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Two long years ago, COVID-19 reared its ugly head, making us all stay at home and stymieing commercial passenger air travel. Unsurprisingly, the airline industry&rsquo;s share of GDP (typically ~5%) took a nosedive, dropping by more than half. 

Fortunately, 2022 is auguring well for the resurgence of aerial bus traffic, with passenger revenues reaching a record $7.9B (+44.8% MoM) in March, the highest since shelter-in-place began and a clear step towards business as usual ($9.3B in 3/19). These higher sales were driven by both an increase in airfares (+16.4% MoM) and passenger volume (+25.5% MoM). <img alt="" src="https://bdf-website-server.s3.amazonaws.com/uploads/2022/05/16/airlines-chart.svg" style="height:431px; width:812px" />With substantially elevated demand, air carriers have been able to charge significantly higher prices (+10.8% YoY3), serving in part to offset elevated jet fuel costs and recoup pandemic-related losses. 

Further demonstrating the growing willingness of travelers to splurge on trips, payments for ancillary services to enhance a flight journey &ndash; such as premium seats, in-flight entertainment, lounge access, and meals &ndash; increased +26.3% MoM (as represented by EMD sales). 

Of note, March is when the airline fares component of the Consumer Price Index began showing up as a major contributor to inflation. In April, its impact further grew when it became inflation&rsquo;s largest driver, a month which also saw the shift of inflation drivers from goods to back to services.

<table align="center" cellspacing="0" style="border-collapse:collapse; width:500px">
	<tbody>
		<tr>
			<td style="background-color:#ffffff; border-color:black; border-style:solid; border-width:2px; height:23px; text-align:center; vertical-align:middle; white-space:nowrap; width:240px">Data</td>
			<td style="background-color:#ffffff; border-bottom:2px solid black; border-left:none; border-right:2px solid black; border-top:2px solid black; text-align:center; vertical-align:middle; white-space:nowrap; width:87px">MoM</td>
			<td style="background-color:#ffffff; border-bottom:2px solid black; border-left:none; border-right:2px solid black; border-top:2px solid black; text-align:center; vertical-align:middle; white-space:nowrap; width:87px">YoY</td>
			<td style="background-color:#ffffff; border-bottom:2px solid black; border-left:none; border-right:2px solid black; border-top:2px solid black; text-align:center; vertical-align:middle; white-space:nowrap; width:87px">YoY3*</td>
		</tr>
		<tr>
			<td style="border-bottom:2px solid black; border-left:2px solid black; border-right:2px solid black; border-top:none; height:23px; vertical-align:middle; white-space:nowrap">U.S. Airline Revenue</td>
			<td style="border-bottom:2px solid black; border-left:none; border-right:2px solid black; border-top:none; text-align:right; vertical-align:middle; white-space:nowrap">+44.8%</td>
			<td style="border-bottom:2px solid black; border-left:none; border-right:2px solid black; border-top:none; text-align:right; vertical-align:middle; white-space:nowrap">+179.9%</td>
			<td style="border-bottom:2px solid black; border-left:none; border-right:2px solid black; border-top:none; text-align:right; vertical-align:middle; white-space:nowrap">-15.5%</td>
		</tr>
		<tr>
			<td style="border-bottom:2px solid black; border-left:2px solid black; border-right:2px solid black; border-top:none; height:23px; vertical-align:middle; white-space:nowrap">Average Ticket Price</td>
			<td style="border-bottom:2px solid black; border-left:none; border-right:2px solid black; border-top:none; text-align:right; vertical-align:middle; white-space:nowrap">+16.4%</td>
			<td style="border-bottom:2px solid black; border-left:none; border-right:2px solid black; border-top:none; text-align:right; vertical-align:middle; white-space:nowrap">+41.2%</td>
			<td style="border-bottom:2px solid black; border-left:none; border-right:2px solid black; border-top:none; text-align:right; vertical-align:middle; white-space:nowrap">+10.8%</td>
		</tr>
		<tr>
			<td style="border-bottom:2px solid black; border-left:2px solid black; border-right:2px solid black; border-top:none; height:23px; vertical-align:middle; white-space:nowrap">Passenger Trips</td>
			<td style="border-bottom:2px solid black; border-left:none; border-right:2px solid black; border-top:none; text-align:right; vertical-align:middle; white-space:nowrap">+25.5%</td>
			<td style="border-bottom:2px solid black; border-left:none; border-right:2px solid black; border-top:none; text-align:right; vertical-align:middle; white-space:nowrap">+73.8%</td>
			<td style="border-bottom:2px solid black; border-left:none; border-right:2px solid black; border-top:none; text-align:right; vertical-align:middle; white-space:nowrap">-14.5%</td>
		</tr>
		<tr>
			<td style="border-bottom:2px solid black; border-left:2px solid black; border-right:2px solid black; border-top:none; height:23px; vertical-align:middle; white-space:nowrap">Domestic Bookings</td>
			<td style="border-bottom:2px solid black; border-left:none; border-right:2px solid black; border-top:none; text-align:right; vertical-align:middle; white-space:nowrap">+25.3%</td>
			<td style="border-bottom:2px solid black; border-left:none; border-right:2px solid black; border-top:none; text-align:right; vertical-align:middle; white-space:nowrap">+63.8%</td>
			<td style="border-bottom:2px solid black; border-left:none; border-right:2px solid black; border-top:none; text-align:right; vertical-align:middle; white-space:nowrap">-9.5%</td>
		</tr>
		<tr>
			<td style="border-bottom:2px solid black; border-left:2px solid black; border-right:2px solid black; border-top:none; height:23px; vertical-align:middle; white-space:nowrap">International Bookings&nbsp;</td>
			<td style="border-bottom:2px solid black; border-left:none; border-right:2px solid black; border-top:none; text-align:right; vertical-align:middle; white-space:nowrap">+25.8%</td>
			<td style="border-bottom:2px solid black; border-left:none; border-right:2px solid black; border-top:none; text-align:right; vertical-align:middle; white-space:nowrap">+96.2%</td>
			<td style="border-bottom:2px solid black; border-left:none; border-right:2px solid black; border-top:none; text-align:right; vertical-align:middle; white-space:nowrap">-22.6%</td>
		</tr>
		<tr>
			<td style="border-bottom:2px solid black; border-left:2px solid black; border-right:2px solid black; border-top:none; height:23px; vertical-align:middle; white-space:nowrap">Corporate Travel</td>
			<td style="border-bottom:2px solid black; border-left:none; border-right:2px solid black; border-top:none; text-align:right; vertical-align:middle; white-space:nowrap">+37.2%</td>
			<td style="border-bottom:2px solid black; border-left:none; border-right:2px solid black; border-top:none; text-align:right; vertical-align:middle; white-space:nowrap">+272.8%</td>
			<td style="border-bottom:2px solid black; border-left:none; border-right:2px solid black; border-top:none; text-align:right; vertical-align:middle; white-space:nowrap">-30.2%</td>
		</tr>
		<tr>
			<td style="border-bottom:2px solid black; border-left:2px solid black; border-right:2px solid black; border-top:none; height:23px; vertical-align:middle; white-space:nowrap">Leisure Travel</td>
			<td style="border-bottom:2px solid black; border-left:none; border-right:2px solid black; border-top:none; text-align:right; vertical-align:middle; white-space:nowrap">+23.4%</td>
			<td style="border-bottom:2px solid black; border-left:none; border-right:2px solid black; border-top:none; text-align:right; vertical-align:middle; white-space:nowrap">+122.6%</td>
			<td style="border-bottom:2px solid black; border-left:none; border-right:2px solid black; border-top:none; text-align:right; vertical-align:middle; white-space:nowrap">-1.1%</td>
		</tr>
		<tr>
			<td style="border-bottom:2px solid black; border-left:2px solid black; border-right:2px solid black; border-top:none; height:23px; vertical-align:middle; white-space:nowrap">Electronic Miscellaneous Document (EMD) Sales&nbsp;</td>
			<td style="border-bottom:2px solid black; border-left:none; border-right:2px solid black; border-top:none; text-align:right; vertical-align:middle; white-space:nowrap">+26.3%</td>
			<td style="border-bottom:2px solid black; border-left:none; border-right:2px solid black; border-top:none; text-align:right; vertical-align:middle; white-space:nowrap">+102.6%</td>
			<td style="border-bottom:2px solid black; border-left:none; border-right:2px solid black; border-top:none; text-align:right; vertical-align:middle; white-space:nowrap">+49.6%</td>
		</tr>
		<tr>
			<td style="border-bottom:none; border-left:none; border-right:none; border-top:none; height:21px; text-align:left; vertical-align:top; white-space:normal; width:240px">Source: Big Data Federation, Inc.</td>
			<td style="border-bottom:none; border-left:none; border-right:none; border-top:none; vertical-align:bottom; white-space:nowrap">&nbsp;</td>
			<td style="border-bottom:none; border-left:none; border-right:none; border-top:none; vertical-align:bottom; white-space:nowrap">&nbsp;</td>
			<td style="border-bottom:none; border-left:none; border-right:none; border-top:none; vertical-align:bottom; white-space:nowrap">&nbsp;</td>
		</tr>
	</tbody>
</table>

Domestic bookings &mdash; which typically account for about half of U.S. passenger airline revenues &mdash;&nbsp; grew +25.3% MoM and inched closer to pre-pandemic levels (-9.5% YoY3). International bookings rose +25.8% MoM (almost double the bookings in 3/21) bolstered by transatlantic tourism and loosening global travel restrictions. Subsequent easing in New Zealand, Australia, and many Asian and African nations is expected to build on the momentum to make up any shortfall. 

Leisure travel (~40% of passenger airline revenue) improved +23.4% MoM and, as such, represents an almost complete return to pre-pandemic norms (-1% YoY3). Revival in the corporate segment remains far below 2019 levels (-30.2% YoY3) but had promising +37.2% MoM growth. Small and medium enterprises are leading the recovery of this category, likely reflecting their nimbleness compared to their larger counterparts which tend to be weighed down by rigid corporate policies.

In addition, U.S. airports have been experiencing their busiest year since the first lockdown. After hitting rock bottom in 2020, passenger traffic is up +52.5% YoY, +1106.0% YoY2, and, at the time of writing, down only -10.9% YoY3. Reflecting pre-coronavirus trends, airports with the most activity are in Florida and Texas; these had the fastest recovery and are now back to pre-pandemic volumes. Other airports, such as LAX, JFK, and ORD &ndash; all important international flight destinations and transit hubs &ndash; are still playing catch up.

With<s> </s>ever greater travel freedom and summer just around the corner, pent-up demand should further propel airline industry revenues to new heights (barring yet another outbreak or freak event).

Industry Update: Passenger Air Travel’s Post-Pandemic Takeoff

While quarter-over-quarter (QoQ) economic growth trends have historically fluctuated, the magnitudes in 2021 were atypical; this rollercoaster was largely driven by considerable goods demand and heavy investment, particularly inventory investment. The black swan nature of the pandemic means we cannot rely solely on machine-learning algorithms to predict the recovery path. To map the forward trajectory, we use near-time company and industry data to generate a deeper understanding of the shifts occurring in the economy. Our analysis indicates economic fluctuations will likely continue into 2022 with GDP growth slowing in the first quarter and rallying in the following quarter.

2021 recap

In the first half of 2021, economic expansion was primarily driven by goods consumption as COVID restrictions reoriented spending away from services. Consumers, flush with cash, induced an epic sell-off of inventories to accommodate this increased demand. In 1Q21 and 2Q21, QoQ GDP growth registered 6.4% and 6.7%, respectively. In 3Q21, economic growth swung dramatically lower (2.3% QoQ) as COVID cases declined, leading to a substantial cooling of goods consumption and a not-so-impressive recovery in demand for services. In 4Q21, economic growth bounced back (6.9% QoQ) &ndash; mainly powered by substantial inventory investment, previously held back by supply-chain issues. For context, if the high level of inventory investment had not occurred, growth would have been 1.6%. Moderate consumer spending for both goods and services, combined with improvements in the trade balance from higher exports of crude oil, natural gas, metals, and food products also contributed to growth.

A new year and an economy in transition

4Q21 was a hard act to follow. For 1Q22, we estimate QoQ GDP growth in the low single digits (1-2%). Inventory growth calmed to a more moderate pace. Demand for goods continued to cool lowering prices and volume. And people returned to services to spend their money.

Inflation-adjusted retail sales excluding food and gas1 fell -0.5% month-over-month (MoM) in February and -0.4% MoM in March. The latest Consumer Price Index (CPI) release revealed that prices for goods, excluding food and energy, decreased -0.4% MoM in March, the first decline since February 2021. These trends are most evident in the car market. Slackened demand for used cars resulted in negative price growth (-0.7% MoM) in March; prices have risen in April but this reflects seasonal buying patterns and not a secular increase in demand.&nbsp;

<img alt="" src="https://bdf-website-server.s3.amazonaws.com/uploads/2022/04/21/drewry-chart.svg" style="height:429px; width:812px" />

The weakened demand for goods led to a drop in shipping and trucking rates. The composite Drewry World Container Index, representing spot container freight rates for major trade routes, has steadily declined since late February (-15%). In parallel, trucking spot rates for both dry-van and refrigerated trucks &ndash; which carry non-perishable and perishable household goods &ndash; fell by -17% and -20%, respectively from peaks at the end of 2021. While this could reflect an increased supply of trucks, diminished demand for this type of trucking seems more likely. Flatbed spot rates, which transport heavier items like capital goods headed for businesses and construction, increased 1.7% during the same period.

While consumer goods suffered, the much anticipated return to services consumption picked up speed as the Omicron wave subsided. The surge in both prices and volume that are overriding seasonal fluctuations clearly signals a release of pent-up services demand. The most recent CPI report showed the cost of services less energy grew at its fastest rate in almost 30 years; the seasonally adjusted index increased +0.6% MoM in March.

<img alt="" src="https://bdf-website-server.s3.amazonaws.com/uploads/2022/04/21/hotel-chart-final.svg" style="height:444px; width:812px" />

Air travel increased every month since January (+6% MoM in February and +23% MoM in March) &ndash; a time of year typically considered an off-season. Also defying seasonal trends is hotel occupancy which has been steadily increasing since January and in the first week of April exceeded pre-pandemic norms. In response to growing demand, average daily rates for hotel rooms have steadily climbed from January, and in March were significantly above pre-pandemic levels (+9.4% YoY32). The supply of hotel rooms has likewise expanded, registering +4.8% YoY3 in March.

Closing thoughts

It is important to note that a slowdown in 1Q22 is not an indicator of stagnation but rather the result of an economy in transition. We observe an effect akin to 3Q21 when the slowdown in goods was offset by a less striking uptick in services. Similarly, in 1Q22, this awkward adjustment makes it appear as though overall consumption and thus economic growth is slowing; hence our estimate for 1Q22 of below 2% growth. However, the potentially waning impact of the pandemic combined with pent-up demand for leisure and recreation should lead to aggressive services consumption growth mid-year. We expect fluctuations in GDP growth to even out towards the end of 2022, assuming the economy fully evolves into a post-COVID normality. &nbsp;