Airlines may face a tough fall after that summer uptick
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Images of mostly full planes and news of added flights has been something of a balm for would-be flyers after months of dominated by headlines of cutbacks — even some failures — during the coronavirus pandemic.
American Airlines CEO Doug Parker put it well during the carrier’s annual shareholder meeting earlier in June: “There is definitely pent up demand for air travel. We expect to see more customers return as more states, and businesses, and activities and attractions open up.”
Many of those flying today are leisure travelers eager to get out of their homes after months of sheltering in place. American and other carriers have reported an uptick in bookings to places with space, like beaches in Florida and airports near national parks or in the Rocky Mountains.
Some carriers have even announced new routes to markets like these to take advantage of the trend. For example, Alaska Airlines will add service between its Los Angeles (LAX) base and Fresno (FAT) — the closest airport to Yosemite National Park — in September even as its schedule remains well below 2019 levels.
So far this summer, the trend seems to confirm Parker’s rosy-ish forecast. Transportation Security Administration (TSA) screening numbers are on a steady rise — though still down more than 80% from the same period in 2019. Passenger booking data from trade group Airlines for America (A4A) has risen to down just 80% year-over-year during the week ending June 7 from down around 100% in April.
But what happens when the summer passes and, as occurs every year, leisure travelers give way to the ranks of business flyers after Labor Day?
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“The autumn of discontent is gradually approaching, which is why we don’t view increased summer schedules as a harbinger of solid recovery,” J.P. Morgan analyst Jamie Baker wrote in a report on June 10.
Uncertainty seems the buzzword in the industry. No one has a good view on what travel will look in August, let alone October or January 2021. Multiple variables, from a second-wave of COVID-19 infections to the status of border restrictions, keep much potential travel in limbo.
In its latest update on Tuesday, the International Air Transport Association (IATA) said that bookings for long-haul flights this winter remain “close to zero” at a time when about 14% of seats are historically already reserved. This leaves the outlook, as the organization’s chief economist Brian Pearce put it, very “uncertain at this stage.”
In the U.S., airlines have benefitted from payroll assistance from the federal government’s coronavirus aid package, or CARES Act. However, the package’s minimum schedule requirements and other job protections expire Sept. 30, allowing airlines to cull their route maps and reduce workforces as they see fit for the market.
Alaska, American, Delta Air Lines, JetBlue Airways and United Airlines have all warned that they will be smaller come the fall. What these carriers all have in common is they rely more on business travelers than the likes of Southwest Airlines and discounters Allegiant Air and Spirit Airlines. Southwest plans to fly an essentially “full” schedule — full by number of flights but not by routes flown — by year’s end, with Allegiant and Spirit also moving in that direction.
Raymond James analyst Savanthi Syth told TPG that a lot will depend on when corporate travel resumes. Pointing to the fact that a lot of offices in major cities are not expected to begin reopening until September, she does not expect any meaningful resumption in business travel until October at the earliest — if not until 2021.
A significant unknown variable is what happens if there is a second wave of COVID-19 infections. The recent spike in infections in states that have reopened earlier than others is still considered part of the first wave. However, airlines appear to be prepared for the virus to become endemic and executives have warned that the industry will not fully recover until there is either a vaccine or effective treatment.
“It really is [that] there is just so much unknown,” Syth said about the recovery. “Airlines are putting the cash cushion in and hoping for the best.”
U.S. carriers have, on average, enough cash to cover their costs for 15 months, based on Raymond James’ latest analysis on June 14. This ranges widely among major airlines, from just 8.3 months of cash-on-hand at American to 22.9 months at Southwest.
In the name of raising cash to get through the crisis, United unveiled plans for a $5 billion mortgage of its MileagePlus loyalty program on June 15. It estimates that the funds, plus proceeds from a potential $4.5 billion government CARES Act loan, will give it upwards of $17 billion in cash that should see it through to the other side of the crisis.
That $17 billion amounts to “quite a large war chest to get us through a second wave, or third wave of COVID if that happens,” senior United executives told media.
But airlines are not writing off business travel entirely for the rest of the year. United’s vice president of international network and alliances, Patrick Quayle, told Brett Snyder on the Cranky Flier Interview podcast on Tuesday that the carrier is seeing traveler confidence return into the fall. This is driving a continued improvement in bookings, though he did not specify between leisure or business travelers.
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Most U.S. airlines, including United, are allowing travelers to change tickets booked by June 30 without a fee. This encourages people to make reservations, but does not guarantee that they will actually fly come their travel date.
One thing every airline is doing to support the continuing return of flyers is attempting to assuage fears of the virus onboard. Some, like Delta and Southwest, have gone as far as blocking seats or capping bookings — moves that come on top of enhanced cleaning measures, air filtration and mandating crews and passengers wear masks onboard. Others, like Spirit and United, feel social distancing onboard is not necessary — nor feasible — on top of the latter measures.
These efforts come as an increasing number of would-be flyers express concerns about getting back on a plane. In IATA’s latest consumer confidence survey, 55% of potential travelers will wait at least six months before boarding a flight again. That’s a jump from the 40% who said they would wait in the organization’s previous survey from April.
“Hence, the reason that job one is to instill trust and confidence,” aviation analyst and former airline executive Robert Mann tweeted in response to IATA’s survey.
— Matt (@MatthewStickIe) June 14, 2020
Featured image by Alberto Riva/TPG.
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