Today we have one of our occasional updates on US airline demand as a gauge of both US consumer spending trends and the viability of travel-related reopening trades. Let’s start with airline ticket prices to measure incremental real-time consumer demand and improvement in airline sector profitability. Computer algorithms set airline ticket prices based on demand to maximize load factors and total revenues, so there’s little human decision-making bias in this data.
Here is a comparison of the cost of a non-stop, round-trip flight from New York to Orlando during popular leisure-oriented times to fly over the balance of this year. We’ve also included comps to our last look a month ago from today (using Wednesday to Wednesday timeframes to make the data comparable):
- Labor Day week (9/1 – 9/8): now $147, down 11 percent from $166 a month ago.
- Thanksgiving week (11/24 – 12/1): now $355, down 9 percent from $389 a month ago.
- Christmas week (12/22 – 12/29): now $368, up 41 percent from $261 a month ago.
Takeaway: this pricing data reflects a very competitive market in the near-term, even as airlines try to capitalize on customers already booking trips this far in advance for Christmas holidays. While many anticipated a pick-up due to pent-up demand for flying this Summer, that has not materialized in the way they expected and for reasons we will get to in a minute…
…But first, here is our other way of assessing future air travel demand: US Google Trends query volumes for “Jetblue” (blue line), “Southwest Airlines” (red line), “United Airlines” (yellow line), “American Airlines” (green line) and travel booking site “Expedia” (purple line) since January 2019. The chart below shows:
- Searches for “Jetblue”, “Southwest Airlines”, “United Airlines”, “American Airlines” and “Expedia” are all up nearly double or more since Holiday 2020, normally a popular time to fly.
- Queries for “Jetblue” are flat versus this same week in 2019, while those for “Southwest Airlines”, “United Airlines”, “American Airlines” and “Expedia” are down 5 pct, 25 pct, 20 pct and 14 pct respectively.
Takeaway: US consumer interest in air travel continues to steadily improve this year and is almost back to pre-pandemic levels. The average of our Google air travel comps is -11 pct vs 2019, slightly worse but about in line with -8 pct when we looked a month ago. Interest does not always turn into actual bookings, however.
Case in point: recent data from the US Transportation Security Administration shows that the post-pandemic high for traveler throughput was 2.2 million people this past Sunday (7/11). That’s still down 18 pct from the same day in 2019. As shown by the airline ticket pricing data, air travelers are coming back slowly, but nowhere near the levels of Summer 2019 as some predicted.
So, what do we make of this data? Two points, one on consumer spending and the other on airline stocks:
#1: US consumer spending has trended differently than markets discounted in Q1, only slowly shifting rather than quickly reverting to 2019 behaviors. Demand for air travel is a useful proxy for expensive, away-from-home leisure expenditures. The US suburbanization trend and home upgrade cycle spurred on by the pandemic left many Americans wanting to still stay close to home to enjoy their investments in new residences or updated décor/furniture. They have also been reconnecting with friends, frequenting their favorite local restaurants again and taking more convenient and safer regional car trips to vacation.
At the same time, Google search data – a forward indicator of intent – shows US interest in flying is finally nearing pre-pandemic levels. That’s an encouraging sign that many Americans may have just deferred trips that require air travel to next year. Which brings us to our second point…
#2: What do we do with airline stocks here? They rallied into March, trailed off, caught a bid heading into June and have trended lower since. The recent retreat in these names makes sense given the near-term competitive pricing environment signaled by the airline ticket pricing data. At this point, Summer 2021 has not proved as successful as many had hoped with the lack of international travel and Americans still staying close to home. Holiday 2021 is also uncertain amid the rise of new virus variants heading into this Fall and Winter.
That said, airline stocks will soon start trading off 2022 fundamentals, when life should actually return to a more normal state. While these names could tread water or keep heading a little lower over the next couple of months, investors will start positioning for 2022’s travel season come the fall. By mid-2022, vaccinations will be more widespread and there’s a better chance for the return of business and international travel, especially from Europe. We expect the airlines to keep trading choppily, but we’re still positive on the group as they tend to work quickly once investor sentiment on both pricing and load factors visibly improve. This is still a longer-term holding of 12-18 months for us.