force until there is a widely distributed vaccine or a highly effective therapeutic treatment. And while consumers have been surprisingly eager to spend in certain areas, consumers whose own jobs and businesses are slow to return to normal may be disinclined to spend on leisure travel. Businesses dealing with lost revenues have found cessation of business travel to be one important area of cost reduction and may themselves be slow to resume it.
For this reason, airlines have been signaling to their workers that some fraction of the current service reductions are likely to be persistent — and will require a permanent shrinking of aircraft fleets and of staffing. CARES Act financial subsidies generally require airlines to maintain staffing levels through September 30, but airlines have been warning of potential layoffs after that and have been offering voluntary buyouts and early retirement packages to workers. One common feature of these offers has been letting workers retain free-flying benefits for extended periods after leaving their jobs — a benefit that may be more valuable in upcoming years if planes have more unsold seats available for nonrevenue travel.
Airlines are doing their part to lure customers back. American says this will be the “summer of deals,” and there are a lot of low airfares out there. But I can’t stop thinking about something the economist Jason Furman pointed out to me last month about airfares in the time of the coronavirus and “hedonic adjustments.” Hedonic adjustment is the process of accounting for changes in product and service quality when calculating inflation. If the new iPhone has a better battery life than the old iPhone, then part of the phone-price increase should be attributed to improved quality, not inflation. So how should we think about the changing quality of air travel — if there are no restaurants open in New York, no Broadway shows, nobody willing to take an in-person business meeting with you, doesn’t that all reduce the product quality of a plane ticket to New York? Add the increased difficulty of getting a decent cocktail at the airport and the risk of contracting a deadly disease, and it’s easy to see why it’s so hard to sell airline tickets right now. Just because something is cheap doesn’t mean it’s a deal. And some of those factors reducing the quality of air travel are likely to persist for a year or longer.
The CARES Act was designed to prevent the airlines from shrinking in an undesirable way — from running out of money this spring or summer, laying off staff and shedding planes for which demand would return by this fall. And as we see, some of that demand is returning pretty robustly. But part of what we are seeing is a longer-run drop in demand that will require a materially smaller airline sector for a period of several years as the economy recovers. Over the rest of the year we will get a better sense of how large a part that is that won’t return soon.