We have an update on US airline demand, part of our continued monitoring of the state of American consumer discretionary spending and reopening trades. As always, we’ll start by looking at trends in airline ticket prices because they reflect incremental real-time consumer demand and eventual airline profitability. We use this data because there’s little human decision-making bias in these figures since computer algorithms set these prices based on demand to maximize load factors and total revenues.
Here is a comparison of the cost of a non-stop, round-trip flight from New York to Orlando during popular times to fly over the balance of this year. We’ve also included comps to our last look 2 weeks ago (using Wednesday to Wednesday timeframes to make the data comparable):
- 4th of July week (6/30 – 7/7): now $245, up from $215 two weeks ago (+14 percent).
- Labor Day week (9/1 – 9/8): now $137, down from $177 (-23 percent).
- Thanksgiving week (11/24 – 12/1): now $375, up from $348 (+8 percent).
- Christmas week (12/22 – 12/29): now $234, the same as 2 weeks ago
Takeaway: US airlines’ pricing power heading into the Summer paints a mixed picture. On the one hand, prices are still rising for nearer-dated trips over the July 4th holiday. On the other, there’s a drop-off over Labor Day weekend, a little boost over Thanksgiving, but no improvement over Christmas. As with our analysis two weeks ago, Americans still seem focused on nearer-term trips.
Most Americans, particularly families, travel to Orlando to visit Disney World, so we also checked park availability over the coming months. Our thinking is that weaker airline pricing for the New York to Orlando route may be due to the unavailability of its premier attractions due to capacity limits still in place. Here’s what we found:
- Tickets for all parks are unavailable until June 5th. For the rest of next month, there’s only availability on some days for one out of Disney’s 4 parks (Epcot). For the first half of July, just Epcot and Disney’s Animal Kingdom are available on most days.
- Tickets only become available for all parks on the 17th and 18th of July, and from the 23rd on.
Takeaway: those who want to visit Disney World over Labor Day weekend or the holidays can still buy any park tickets they want and an affordable flight, but what’s going on in the near-term?
Google Trends query volumes for “Disney World” confirm rising interest in the theme park, as searches are currently up 9 percent compared to the same week in 2019. That said, many states with heavy Google search interest in “Disney World” over the past 90 days are in the South and within driving distance, such as Florida, Alabama, Louisiana, Mississippi and South Carolina. More on this in our closing comments…
…Now let’s move on to another way of assessing air travel demand: 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”, “United Airlines”, “American Airlines” and travel booking site “Expedia” are all down 20 pct, 32 pct, 19 pct and 20 pct respectively versus the same week in 2019. Queries are only up for “Southwest Airlines” (+10 pct).
- They have all been steadily improving this year but are still off from pre-pandemic levels.
Takeaway: US consumer demand for air travel still trails 2019 but is inching its way higher. The average of our Google air travel comps is -16 percent to 2019, which is a reasonable measure of near-term travel planning. For example, recent data from the US Transportation Security Administration showed that Sunday’s (May 23rd’s) traveler throughput totaled 1.9 million people, a post-pandemic high. Still, that is 10 percent below the equivalent day in 2019, which is better than our Google air travel comp average but neither is yet reflective of a huge rush of air travelers from pent-up demand.
So what should we do with airline stocks here, most of which have been struggling since mid-March? A few closing thoughts:
#1: Airline stocks got overextended as investors misjudged the speed of reopening. As much as demand for flying continues to steadily increase, interest still lags 2019 levels even with pent-up demand from the pandemic. As we’ve tracked airline ticket prices over the last couple of months, pricing power has also been mostly rising for nearer-term as opposed to longer-term trips. People are still seeing how the virus and its impact play out rather than making longer-term plans.
We’re also still missing international tourism, which will be a drag on summer demand for US airlines. Additionally, many Americans remain routinized into staying close to home. Our other work using Google Trends shows Americans continue to spruce up their residences/backyards and increasingly go out to nearby restaurants and take local trips.
#2: Nevertheless, we remain positive on the airline sector with the belief that these stocks will work as both pricing and load factors improve. Major airline stocks have been able to hold steady over the last month even though demand has returned slower than expected. As we’ve recently seen in many areas, pricing is very responsive to demand, it will just take time for volumes to return to pre-pandemic levels which is why these names have been choppy.
Americans accumulated sizeable savings over the last year, and those who choose to delay a vacation that requires air travel this year will likely budget it for 2022. The return of European and Chinese international tourism travel will also help. As long as pricing power stays steady to slightly better this year, it should continue to increase along with passenger traffic into 2022.
#3: Lastly, demand for air travel could materially improve this Summer, especially with mask mandates lifting. For example, although Disney World had a capacity limit of 35 percent, on his earnings call a couple of weeks ago Disney CEO Bob Chapek said they have already started raising it since the CDC’s new guidelines. He also noted the ability for vaccinated people to not wear masks outdoors and indoors as especially helpful to the Disney World experience. Who wants to wear a mask in the Florida heat mid-Summer? No doubt these narratives apply to many other desirable destinations across the US.
Bottom line: we still like US airline stocks for a longer-term holding period (12-18 months).