American Airlines CEO: No major US airline is likely to fail during coronavirus pandemic
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American Airlines CEO Doug Parker does not believe that the coronavirus pandemic will force a major U.S. carrier out of business, arguing that the industry faces a demand crisis that it can weather with the assistance its receiving.
“I think we’re all going to be fine,” he said at the Bernstein Strategic Decisions conference on Wednesday. “I think we’re all going to raise enough liquidity [cash] to get through this… I don’t think you’re going to see any airlines go by the wayside.”
While a major airline may not “go by the wayside,” Parker does expect the U.S. industry to be 10% to 20% smaller next summer than it was in 2019 — effectively making it as if a large airline disappeared.
Parker’s comments come just two weeks after Boeing CEO Dave Calhoun told the Today Show that a major carrier would “most likely” fail due to the crisis.
In Parker’s court are strong numbers — relatively speaking — coming out of Memorial Day weekend, the symbolic start of summer in the U.S. American reported that its planes were 56% full even as it flew just 20% of its planned schedule. That’s a dramatic improvement from the roughly 15% of seats that it filled in April.
The Transportation Security Administration (TSA) saw an uptick in people screened over the holiday long weekend. The agency screened 348,673 people on Friday, May 22, at the outset of the weekend marking the highest total since March when people began staying home in large numbers because of COVID-19. Still, the May 22 total represented just over 12% of the number screened a year ago.
The uptick is good for airlines that are working to staunch losses that peaked at as much as $70 million a day. At the same time, however, they raise concerns among travelers over how to stay safe from COVID-19 while flying.
American is widely considered among the weaker financially of major U.S. carriers. Owing to a massive fleet renewal that saw it replace more than 200 McDonnell Douglas MD-80 and other older jets over the past decade, American has more debt than peers Delta Air Lines and United Airlines.
The airline has moved rapidly to cut costs, including retiring four aircraft types — Airbus A330-300s, Boeing 757 and 767s, and Embraer E190s — from its mainline fleet. American has put a fifth, its A330-200s, in long-term storage. In addition, it plans to cut its workforce by roughly 30% this year.
In a positive sign, a weekly forecast by analysts at Raymond James on May 25 indicated that American has roughly seven months of cash on hand — up from just six months a week ago — to weather the crisis. Delta had nearly 13 months of cash and United about 10 months.
Cash is viewed as critical to survival for airlines. Those that have filed for bankruptcy, including Avianca and LATAM Airlines, have cited the near total evaporation of revenue amid a fixed cost base as prompting their restructurings. The U.S. government has provided more than $50 billion in assistance to the country’s airlines through its $2 trillion coronavirus aid package, known as the CARES Act.
“I don’t think people shouldn’t think of bankruptcy as a financial tool, I think it’s failure,” said Parker, who is known for publicly stating strong positions, on Wednesday.
American reorganized in Chapter 11 bankruptcy from 2011 through 2013 when it merged with US Airways. Parker was CEO of US Airways prior to the merger.
As the airline recovers from COVID-19, it’s the carrier’s domestic map will lead the way. American’s senior vice president of strategy Vasu Raja described the short-haul network as the “core strength” of the carrier.
Travel safe America! Today is the forecast second busiest travel day of 2019.
— Airline Maps (@airlinemaps) November 27, 2019
American’s Dallas/Fort Worth (DFW) and Charlotte (CLT) hubs are already seeing increased flight levels, he said. In addition, they will continue to be its two largest bases into the future.
“Historically in downturns, the big hubs win,” he said.
Raja did not comment on the future of some of American’s other hubs, especially ones that were weaker pre-crisis. Los Angeles (LAX) is widely thought to be the carrier’s weakest hub and one where it faces the most competition.
American plans to resume some limited international flying from Chicago O’Hare (ORD) and New York John F. Kennedy (JFK) in June. At the same time, it will suspend flights to four smaller domestic cities through September: Aspen (ASE), Montrose (MTJ), Vail (EGE) and Worcester (ORH).
Featured image by SAUL LOEB/AFP/Getty Images.
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