Airline Revenues Set for Recovery by the Second Half of 2022?

December 15, 2021

Many investors have pondered over the question of when it is most likely that airline revenues will return to pre-pandemic levels. As always, it is difficult to make these sorts of predictions, but we believe the most plausible estimate comes from Airlines for America (A4A).

According to its most recent report, the U.S. trade group believes airline revenues could fully recover to 2019 levels by the second half of next year. This is based largely on monthly sales data from the seven largest U.S. carriers. By the September quarter of 2022, ticket sales could be 3% above pre-pandemic levels.

In the meantime, airlines continue to offset still-recovering ticket sales and higher fuel costs with ancillary revenues. Ancillary revenues include sales of services that go beyond simply transporting a passenger from A to B, like frequent flyer programs, credit card applications, hotel bookings, onboard Wi-Fi access, extra legroom and so on.  

Speaking of ancillary revenues, United Airlines announced recently that it would resume hard liquor sales on domestic flights for the first time in over a year, making American Airlines and Southwest Airlines the only major carriers with a blanket ban on alcohol in economy class.

As any investor might expect, ancillary revenues dipped dramatically in 2020, but like the airlines industry as a whole, sales appear to have ticked up this year. According to IdeaWorks and CarTrawler, global ancillary fees increased to $65.8 billion in 2021, or $7.7 billion more than last year.

Although ancillary revenues are still below 2019 levels, they today represent a larger share of total airline revenues than they did just two years ago. In 2021, these fees represent an estimated 14.4% of total revenues, compared to 12.2% in 2019. A decade ago, they represented only 5.4% of global sales, underscoring just how important this revenue stream has become and will continue to be.

Commercial aviation still has some challenges to overcome going into 2022, but we believe that now may be an opportune time to get exposure. Explore the JETS ETF today.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.