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US airline execs warn coronavirus impact 'could be worse than 9/11' downturn

March 05, 2020
5 min read
US airline execs warn coronavirus impact 'could be worse than 9/11' downturn
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U.S. airlines large and small are seeing a dramatic drop in travel demand that, in the words of one senior executive, "could be worse than 9/11."

JetBlue Airways and United Airlines have already slashed domestic schedules by up to a fifth amid a drop in demand attributed to fears of the spreading COVID-19 coronavirus outbreak. Southwest Airlines, while not yet cutting capacity, anticipates an up to $300 million drop in revenues during the quarter ending in March.

For airlines, one of the most challenge aspects of the virus-related slump in demand is that it’s being driven more by a fear of travel than by woes in the economy.

“Sept. 11 wasn’t an economically driven issue for travel, it was more fear quite frankly and I think that’s what’s manifested this time,” Southwest CEO Gary Kelly said to CNBC on the sidelines of the U.S. Chamber of Commerce Aviation Summit in Washington on Thursday. “I think there’s elements of both but it has a 9/11-type feel. Hopefully, we’ll get this behind us quickly.”

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Kelly wasn’t the only airline executive to express such sentiments at the event.

"In terms of the volumes, this could be worse than 9/11," another senior airline executive told TPG on the sidelines of the same event.

Airline passenger traffic in the U.S. fell by over 30% to 44 million in October 2001 compared to August of that year, according to U.S. Bureau of Transportation Statistics data. While as much as 10% of that can be attributed to the seasonal decline from summer to fall, that still represents more than 12 million fewer people flying in the month immediately following the 9/11 tragedy.

After the attacks, U.S airlines slashed schedules. For example, American Airlines only resumed about 80% of the flights it operated before 9/11 in the months after.

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United, which cut global capacity by up to 25%, parked nearly 100 of its older Boeing 727 and 737 jets.

Related: Could the coronavirus end the decade-long U.S. airline expansion?

Now, with the emerging COVID-19 outbreak, the current drop in passenger volume in the U.S. has come on nearly as quickly as cases have spiked here. In just over a week, the number of confirmed cases jumped to 99 as of noon on Thursday, up from 14 on Feb. 23, according to the Centers for Disease Control (CDC). Eleven people in the U.S. have died from the disease to date.

"It wasn’t until about a week ago that we saw a drop in our bookings year-over-year," said Kelly at the summit. "It’s manifested quickly.”

Kelly reiterated that the slowdown in passenger demand is not driven by economics, as it was after the 2008 recession, but rather by fear of the virus.

"We could discount prices and it wouldn't do any good," he said.

Related: A guide to traveling during the coronavirus outbreak

Bill Franke, managing partner and founder of the Indigo Partners group that owns Frontier Airlines, echoed Kelly at the summit saying discounted tickets "aren’t attracting the customers the way they did historically." Indigo previously owned Spirit Airlines.

"There is a lot of anxiety, a lot of discussion right now," said Alaska Airlines CEO Brad Tilden at the summit. The carrier has updated inflight procedures to reduce the possibility of transmission but has still seen bookings drop.

Alaska faces an added challenge of its Seattle base. The metropolitan area is the largest hotspot for COVID-19 cases in the U.S. to date, with major corporations including Amazon and Boeing curtailing all business travel for the time being.

The airline will "probably" have an announcement on capacity "soon," said Tilden in his comments on Alaska's reaction to the outbreak.

Related: Coronavirus flight waivers and changes

American Airlines CEO Doug Parker, who also spoke at the summit, did not comment on any coming responses to the COVID-19 outbreak from the carrier.

"We’re making sure we’re doing everything we can to make sure our team is safe and our customers are safe," said Parker who cited American's previous schedule reductions to Asia and Italy.

On Thursday, industry body the International Air Transport Association (IATA) estimated that COVID-19 could cut passenger numbers by up 10% in the U.S. and Canada. This drop could cost airlines in the region roughly $21 billion in revenues.

"The U.S. airlines... are well positioned to weather demand headwinds and these proactive steps are likely to help," wrote Raymond James analyst Savanthi Syth in a report late on Wednesday. The "proactive steps" she referred to were JetBlue and United's schedule cuts.

Related: United Airlines slashes schedules by up to 20% amid coronavirus slowdown

Featured image by AFP/Getty Images

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Card Rating is based on the opinion of TPG‘s editors and is not influenced by the card issuer.
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10XEarn unlimited 10X miles on hotels and rental cars booked through Capital One Travel
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The Capital One Venture X card is one of the best all-round travel credit cards ever launched. Not only is it offering a tremendous welcome bonus, but cardholders can earn tons of miles on everyday spending and receive a 10,000-mile anniversary bonus to boot. Its annual fee is $395, but cardholders can count on up to $300 in statement credits toward travel booked through Capital One Travel each year and other valuable benefits like access to Priority Pass lounges and Capital One’s own growing family of airport lounges.

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  • Excellent welcome offer worth 75,000 miles after you spend $4,000 on purchases in the first three months.
  • Up to $300 in annual travel statement credits toward bookings make through Capital One Travel.
  • 10,000 bonus miles (worth $100 toward travel) each account anniversary.

Cons

  • The $395 annual fee might be expensive for some, but this card’s benefits provide much more value than that.
  • If you don’t travel frequently, this might not be the best card for you.
  • Earn 75,000 bonus miles when you spend $4,000 on purchases in the first 3 months from account opening, equal to $750 in travel
  • Receive up to $300 back annually as statement credits for bookings through Capital One Travel, where you'll get Capital One's best prices on thousands of options
  • Get 10,000 bonus miles (equal to $100 towards travel) every year, starting on your first anniversary
  • Earn unlimited 10X miles on hotels and rental cars booked through Capital One Travel and 5X miles on flights booked through Capital One Travel
  • Earn unlimited 2X miles on all other purchases
  • Unlimited complimentary access for you and two guests to 1,300+ lounges, including Capital One Lounges and the Partner Lounge Network
  • Receive up to a $100 credit for Global Entry or TSA PreCheck®
  • Use your Venture X miles to easily cover travel expenses, including flights, hotels, rental cars and more—you can even transfer your miles to your choice of 15+ travel loyalty programs
  • Named editors' choice for "Best New Credit Card of 2021" by The Points Guy
  • Earn 10 miles per dollar when you book on Turo, the world's largest car sharing marketplace, through May 16, 2023