Year End Review for the U.S.

The recovery of air travel demand has been uneven across the FAA Administrative Regions. Travel now exceeds 2019 in the Alaskan, Southwest and Southern Regions, while travel demand in the Great Lakes and Eastern Regions is 12% and 10% lower respectively than in 2019. These differences in travel recovery may be attributed to the Eastern and Great Lakes Regions having older populations than other regions. These older populations may have some residual caution about resuming travel after the pandemic.

Commercial aircraft (FAA Air Carrier and Air Taxi) operation volumes did not closely align with changes in passenger demand. Great Lakes and Eastern Region aircraft operations counts declined comparably to passenger volume losses. Southern and Southwest Regions had only small losses in aircraft operations. On the other hand, the New England Region saw increased aircraft activity despite having 6% fewer passengers. The Eastern Region had a large decline in Air Taxi Operations while the Southwest Region had an increase and Western Pacific Regions stayed even with the 2019 passenger numbers. American Airlines has shifted a sizable portion of its small aircraft fleet out of the Northeast (PHL Hub) to the Southwest (DFW Hub) and Western-Pacific (PHX Hub) Regions, where distances are longer between airports and fewer options exist to consolidate air service. General aviation activity has sharply increased overall except for the Western-Pacific Region.

Despite the loss of passengers from Eastern Region airports, Air Carrier operations are above 2019 levels. A substantial portion of this difference is driven by the three large-hub airports serving the New York/New Jersey Region. Daily aircraft operation counts at EWR, LGA and JFK airports have closed in on 2019 volumes. However, TSA Checkpoint counts at these airports remain 7-10 percent below 2019 volumes. While the FAA initially suspended the slot rules at these three airports for the summer season of 2020, it reinstated the rules for the winter season of 2021-2022. As a result, the airlines increased service to these airports in November 2021. The holiday season travel for the New York/New Jersey Region should approach or exceed 2019 levels.

The largest travel losses occurred at Los Angeles (LAX) and San Francisco (SFO), where Greater China (China, Hong Kong and Taiwan) and Japan travel volumes had been the highest with the highest percentages of international travel. Passenger volumes are also down because fewer passengers connect to the international departures from these two airports.

San Diego has almost fully recovered its 2019 travel volumes reflecting the domestic nature of its air travel market. In general, interior California, Oregon and Washington airports have had a stronger recovery than the large-hub coastal gateways.

The airlines have made public statements about how travel has started returning to pre-pandemic volumes highlighting some notable changes. First, business travel has substantially recovered but has not fully returned to 2019 levels. Second, working from home has led to more combined leisure and business travel, where travelers extend their trips to include days before or after a business meeting. “Work from home” has evolved to “work from anywhere,” so long as one can connect to business networks. Airlines have noted two benefits of working from anywhere. First, it has reduced the seasonal drop-off in demand from summer into fall as some passengers postponed August vacations to September. Second, it has led to more travel on previously light travel days, as passengers extend their trips to Saturday, Tuesday or even Wednesday.

The first and second quarters of 2023 should resemble a continuation of trends observed in the third and fourth quarters of 2022. Strong leisure demand will continue to drive total demand. January and February will show their usual weakness in demand. Look for a strong spring break travel surge, followed by a good summer season.

The recovery of business travel will continue but likely at a slower pace due to businesses reducing costs in anticipation of a recession in 2023. While employment remains high, some sectors (such as housing) are showing slowdowns due to interest rates and other cost increases. Rates of inflation appear to have peaked but will remain higher than those observed in the run-up to the pandemic. Higher prices will likely reduce demand and as a result may reduce business revenues.

Airline pilot shortages will persist thus giving current airline networks an air of permanence. Small-hub and non-hub cities will struggle to regain the diversity and frequency of air service they previously had. The large airline connecting hubs, such as Dallas-Ft. Worth (DFW), Chicago O’Hare (ORD) and Atlanta (ATL) will continue to have fewer flights in 2023 than they had in 2019.

Working from home will lead to fewer but longer trips as passengers continue combining vacation trips with work trips. Such habits will benefit business travel to vacation destinations such as south Florida, Denver, and New York, but will likely not benefit business travel to destinations such as Houston, Detroit, and Atlanta. Airlines will continue to benefit from the spreading of demand from peak seasons to shoulder seasons and peak weekdays to non-peak days.

The earliest return of trans-Pacific travel is expected to be in the 2nd or 3rd Quarter of 2023. While many forecasters expected the Chinese government to end their zero-COVID policy after the Communist Party Congress of October 2022, the Chinese have chosen only to relax their prior policies. These relaxations focused on travel within China and enabling quarantining at home. Foreign travel restrictions remained largely unchanged. Foreign travel restrictions should eventually ease as their vaccination (with booster shots) rates continue to increase and they gain more experience in their new procedures for managing COVID outbreaks. When that happens, expect a strong surge of leisure-oriented travel to China, especially from the west coast gateways.

Fuel supplies have largely adjusted to the avoidance of using Russian oil. However, supplies remain tight and more vulnerable to changes in availability from remaining suppliers. While prices have moderated from early 2022 highs, they remain vulnerable to short-term increases. Expect air travel prices to remain relatively high during peak travel seasons.