Change of Insight Direction…
“Fall” May Be Not Just In The Air…
… But At The Nation’s Airports, Too – More Danger Signs
Boyd Group International is now forecasting that the combination of inflation, CCP-Covid, and now a potential global economic downturn due to a collapsing China economy could combine into a significant decline in air transportation demand in the late fourth quarter and into the first half of 2022.
It’s not arrived yet, but it is on the radar screen.
The good news is that the airline industry clearly has control of the capacity lever, and we are seeing some clear indications of pullbacks emerging for the next 4 months.
Let’s look at the three main threats to air traffic recovery.
The Potential Big One – A China Collapse
Yes, a collapse of large parts of the Chinese economy will ultimately affect air travel demand in the USA… by causing lots of corollary damage to the USA economy.
This is one that is being completely missed, even though the stock market just got gob smacked by it last week and is still being affected.
To start, the air transportation business isn’t like ‘Vegas. What happens in Beijing doesn’t stay in Beijing and can affect Bangor and Boise and Billings. As demonstrated by the stock market, it’s already happening.
One of the advantages we have at Boyd Group International is that we understand that air travel demand in the USA is affected by a range of global economic factors. Another advantage is that BGI is the only aviation consulting firm that has an active China research practice. What we see today is that the creaky house of cards called the Chinese economy is potentially on the verge of coming down like a baby grand out the 8th floor window.
Most folks have never heard of Evergrande. But it’s a large real estate developer that’s bazillions of billions in debt and about to sleep with the fishes. (A big part of the Chinese economy is largely based on Ponzi scheme real estate programs that are essentially “buy & flip” schemes. It’s been propped up by corrupt local officials and by the CCP itself, but that’s about to change.)
A collapse or near-collapse of Evergrande could start an avalanche of business failures across China and the globe, not to mention civic chaos in China that could engender more Tiananmen Square events. Don’t laugh – it’s already affected values on Wall Street. Main street could be next.
When this house of corrupt cards comes down, in addition to the usual fallout in other world markets and in multi-national companies that have invested in China, it could also accelerate a major decline in China’s factory output. That means there may be lots of things that won’t be on store shelves this holiday season. Read: lower retail sales in the USA. When the coffee makers and hair dryers and toys don’t arrive, they can’t be sold.
Now, morally, consumers should not be buying anything made in China, because these companies all benefit the Chinese Communist Party, and every purchase ultimately supports this unelected thug regime that would make Adolf Hitler look like a perfect prom date. But in many cases, there are no alternatives.
So when that production line in Guangzhou making blenders, or generators, or barbecue grills – or major components for Boeing airliners – shuts down, it does not take an MBA degree from Wharton to figure out the economic impact on the U.S. economy… and how that can affect propensity to travel on airplanes.
Yup, this sounds like a far-out prediction. But stand by, it’s not.
Basic Econ 101 will tell us that when overall prices go up, spend patterns change.
Kroger has advised that consumers should be prepared for material increases in food costs in the near future. Gasoline is going up, and based on current energy policies from Washington, will continue that trajectory. This means that all three air travel sectors – leisure, personal and business – will have less in the kitty. And let’s cut the political pablum – what’s going on and what’s planned in Washington is going to put inflation on the fast track.
Now, the enplanement effects of inflation won’t be evenly spread across the board. Some U.S. airports will still see strong traffic growth due to economic and demographic migrations, while others – paradoxically those in large commercial metros that depend on both leisure and business travel – will likely see substantial reductions in air travel demand. For them, it’s a double-whammy: inbound leisure travel will drop, and business-generated demand, both in and out, will begin to decline.
Our Airports:USA® system has identified a number of airports that need to start considering how to deal with the potential of major traffic declines.
Never has the U.S. seen any crisis so expertly and intentionally confused by any number of political persuasions. Masks are essential, some say, with no explanation of what they do or why. It’s a hoot seeing diligent, obedient, and with-the-program citizens alone in their automobiles, sporting a mask, apparently protecting the car’s cruise control knobs from contracting a deadly infection.
We have no guidance on what a “mask” really consists of.
Vaccine passports are a hot item. The borders with Canada and Mexico are tightly CCP-Covid restricted – except for thousands of unscreened illegal aliens pouring in and being literally distributed to cities across the country by the Biden folks. Yessir, they’re on it.
Point: nobody can take the people in Washington seriously in regard to CCP-Covid, and that means travel uncertainty. Travel uncertainty keeps people from booking flights – or, worse, cancelling ones already made.
Declining Economic Growth Plus Inflation: Air Travel Demand Quicksand.
We can’t ignore this. It’s like an oncoming hurricane. We can hope that its track will change, but it’s not good judgement to ignore it.
At Airports:USA® we’ll be keeping our clients updated on where these dynamics are headed. For more information on the only independent enplanement forecasts accomplished entirely in the private sector, click here – and then join us as subscriber members.
Planning for the future means clearly understanding that past metrics and thinking are great ways of staying there – stuck in the past.