JUST WHERE IS THE RECOVERY?

By William Swelbar, Chief Industry Analyst, Swelbar-Zhong Consultancy

The Airport Restaurant & Retail Association (ARRA) asked Swelbar-Zhong Consultancy to provide analysis and commentary on happenings in the U.S. commercial aviation space. The following is the first of occasional articles about trends and events that affect the aviation ecosystem, information you can use as we all make our way through the industry’s recovery.

The Swelbar-Zhong Consultancy is a commercial aviation economic analysis and research firm. They specialize in complex issues regarding airlines, airports, and the aviation network; however, the fundamental focus always begins with changed airline thinking and how that might impact airports and the supply chain that supports the industry.

On March 29, the Wall Street Journal reporters Allison Pohle and Lauren Weber wrote that “Big corporate travel-management companies are hovering around 50% of 2019 booking levels, much of which is due to the lack of international travel.” In the same article, Delta Air Lines said “large corporate contracted travel business, primarily Fortune 500 companies, is about 65% of what it was compared with 2019. Travel for small and medium enterprises is about 5 to 10 percentage points higher, which has been consistent throughout the pandemic.”

In a less optimistic scenario, Forbes revisited a study it performed in 2019. In the update penned by Ben Baldanza, “Sebastien Bazin, the CEO of the Accor Hotel group, has stated that he is not expecting 25% of the hotel’s business demand to return.” The article talks about a new category of traveler – the premium leisure traveler. Although these comments on the surface are about a slow return of business travelers, these statements actually speak more to airline revenue going forward and less about volumes of passengers.

The Forbes article talks about airlines’ need to reduce costs given a fundamental change in revenue generation. One of the suggestions was to add seats to existing aircraft. Adding more seats into an existing airframe has been a point of contention with legislators and consumer advocates for the past ten years. Therefore, I fear that there would be a backlash to any industry decision to do this particularly given the operational issues that have been in the headlines throughout the Pandemic Era. The one thing that ARRA members can assume is that the aircraft configurations going forward will have more seats and that fewer frequencies will likely be flown in some markets.

My right-hand Albert Zhong and I spend considerable time with the consumer segments and the airline segments. Consumers will have more product choice in this new world and the ridership during the Pandemic Era has spent more for an improved product like a bigger seat. But going forward, a simple question needs to be asked: will airline capacity remain heavily weighted in leisure markets forever? We think not. We think it important to look carefully at the map geographically. More simply said, business and leisure markets are now beginning a recovery that seems to have traction and that will alter the air service map.

We all are comfortable that the recovery in domestic leisure traffic has returned to 2019 levels and the strongest recoveries can be found in the Southeast, Southwest, and Mountain regions of the country. We see the recovery in business at 80% by year end and that is a significant improvement over 2021. However, we do expect a flattening in the trajectory going forward and our belief is that there will not be a full return to 2019 levels. Finally, the international side of the business that is so critical to the network airlines of American, Delta, and United is growing and there is pent-up demand for such travel. The full recovery of the international sector remains the most significant question mark when asked what does the post-COVID airline network look like in 2024/25?


About William Swelbar
In November 2020, William Swelbar formed The Swelbar-Zhong Consultancy - a commercial aviation economic analysis and research firm that specializes in complex issues emanating from structural changes to the airline industry. In January 2021, Swelbar joined McKinsey & Company, Inc. as an external advisor to its Transport, Logistics and Infrastructure Practice.


Swelbar has been a Research Engineer in the Massachusetts Institute of Technology’s International Center for Air Transportation since 2006, where he is affiliated with the Global Airline Industry Program and Airline Industry Research Consortium.


He also currently serves as a member of the Board of Directors of Hawaiian (Airlines) Holdings, Inc. In December of 2016, Swelbar was appointed to U.S. Department of Transportation’s (DOT) Working Group on Improving Air Service to Small Communities.


Swelbar has spent 40 years in the consulting world with a focus on regulatory issues governing air transport, communication strategies and support, airline labor cost restructuring and air service development on behalf of airports and communities. In his consulting roles, Swelbar has represented airlines, airports of all sizes, investors, manufacturers, and labor groups.


Swelbar is also a much sought-after speaker and has provided expert witness testimony before various tribunals and before the United States Congress regarding the economics of commercial air transport. Swelbar is widely quoted in the financial and mainstream press on issues impacting air transport. Swelbar is published in the Journal of Air Transport Management and is a contributing author in a second edition textbook released in 2015 titled: The Airline Industry published by Wiley Press.


Swelbar holds a Bachelor of Science degree in economics with honors from Eastern Michigan University and an MBA with a concentration in finance from The George Washington University.