The Latest by Region
- United, an early Covid-era bear, is feeling a little more bullish. Last week, it announced revised schedules for August, which feature triple the number of flights the airline offered in June. Domestically next month, it will fly about half its normal schedule, encouraged by a steady pickup in bookings this spring and summer, notwithstanding some slowing momentum in the past week or so as new Covid cases sweep through America’s sun belt (trip cancellations are indeed ticking up but modestly). Much of the flying United is bringing back will touch its three mid-continent hubs, namely Chicago, Denver, and Houston, where it’s reoptimizing schedules to maximize connectivity. It’s adding capacity to Hawaii, anticipating leisure demand as the state relaxes quarantine restrictions. It’s rebuilding Newark as the New York City area sustains low rates of infection following a dire crisis early on. It’s bringing back around 90 planes, including CRJ-550s useful for linking Newark to secondary business centers like St. Louis, Indianapolis, and Richmond. Last week’s July 4 holiday, incidentally, was looking strong as it approached, based on comments during a media call hosted by United’s network planners. In fact, it needed to add capacity on key hub-to-hub routes like Chicago-Denver, singled out as particularly busy. United also noted strength in beach markets like Hawaii, Mexico, and the Caribbean, though it didn’t mention Florida, where the virus is spreading rapidly if much less lethally than during earlier outbreaks farther north. There are also faint signs of life in domestic small business demand, if not yet corporate demand. On the other hand, demand in general from coastal cities, including United hub cities like San Francisco, Los Angeles, and Washington, remains more subdued.
- Here’s something extremely interesting about United’s travelers these days: Nearly half are under the age of 35, a huge percentage increase from pre-crisis norms. Many of these youngsters, United presumes, are students flying home. It’s also seeing a large number of people booking close to departure, a sign of uncertainty. Another intriguing fact: An inordinate number of travelers are booking one-way tickets, especially on international flights where United is still generating a decent amount of passenger demand, in the context of extremely depressed industry capacity. Combine that with lucrative contributions from cargo, and United is feeling relatively bullish on the international front as well. It plans to fly about a quarter of its normal international schedule next month, not bad considering that international borders are still mostly closed, and that the key European market for one isn’t planning to welcome Americans anytime soon. But border closures do not prevent Americans living in Europe from returning home, or Europeans living in America from doing the same. And indeed, it’s these repatriating travelers (some have dual citizenship) that form the bulk of United’s international traffic right now. So it’s adding back 47 international routes in August, 40 of these within the Americas (Canada, the Caribbean, and Latin America). All six of its relaunched European routes are to London Heathrow or Lufthansa’s Frankfurt, Munich, Zurich, and Brussels hubs, offering connectivity to a wide menu of global cities. Tahiti is also on the list, under the assumption that an isolated Pacific island works well as a vacation spot for times like these. Flights to Delhi from Newark and San Francisco will resume as well, but only if travel restrictions ease (other routes will proceed without regard to any changes in border openings). As it happens, many Latin and Caribbean destinations do plan to open their borders soon. In northeast Asia, meanwhile, United will wait until August to restart some key routes. Already this month, it’s offering some flights to Tokyo, Hong Kong, Singapore (via Hong Kong), Seoul, and Shanghai, the latter attracting a good deal of business demand, again keeping in mind that industry capacity is extremely limited. Companies, sure enough, are starting to relax their international travel policies, United said. Hence the restoration, for example, of B777-300ER flights twice weekly between San Francisco and Shanghai. How about after August, when airline demand tends to taper off? United is currently selling its entire September schedule, deciding which routes to actually restore just a few weeks prior to departure (just as it’s announcing August schedules now, in early July). Normally, the schedule planning horizon is much longer. But with most people booking late and market conditions highly uncertain, United wants to retain as much flexibility and agility as possibility.
- As the bear United becomes more bullish, the bull American is becoming more bearish. That’s true internationally anyway, where American is pulling back some flying it hoped to do for the remainder of 2020 and next summer. Its long-haul international flying for summer, 2021, in fact, will now be 25% smaller than it was in summer, 2019. Missing from the schedule will be three European routes it typically flies from Charlotte (Paris, Rome, and Barcelona). Philadelphia, its chief transatlantic hub, will lose service to Berlin, Budapest, and Dubrovnik. Nor will it get the Casablanca route announced with great fanfare pre-crisis. Chicago loses four European routes. Dallas DFW losses one. Miami says goodbye to Milan and Brasilia. But most interestingly, American is largely dismantling Los Angeles LAX as an intercontinental gateway, axing Shanghai, Beijing, Hong Kong, Buenos Aires, and Sao Paulo. Dallas DFW will thus take a more prominent role as American’s Asian gateway. But just as importantly, an alliance forged with Alaska Airlines just prior to the crisis remains a strategic priority, so much so that American will proceed with new Seattle flights to London and Bangalore next year. Not stopping there, it also wants to move the LAX-Shanghai route it’s cancelling to Seattle instead. Back in London meanwhile, it plans to fully restore its Heathrow flying next year, supported by its joint venture with British Airways. The more bullish near-term prospects for transatlantic travel, it seems, involve not leisure travel but essential travel, and travel involving a European hub connection. Think, for example, of an Egyptian citizen with permanent residency in the U.S., flying to visit family from Philadelphia to Cairo via London. Borders, remember, are not closed to citizens and permanent residents.
- American’s slimmed-down schedule further contributes to a need for workforce downsizing. How drastic? By this fall, the airline said last week, it will have about 20k too many workers. Yikes. In a letter to flight attendants, which stressed the need for adjustments throughout the company, management spoke of “drastically reduced demand,” a massive impact on company finances, and a big increase in company debt. American expects to have a surplus of between 7k and 8k attendants, though it hopes to cut as many of these jobs as possible through voluntary leave. Stronger demand growth could mitigate the cutting as well. In any case, the carrier is closing its St. Louis and Raleigh-Durham flight attendant bases in February. Bases in Phoenix, Miami, and Los Angeles will see significant flight attendant job cuts. Cuts will be more moderate at Dallas DFW, New York LaGuardia, Charlotte, Philadelphia, and Chicago O’Hare. Numbers might even increase at Washington DCA, San Francisco, and Boston. American will also reduce flight attendant staffing on international widebody and transcontinental flights, matching some of its rivals.
- American was also one of five U.S. carriers to sign letters of intent last week for government loans. It will borrow close to $5b from the U.S. Treasury, collateralized by its AAdvantage loyalty plan. The other four carriers were all much smaller: Hawaiian, Spirit, Frontier, and SkyWest. American, meanwhile, says it now has no large non-aircraft debt repayable before 2022. It also said it received more than $1b in cash receipts from operations last month, after just $358m in May and $11m in April. Last year, it averaged about $4.2b a month.
- Hawaiian Airlines will restart flying to most mainland destinations on August 1, eager to welcome back visitors. Hawaii is removing its two-week quarantine rule for people who test negative for Covid-19 prior to their travel. The airline is separately increasing air service within its home state, connecting neighboring islands.
- Allegiant’s CEO Maury Gallagher, in a letter to shareholders last month, wrote that during the 60 days to June 23, no other U.S. carrier has sold or flown a larger percentage of its original flight schedule. In May, 77% of its schedule was available for sale, compared to just 37% for Southwest. The percentage for Delta, United, American, JetBlue, Alaska, and Spirit was in the teens, or in some cases just single digits. Allegiant said five key markets “are doing well,” namely Phoenix Mesa, Punta Gorda, Fort Lauderdale, St. Petersburg, and Destin, the latter four in Florida. Orlando and Las Vegas, on the other hand, have been “laggards” because of their delayed reopening.
- Throughput at Transportation Security Administration (TSA) checkpoints in the U.S. continued to improve, crossing the 600k daily rate last week. This is still 78% down from last year, but it’s much improved over the April nadir of fewer than 100k. Throughput has improved by about 2% weekly since the beginning of June. However, customer sentiment seems to be flagging as the pandemic spreads in previously lightly affected parts of the country, including Florida. It may be too early to tell if the disease’s resurgence will affect summer travel plans, but anecdotal evidence suggests that it might, especially if theme parks are forced to shutter again and beaches are closed. Note that in another vacation hotspot, California, the disease has re-emerged after being almost contained, forcing Disneyland and other theme parks to close and beaches to be limited to local residents, if not outright closed, in many parts of the state.
- The U.S. Transportation Department (DOT) issued pandemic guidelines for airlines that include recommending facial coverings or masks for all passengers in airports and inflight. The guidelines do not carry the force of law, but Secretary Elaine Chao said, “We encourage people to pay attention to it.” Among other recommendations are ways to minimize contact at check-in and security checkpoints and requiring health assessments from passengers and crew. These guidelines come weeks after airline unions had been asking for guidance from the federal government, and weeks after Airlines for America issued its own guidance to its member carriers.
- The CARES Act federal stimulus required airlines taking federal funds to maintain service to all the cities they served pre-pandemic. Several airlines have successfully applied for exemptions to this rule, arguing a variety of reasons, including that the cities are served by other carriers or that they serve a nearby airport. DOT last week granted Hawaiian’s request to cease service to Pago Pago, in American Samoa. The carrier had applied for this exemption twice before but was denied. This final request was granted and had the support of the governor of American Samoa.
- When SAS reported earnings in late May, it made perfectly clear that it wouldn’t have enough capital to survive much beyond 2020 at best. Not even with $350m in new credit backed by Swedish and Danish government guarantees. And especially not with all the money it would need to rebuild flight schedules over the next two years, before any realistic hope of reviving profits. Therefore, SAS admitted in May, it needed further support from its three largest shareholders, namely Sweden’s government, Denmark’s government, and Sweden’s Wallenberg Foundation, which currently hold roughly 40% of the company’s equity. To its relief, SAS will indeed have their further support, as it embarks on a massive new recapitalization scheme designed to boost its balance sheet equity from a slightly negative position currently, to $1.5b if all goes as planned. The first part of that scheme involves doing something similar to what rival Norwegian did: Convince bond holders to convert $400m of debt to equity. If they don’t, SAS warns, the alternative could be bankruptcy. If they do, the airline will then proceed to issue $1.3b worth of new stock and bonds convertible to stock, with the three major shareholders buying enough of the newly-issued securities to at least maintain their current level of ownership. If no other investors participate, the Big Three shareholders could own as much as 69% of the company, with the old bondholders (those swallowing the debt-to-equity deal) owning another 24% The whole plan does require E.U. approval. And it would impose some conditions on SAS management, including a ban on paying dividends, limits on merger and acquisition activity, and a freeze of executive pay. These conditions will be eased gradually over time as SAS repays its new debt. Alright, so SAS now stands to secure its long-term liquidity needs. But what’s its path back to profitability? First of all, keep in mind that SAS had trouble earning decent margins even before the crisis. In two of its best years of late (2017 and 2018) it managed operating margins between 5% and 6% (blah.) Last year (or for the 12 months through January 2020 more accurately) its margin was just 2%. Blame that on a near-week-long pilot strike, highlighting a long history of labor tensions. Nordic currency depreciation was another big issue last year. That said, the airline has a solid track record of improving productivity, noting how it flew roughly the same number of planes in 2019 as it did in 2012, but 40% more passengers. It will have to pull off a similar trick over the next few years, amid what’s expected to be a lengthy recovery from the industry’s greatest demand shock ever. The first phase of the recovery, as SAS sees it, is ending now—international travel restrictions are lifting, and some demand is recovering. Phase two will be the “ramp up,” lasting well into 2021. Only by 2022 will the recovery reach its third and final phase, with traffic back to 2019 levels. The ramp-up phase, alas, will be costly, hence the need for more capital. But more than just capital, it will need labor concessions, including the flexibility to more effectively alter its staffing levels by season. It needs mechanics to work night shifts. It needs ground workers to be more productive. And so on. It’s also shrinking its workforce by 5k. Desperate as this might sound, SAS actually finds itself relatively well-positioned for the recovery. It is after all, a short-haul-heavy airline, at a time when short-haul markets are opening and reviving faster. Also expected to recover more quickly is business and family-visit demand within regions like Scandinavia. Don’t forget too that rival Norwegian is dramatically downsizing, as are other competitors. All of these factors have in fact allowed SAS to add more flying this summer than some of its larger peers. Also helpful is the fact that SAS hasn’t yet placed an order for new small-gauge narrowbodies, something it was planning to do pre-crisis. It would have overpaid relative to today’s crisis prices. It still has 80 A320-NEOs on order though, and another 13 A350s and A330s. Three of its NEO orders, furthermore, are long-range versions which will “come in handy.” As for other aspects of the airline’s revised post-Covid strategy, one is sustained commitment to the environment. Its Eurobonus loyalty plan will remain important. It pledges not to abandon its core markets, or its core Nordic travelers. Copenhagen will be its main longhaul hub. But make no mistake: This year and next year will involve lots of uncertainty, executives admit, and potentially heavy losses while flying a sub-scale operation.
- There’s no way around it. Even airlines receiving generous dollops of government aid, like Air France/KLM, need to cut their staffing to adapt to a smaller global airline industry. Air France itself doesn’t see full recovery until 2024, hence a plan to cut its mainline workforce by 6,560 by the end of 2022. That’s a full 16% of its current workforce. Helpfully, it thinks roughly half of the job cuts can come through attrition, as workers retire or leave for other voluntary reasons. Not stopping there, Air France is also downsizing at its regional subsidiary Hop, where 1,020 jobs must go. That’s more than 40% of current staffing, which shows how much less a prominent role Hop will have in the future. Later this month, Air France/KLM will present a new business plan.
- The U.K., to the airline industry’s relief, will relax onerous quarantine rules for visitors from “low-risk” countries, and conversely, Brits who return from visiting those countries. In the meantime, Britain’s airlines continue their restructuring efforts. easyJet, for its part, plans to close three of its U.K. bases, namely London Stansted, London Southend, and Newcastle. Stansted, as it happens, is Ryanair’s largest base. easyJet also began negotiating major job cuts with the BALPA and Unite unions. Virgin Atlantic, meanwhile, entirely dependent on intercontinental demand, appears closer to securing the funding it needs to avoid bankruptcy. Founder Richard Branson will provide more money, with contributions from Delta as well, thus retaining its 49% ownership stake, according to the Financial Times. As for the granddaddy of U.K. aviation, British Airways, it announced the resumption of more short-haul flights last week, as well as some limited-frequency longhaul offerings to North America, the Caribbean, and East Asia. Let’s not forget about the LCC Jet2, which plans to restart flights next week.
- Ryanair, hoping to get its first B737 MAX in November (or thereabouts), is seeing “very strong bookings” for the first two weeks of July, Reuters reports. The carrier returned to the skies on July 1, offering flights to nearly 90% of its destinations, albeit with fewer frequencies. August, the airline said, looks reasonably strong. September and October though, look somewhat weaker at the moment. The LCC separately announced a large menu of flights from Vienna, where it will offer 64 routes this summer. Lauda Air, a subsidiary, is handling much of the flying. Always keen to strut its bad-boy marketing image, Ryanair trumpeted its Vienna offensive by criticizing both Lufthansa and Austria’s government. “Ryanair will provide non-state-subsidized competition and choice to the high-fare Austrian Airlines, which is a subsidiary of the German subsidy junkie Lufthansa Group.” It also advised travelers to grab its low fares “before some misguided Austrian minister tries to ban them.”
- Icelandair is making progress on its out-of-court restructuring. It now has revised long-term collective bargaining agreements in place with pilots, flight attendants, and mechanics. But it’s still working with its government, and with banks, on securing a state-backed loan. That can’t happen until Icelandair secures concessions from creditors, most importantly aircraft lessors and a credit card processor. It’s also still negotiating MAX compensation and future deliveries with Boeing. If all talks conclude successfully, Icelandair—in addition to its state-backed loan—plans to issue new shares next month. If not successful, it “will need to initiate a new phase of its restructuring process without the government guaranteed credit facility.” This process could last up to 12 months, the company said. It also warned creditors that it would have to seek payment deferrals on any money it owes. Currently, the airline has enough cash to cover only about three months of fixed operating costs.
- China’s Global Times, working with data provider VariFlight, said Chinese carriers operated 75% of their normal domestic flight schedule in June. But internationally, they flew just 18% of their normal schedule. June’s domestic flight volumes, the data show, were roughly at 2016 levels. Domestic load factor was 67%, up from 64% in May. The Times also noted that Chinese airlines are now flying 22% more domestic flights than their U.S. counterparts. The U.S. is typically a larger market. Chongqing and Sanya, the latter on Hainan island, were notable for having about 80% of their pre-crisis capacity restored. Beijing, on the other hand, was only at 30%, owing to a new Covid outbreak last month. It’s unclear, keep in mind, how deeply Chinese carriers are discounting to bring travelers back.
- Reporting for the month of May, Air China (69%), China Southern (68%), and China Eastern (65%) all had domestic load factors approaching the 70% mark. In terms of capacity, domestic ASKs for all three were down between 30% and 40% y/y. Hainan Airlines had a higher 72% domestic load factor but on 55% fewer ASKs. Shanghai-based Juneyao filled 69% of its seats on 36% fewer ASKs. Most interestingly, the LCC Spring Airlines filled 76% of its domestic seats while increasing its ASKs at home by 14%. Its total capacity was still down significantly though, due to international dormancy—35% of Spring’s ASK capacity last year involved flights and from points outside of mainland China.
- Here we go again. Another major Latin American airline is in bankruptcy, this time Aeromexico, following in the path of Avianca and Latam. Just before the filing last week, Aeromexico secured additional funding from its loyalty plan partner AIMA. But it wasn’t enough to avoid the need for court protection from creditors. Delta is once again a loser, poised to see its 49% stake in Aeromexico turn to dust. Its Latam stake stands to suffer the same fate. But like Latam and Avianca, Aeromexico enters bankruptcy a fundamentally healthy airline, in no real danger of disappearing. That’s different from its earlier days of insolvency in the early 2000s, when it was an overstaffed and grossly inefficient state-owned carrier; it was re-privatized in 2007. The problem now is one every airline is facing—a demand shock of epic proportions—but in its case without any government help. Aeromexico is now in talks for financing to keep it aloft while reorganizing. It’s in fact adding back more flights this month, as demand slowly recovers. It’s also making good money right now flying cargo.
- Qatar Airways restarted flights on 11 routes on July 1, the most it has added back to its schedule since the pandemic began. The carrier will begin daily Doha flights Bali and Beirut, and less-than-daily flights to Boston, Washington, Belgrade, Berlin, Edinburgh, Larnaca, Los Angeles, Prague, and Zagreb. The carrier also restarted flights on July 4 to Toronto (thrice weekly). And it plans to start four weekly flights to Zanzibar on July 11, followed by three weekly flights to Kilimanjaro on July 13. Looking ahead, Bucharest, Sofia, and Venice come back to the schedule later this month. Keep in mind that even with borders closed to foreigners, they’re open to citizens and permanent residents returning from abroad. For those with dual citizenship, this implies the ability to fly back and forth between countries without restriction, though in some cases having to quarantine to take a Covid test.
- Regional Express, or REX, is a regional airline, as its name suggests. But it’s becoming something more, as it moves forward with plans to challenge Qantas and Virgin Australia on Golden Triangle routes linking Sydney, Melbourne, and Brisbane. Assuming it can raise the necessary funds, REX plans to operate five to ten narrowbody planes on the Triangle routes, starting in March 2021. It won’t be easy. But the carrier does have a good track record, having earned operating profits every year since 2003. More importantly, it claims it can fly the routes with a cost base 35% below that of pre-bankruptcy Virgin. Tickets will be “priced at affordable levels” but aimed at business fliers, including meals, checked bags, and pre-assigned seats. Customers can book via global distribution systems. And they’ll be able to pay for airport lounge access.