Highlights From the Skift Aviation Forum
Takeaways from the Nov. 19 inaugural Skift Aviation Forum held in partnership with Dallas Fort Worth International Airport
- Thanks to generous government support, Air France managed to survive the worst of the crisis. But as CEO Anne Rigail explains, the airline needs more capital to strengthen its balance sheet. With much of the French economy under lockdown this month, Air France is currently just operating 15% of its shorthaul network and about 30% of its longhaul network. Why more longhaul than short? Because of lucrative cargo demand, and because Air France has a unique wealth of resilient longhaul family visit traffic to French overseas territories like Reunion and Guadeloupe. Africa is an area of resilience more generally. French domestic demand was solid this summer, though the larger story there is the massive losses Air France has stomached over the years.
It now has a plan to rightsize its domestic business, Rigail says, with help from pilot concessions achieved before the crisis. She rebuffs the idea of reconfiguring cabins or adopting buy-on-board meals for mainline flights. About half of Air France’s premium economy customers, interestingly, are flying for leisure not business. In September 2021, by the way, the airline will get its first A220s.
- Adel al Redha, chief operating officer of Emirates, discussed the carrier’s efforts to reassure travelers with policies like free Covid insurance, extra crew training, and so on. Emirates, he said, will play a critical role in distributing Covid vaccines around the world. He also reports an uptick in bookings after recent announcements regarding the success of vaccine trials. “The world cannot isolate. Travel is a must, must, must.”
- Air India spoke of its home country’s large diaspora spread across the globe, which makes for a robust family visit market that remains busy. Most of Air India’s fleet is currently active but at lower rates of utilization.
- Virgin Atlantic discussed the five new routes it announced to India and Pakistan, which caters to family visit passengers. But cargo is most important right now, with Virgin operating profitable flights despite passenger load factors of just 10%. Overall, loads are currently 22%, with 60% of the fleet in service.
- Virgin’s close ally Delta detailed its efforts to ensure safety and cleanliness on board its airplanes. Chief Customer Experience Officer Bill Lentsch said Delta is earning revenue premiums versus its rivals during the pandemic. But the priority now is not profits but people, and ensuring people are as safe as possible. Social distancing and health concerns, Lentsch says, are far more important than schedule and price for customers right now.
- American’s President Robert Isom acknowledged some weakness in bookings in the past week or so. He spoke alongside Dallas DFW chief Sean Donohue, who discussed topics like passenger testing, pent-up travel demand, and measures to assist airline partners. Speaking of airline partners, American is counting on new alliances to help it improve future margins. Amazingly, American is 40k workers smaller than it was pre-crisis, including those who left the airline voluntarily. But furloughed workers should start coming back when capacity ramps back up, hopefully soon.
- United’s Chief Commercial Officer Andrew Nocella referred to an investor update published last week (see Covid section below) in which the airline cited an uptick in cancellations and a slowdown in new bookings. News headlines, he says, have a big impact on booking patterns. That means both good headlines like positive news on vaccines, and of course bad headlines like spiking virus cases. United has no intention of changing its aircraft cabin configurations to reduce premium seating.
Instead, it’s gunning for a greater share of premium traffic when it revives, with efforts like re-entering New York JFK airport. Exiting the market was a “horrible mistake,” Nocella believes. And while it can only get back a small number of slots, it would love to grow bigger at JFK if ever the opportunity arises. It’s an airport essential to winning contracts from the entertainment and media businesses.
On the other coast, San Francisco is United’s premier hub. But as space there eventually runs out, the carrier will turn its attention to growing in Los Angeles. At LAX airport, it will have expanded terminal facilities. A sometimes-overlooked United hub in Guam is profitable during normal times, Nocella said. But don’t expect any growth there. It’s mostly an operation catering to Japanese tourists.
- Southwest CEO Gary Kelly said demand isn’t improving like he’d hoped. But it’s not decreasing either. As the famously successful LCC loses $10m a day, it’s grappling with the uncomfortable reality of being 20% overstaffed, which carries a cost of $1b. “And it’s all borrowed money.” So concessions are necessary and urgent. If unions refuse, furloughs will be inevitable. Unless that is, Congress comes around and passes another round of payroll aid, which Kelly thinks is still possible. As for his outlook, uncertainty levels are high but he does recall that after every past recession, it’s taken business travel a full five years to fully recover.
On other matters, he says Southwest is not turning itself into a hub carrier. It’s still devoted to an all-B737 fleet. Connecting passengers account for about 35% of total traffic now but that should return to a historic norm of 25% once things normalize. A surplus in airplanes right now explains the large number of new cities it’s adding.
- Alaska said about 70% of its 330 planes are currently flying but at lower rates of utilization. For all the difficulties the crisis has created, it’s also opened opportunities to grow at space-constrained west coast airports. Alaska is also using the downturn to develop the full network synergies made possible by its 2016 takeover of Virgin America.
- Spirit CEO Ted Christie said it’s too early to tell how the latest virus spike will affect bookings. “It’s still a developing situation,” he said, noting that most people are booking close to departure. He described the likely path back to profits, the opportunities to add markets, and the encouraging demand recovery in Latin/Caribbean markets as they open up to visitors. Spirit, furthermore, can now much more flexibly “Lego-block” markets “in and out,” responding to sudden changes in demand.
- Eddie Wilson, the head of Ryanair’s core Irish unit, questions the wisdom, on logistical grounds, of airport Covid testing. He banged the drum again on the need to stop bailing out national airlines. France, for one, offered tax rebates for airlines but only if the airline is French. Picking on Alitalia, Wilson said it’s been profitable once in its history, when they sold off a catering unit. But such airlines will suffer anyway longterm from government interference, heavy debts, and mass downsizing. Will Ryanair order more B737 MAXs? It has 210 on order (135 firm). And it loves the plane’s economics. At some point, Wilson says, it will surely capitalize on the big drop in aircraft prices. But there’s nothing imminent. Will Ryanair fly across the Atlantic? No. You simply can’t beat the aircraft utilization that legacy carriers in the market already achieve. And you won’t get the premium demand necessary to render those routes profitable.
- Avianca CEO Anko van der Werff said the outlook for the airline is much better now than it was a month and a half ago, as markets like Colombia reopen. But there’s still a lot of variance by country in what airlines and travelers can and can’t do. He reaffirmed Avianca’s intention to form a joint venture with United, saying the two carriers remain engaged at the highest levels. On a less encouraging note, governments of the region haven’t been kind to airlines, though. Of the $160b in public aid airlines have received, less than 1% was given to airlines in Latin America.