Issue No. 797
Airlines' Year of Transition
Is This the Year Airlines Recover From 2020, or Will it Take Longer?
Note From the Editor
Welcome to the new Airline Weekly. To say the airline industry has changed since we launched in 2004 is an understatement. Similarly, the way we consume news and information has changed remarkably over the last 17 years. And because of that, we've been hard at work over the last few months rethinking the way we cover the news. We listened to you, our readers, on how you read Airline Weekly, what you liked and what you wanted more of. Today's issue is the culmination of that work.
In case you missed the news last month, we've brought on two new members of our team. Airlines reporter Edward Russell and contributor Ruthy Muñoz joined us in December, and this is the first issue of Airline Weekly in which you'll be able to read their work. I'm thrilled to welcome both these journalists to Airline Weekly.
I'm proud of the work we did, and I always value your opinion. Please drop me a line at firstname.lastname@example.org and let me know what you think.
-- Madhu Unnikrishnan, Editor
Pushing Back: Inside This Issue
Last year was one the all of us would like to forget. But will this year be any better for the airline industry? A newly resurgent coronavirus is rampaging in the U.S. and in Europe, and although the development of effective vaccines is a miracle of science, the distribution of those vaccines has been less impressive, especially in the U.S. Demand is unlikely to come back in any meaningful way until more people are vaccinated (or the virus is brought fully to heel through public-health measures, as has happened in China, New Zealand, and other countries.)
In other news, the B737 MAX is back. After being greenlighted to return last year, more airlines in the U.S. and Latin America are putting the type back into their fleets. So far, we found fear isn't making passengers book away from the plane. Return to service in Europe is expected soon.
And looking ahead, Delta kicks off earning season this week, as airlines start reporting their fourth-quarter and full-year results. Buckle up!
"We’re confident that things will get better in the second quarter and definitely in the second half of the year."Alaska CEO Ben Minicucci
Another quarter in a year everyone will want to forget. Last year’s Q3 numbers are grim but show some interesting trends. Asian airlines led the recovery, reporting the least-bad numbers of the lot. Low-cost carriers did reasonably well, as leisure traffic leads the recovery. And carriers with strong cargo operations did better than others. In fact, Asiana reported a small profit, largely on the strength of freight.
The numbers are instructive, but we’re reaching a point when the year-over-year comparisons will become less useful. Through Q4 and the full-year 2020, which airlines will begin reporting this month, comparisons to pre-pandemic results will illustrate just how hard the Covid-19 pandemic hit the airline industry. The pandemic’s effects were starting to show up in last year’s Q1 earnings. But the “comps” will be useful in one way: They’ll provide an easy way to track the recovery over the coming years.
Q3 Earnings Scoreboard
|By Revenues (in $m)||By Net Profit (in $m)||By Operating Margin||By Net Margin|
|Lufthansa||$3,093||Spring Airlines||($4)||Ryanair||1%||China Southern||-1%|
|Air France/KLM||$2,935||Air Arabia||($12)||Asiana||1%||Spring Airlines||-1%|
|Air China||$2,726||Jazeera||($18)||Korean Air||0%||Ryanair||-2%|
|Delta||$2,645||Air Astana||($22)||China Airlines||-1%||China Airlines||-3%|
|United||$2,489||Chorus/Jazz||($25)||China Southern||-2%||Turkish Airlines||-9%|
|China Eastern||$2,489||Ryanair||($26)||Turkish Airlines||-4%||Air China||-10%|
|Southwest||$1,793||China Airlines||($28)||Chorus/Jazz||-4%||China Eastern||-13%|
|All Nippon||$1,603||China Southern||($28)||Air China||-10%||Air Arabia||-15%|
|Turkish Airlines||$1,528||Mesa Air||($29)||Wizz Air||-11%||Chorus/Jazz||-17%|
|IAG||$1,441||Sun Country||($30)||Mesa Air||-16%||Aegean||-18%|
|Ryanair||$1,222||VivaAerobus||($33)||China Eastern||-17%||Wizz Air||-23%|
|Hainan Airlines||$1,179||SpiceJet||($49)||Air Astana||-18%||Korean Air||-25%|
|Singapore Airlines||$1,167||Bangkok Air||($51)||Air Arabia||-20%||Air Astana||-26%|
|Japan Airlines||$1,115||Jeju Air||($56)||Aegean||-22%||Aeroflot||-26%|
|China Airlines||$908||Jet2||($87)||Sun Country||-31%||Allegiant||-34%|
|Air Canada||$569||AirAsia X||($119)||Allegiant||-39%||Sun Country||-39%|
|JetBlue||$492||Aeromexico||($131)||Air France/KLM||-41%||Air France/KLM||-42%|
|SkyWest||$457||Turkish Airlines||($132)||Hainan Airlines||-47%||IndiGo||-44%|
|Wizz Air||$442||Frontier||($143)||Volaris||-47%||Hainan Airlines||-49%|
|Spring Airlines||$403||El Al||($147)||IndiGo||-52%||Lufthansa||-51%|
|Jet2||$380||Philippine Airlines||($160)||Frontier||-70%||All Nippon||-54%|
|SAS (Aug-Oct)||$345||Hawaiian||($173)||Alaska||-75%||Japan Airlines||-57%|
|Volaris||$215||Finnair||($232)||Japan Airlines||-80%||SAS (Aug-Oct)||-74%|
|Aeromexico||$212||TAP Portugal||($243)||Philippine Airlines||-81%||Singapore Airlines||-76%|
|Avianca||$207||SAS (Aug-Oct)||($256)||SAS (Aug-Oct)||-83%||Delta||-79%|
|Philippine Airlines||$173||Aeroflot||($299)||TAP Portugal||-94%||United||-95%|
|SpiceJet||$142||China Eastern||($331)||Jazeera||-107%||TAP Portugal||-107%|
|Thai Airways||$119||Garuda||($431)||United||-108%||Jeju Air||-112%|
|Mesa Air||$108||Thai Airways||($518)||Jeju Air||-118%||Avianca||-131%|
|AirAsia||$92||LATAM||($574)||Bangkok Air||-127%||Air Canada||-134%|
|Air Astana||$85||Hainan Airlines||($581)||JetBlue||-128%||Azul||-152%|
|VivaAerobus||$83||Japan Airlines||($636)||Air Canada||-129%||Bangkok Air||-176%|
|Air Arabia||$80||Air Canada||($760)||Norwegian||-151%||Garuda||-195%|
|Sun Country||$78||All Nippon||($863)||Garuda||-156%||Finnair||-205%|
|Cebu Pacific||$41||Air France/KLM||($1,242)||El Al||-277%||AirAsia||-338%|
|El Al||$39||IAG||($1,408)||Hawaiian||-287%||Cebu Pacific||-354%|
|Copa||$32||Lufthansa||($1,577)||Thai Airways||-310%||El Al||-374%|
|Jazeera||$20||United||($2,374)||Cebu Pacific||-336%||Thai Airways||-435%|
|AirAsia X||$14||American||($2,818)||AirAsia X||-712%||AirAsia X||-837%|
Source: Airline Weekly analysis of company reports.
Will the Pandemic Result in More Airline Consolidation?
- A Reuters story raised some eyebrows this week when it suggested that there could be more consolidation at the top of the U.S. airline industry. The article argued that, given market conditions, it would make “financial sense” for some combination of Delta, United, American, and Southwest to merge. Through its bailouts, the government owns a stake, so to speak, in the major airlines and could turn a blind eye to antitrust complaints if the recovery continues to be anemic, the article predicts. Despite the extraordinary circumstances, it’s hard to imagine the government allowing more consolidation. Even the Alaska-Virgin America merger a few years ago was thought to be a march too far. It’s unlikely that any of the top four carriers would be allowed to merge, but there may be scope for smaller airlines to join forces, industry analysts Airline Weekly spoke to say. But whether that happens this year remains to be seen.
- One upside to the pandemic — if there is such a thing as an upside to a pandemic — is that 2020 was one of the safest years in aviation history. There were fewer than half the number of fatal commercial airline accidents in 2020 compared with 2019, according to the Aviation Safety Network. The number of fatalities increased, attributable to the loss of a Ukrainian aircraft in Tehran and a Pakistani accident last year.
- Amsterdam’s Schiphol Airport reported 2020 traffic was down 71% compared with 2019, to 21 million passengers. The total number of aircraft movements fell by more than half to just under 230,000. The number of destinations fell by much less, to 316 from 332. Schiphol hewed to trends in another way: The number of cargo flights rose by 68% to 23,782, but the amount of freight handled fell by 9%, due to less belly-hold capacity.
- France could recapitalize Air France-KLM to help it adapt to a post-Covid world, the country’s transport minister said in a television interview. The deal would be contingent on reaching an agreement with the Dutch government and on the company’s future strategy. Air France has received more than $8 billion in government assistance since the pandemic began.
- India’s Tata Group is getting serious about acquiring beleaguered Air India. The Tatas launched Air India in the 1930s, but it was subsequently nationalized. The Indian government is expected to announce which bidders advance to the second phase of bidding for the Air India divestment. Meanwhile, the Tata Group has increased its holding in AirAsia India to 84%.
- The European Union and the UK have reached their Brexit trade deal, and airlines are allowed to continue operating more or less as usual. But ownership rules could pose a problem. Although the UK is allowing airlines to continue to operate even if they are not majority-British owned, EU rules require airlines to be majority-owned by EU nationals. Companies such as IAG, easyJet, Wizz Air, and Ryanair have made or are in the process of making structural changes to comply with European regulations. Now, the UK has to negotiate bilateral agreements with individual EU member states for non-scheduled flights and cargo.
- The blockade of Qatar came to an end, which means Qatar Airways once again can fly direct routes over several Middle Eastern countries. The yearslong blockade by Saudi Arabia, the United Arab Emirates, Bahrain, and Egypt over Qatar’s relationship with Iran and its promotion of its Al-Jazeera news network, among other issues, resulted in Qatar Airways having to fly circuitous routes in the region to operate its network.
- U.S. Transportation Secretary Elaine Chao resigned abruptly the day after pro-Trump rioters stormed and occupied the U.S. Capitol on January 6. “Yesterday, our country experience a traumatic and entirely avoidable event as supporters of the president stormed the Capitol building following a rally he addressed,” Chao wrote in a message to department employees posted on Twitter. “As I’m sure is the case with many of you, it has troubled me in a way that I simply can’t set aside.” Chao called her tenure at the department “the honor of a lifetime.”
Although lauded as a competent public servant — Chao previously served as Labor Secretary — her record on aviation issues has been thin, the industry has said. Air traffic control modernization did not advance meaningfully during her time, and she came under fire last year for refusing to issue a mask mandate for airlines and other modes of transit. In her message, Chao urged DOT employees to work with Secretary-designate Pete Buttigieg, whom Biden said he would nominate to the role in December.
- In other U.S. government news, President-elect Joe Biden named Boston Mayor Marty Walsh as Labor Secretary-designate. Prior to the mayoralty, Walsh served in the Massachusetts state legislature and led a Boston-area trade union. “Under Mayor Walsh, the Department of Labor will be well positioned to fight for working Americans who are the foundation of our great democracy,” the Air Line Pilots Association said. “As a former union worker, Mayor Walsh knows firsthand the challenges facing today’s workforce and ALPA is confident that he will remain a strong advocate for increasing labor opportunities.”
- A Sriwijaya Air Boeing 737-500 crashed off the coast of Indonesia on Saturday with 62 people (50 passenger and 12 crew) on board. There are thought to be no survivors. Authorities believe they have located the flight data and cockpit voice recorders. The aircraft is reported to have been more than 26 years old, but it had no known maintenance issues.
The question of whether travelers would board a Boeing 737 MAX again has plagued the airframer and airlines since the jet was first grounded more than 21 months ago.
Did Boeing need to rebrand the plane? Was a confidence-boosting ad blitz needed once the jet returned? All were posed during the nearly two years that the aircraft was idled, its problems identified, fixed and ultimately re-certified by the FAA in November.
The concerns were not unfounded. Numerous surveys found flyers wary of the jet whose systems were faulted in two crashes that took the lives of 346 people. In December, a Reuters/Ipsos opinion poll found that as many as 57% of respondents were not likely to fly on a MAX again. And just over a month earlier, Southwest Airlines executives said that only a “minority of customers” were uncomfortable flying on the jet.
American Airlines put the question to the test when it returned the 737 MAX to revenue service on December 29. In the week after it returned the aircraft to service, the Fort Worth, Texas-based carrier operated 14 flights with the B737 Max 8 between Miami and New York LaGuardia. Passengers were notified ahead of time that they were on the jet and everyone was given the option to change their travel plans — at no extra cost — to a flight operated by something other than a MAX if they preferred.
And what happened?
“We aren’t seeing data to suggest customers don’t want to fly the aircraft,” American spokesperson Sarah Jantz said. In fact, all but one of the flights flown between December 29 and January 4 were more than 90% full — an impressive number given the airline’s loads averaged just 65% during the first nine months of 2020.
But the fact that American’s first MAX flights were full may not tell the whole story. Flights on the first day of service carried numerous officials and aviation fans commonly known as “avgeeks.” And the days after covered the New Year’s holiday, including some of the busiest for U.S. airlines since the coronavirus pandemic began.
Few people are likely to make a significant change to their travel plans based solely on the type of jet once they are at the airport, Atmosphere Research Group President Henry Harteveldt said in an interview. Where people may opt for a non-MAX operated flights is during booking, he added.
“The truth is that far fewer people will actively avoid flying on the MAX than claim they will do so in a research study,” said Harteveldt.
And this is likely even with the majority of travelers checking what type of plane they are flying on before they travel. As many as two-thirds of business travelers and roughly half of leisure flyers check the aircraft, Atmosphere Research found in a 2019 U.S. travel study. However, most of these queries focus on what amenities are available, or whether the plane is a larger mainline model — think Airbus A320 or B737 — rather than a small, often cramped regional type.
During its first week back in U.S. skies, all accounts indicate that the B737 MAX performed as it should. All but one of American’s 14 flights arrived on-time or early, and none were cancelled, according to data from flight tracking website Flightradar24. The one delayed flight was due to the temporary closure of the Jacksonville Air Traffic Control Center for Covid-related cleaning on Monday.
Dennis Tajer, a spokesperson for the Allied Pilots Association that represents cockpit crews at American, said no pilots filed negative reports regarding the MAX during the week.
On Tuesday, American expanded its MAX operations to eight flights a day including ones between its Miami hub and New York JFK, Orlando and Washington Reagan National. Operations will expand to as many as 38 daily flights by February and up to 91 a day by the beginning of March.
American joined Aeromexico and Brazilian carrier Gol in resuming B737 MAX flights in December. Other operators plan to resume operations this year. In the U.S., United Airlines plans to reintroduce the jet on February 11; Alaska Airlines will debut it on March 1; and Southwest plans to bring it back sometime later in March.
And despite the grounding, the MAX stands to make up a significant portion of airline fleets in the years ahead. The coronavirus pandemic allowed many carriers, including American and Alaska, to accelerate the retirement of older, less efficient jets in favor of newer and most efficient models.
Many experts expect the Max to follow the trajectory of other jets that were grounded. For example, once the McDonnell Douglas DC-10 returned to service after a fatal crash and 37-day grounding in 1979, it continued to fly in U.S. fleets into the 21st century. Barring any further incident, the MAX will likely do the same.
“After this first couple of weeks of operations, we won’t hear much about the MAX if all goes well,” said Harteveldt. “And that’s a good thing.”
U.S. Charges Boeing With Fraud
- The U.S. Justice Department charged Boeing with fraud over the B737 MAX, and the airframer has agreed to pay a $2.5 billion penalty, which includes a cash settlement to families of those who perished in the Lion Air and Ethiopian accidents. The Justice Department said Boeing employees knowingly withheld information about the problems with the aircraft’s’ flight-control software from the FAA during the B737 MAX’s certification.
“Boeing’s employees chose the path of profit over candor by concealing material information from the FAA concerning the operation of its 737 MAX airplane and engaging in an effort to cover up their deception,” said Acting Assistant Attorney General David P. Burns. “This resolution holds Boeing accountable for its employees’ criminal misconduct, addresses the financial impact to Boeing’s airline customers, and hopefully provides some measure of compensation to the crash-victims’ families and beneficiaries.”
Boeing CEO David Calhoun said the resolution was “the right thing to do.”
Amazon Acquires 11 B767-300s
- Amazon added to its growing fleet of cargo aircraft with 11 Boeing 767-300s, its first-ever aircraft purchase. The company acquired seven aircraft from Delta, which will undergoing passenger-to-freighter conversions before joining the operational fleet in 2022. Four aircraft bought from WestJet are being converted and are expected to join the fleet this year.
“Having a mix of both leased and owned aircraft in our growing fleet allows us to better manage our operations, which in turn helps us to keep pace in meeting our customer promises,” Sarah Rhoads, Amazon Global Air vice president, said. The aircraft will be operated by third-party carriers, and Amazon says it will announce which carriers will fly the freighters later this year.
Amazon expects to have a total of 85 aircraft in its fleet by the end of 2022. Last year, Amazon opened a freight hub in Leipzig, Germany, and runs freight operations at New York Kennedy, San Francisco, Chicago O’Hare, and other airports in the U.S.
Denver, Houston, Miami and Seattle are all cities that will see an influx of new Boeing 737 MAX flying over the next few months as U.S. airlines slowly reintroduce the jet to their fleets.
United Airlines will become the second U.S. carrier resuming MAX flights next month. The Chicago-based carrier will deploy its 737 MAX 9 jets on 12 routes from its Denver and Houston Bush Intercontinental hubs beginning February 11. Beginning with an early morning departure from Denver to Houston, the airline will operate the MAX on select flights between Denver and Fort Myers, Las Vegas, Orlando and Sacramento; and Houston and Chicago O’Hare, Fort Lauderdale, Las Vegas, Los Angeles, Newark, Orlando and Phoenix.
Alaska Airlines will follow United with MAX flights launching on March 1. With none of the type in its fleet prior to the grounding, the day will mark the debut of the type at the Seattle-based carrier. Alaska will initially fly the 737 MAX 9 on eight daily flights from Seattle to Los Angeles and San Diego, and Portland to Los Angeles.
The largest U.S. MAX operator, Southwest Airlines has yet to detail its return-to-service plans for the plane. The Dallas-based carrier has said it will resume flights on the 737 MAX 8 in March.
Alaska, United and Southwest all follow American Airlines, which was the first U.S. carrier to put the MAX back in the air. The Fort Worth, Texas-based carrier reintroduced its 737 MAX 8s on a single round-trip between Miami and New York LaGuardia on December 29. American expanded its MAX operations to flights from Miami to New York JFK, Orlando and Washington Reagan National on January 5, and to Boston and San Juan on January 7, according to Cirium schedules. By March 3, it will fly the aircraft on 27 routes covering more than 90 flights a day from both Miami and New York JFK.
Aeromexico and Gol also resumed 737 MAX flights in December, and Copa Airlines in January. And pending final sign off on the jet’s re-certification by Canadian regulators, WestJet plans to re-introduce the MAX on three-flights-a-week between Calgary and Toronto Pearson on January 21.
- Alaska continues to diversify its flying from California with two new routes. The airline will connect Los Angeles with Austin from March 18, its sixth route from the Texan tech center. A new flight between San Diego and New York JFK begins April 4. The routes follow the addition of dozens of new services in 2020 as Alaska diversified its network amid the crisis.
- Once known for its careful, measured expansion, Southwest is up to 12 new destinations added during the pandemic. Fresno and Santa Barbara in California will join the airline’s network in the second quarter of 2020. The cities are the largest markets unserved by Southwest in the Golden State after Palm Springs where it began flights in November.
- In response new onerous Covid-19 restrictions for travelers arriving in Canada, WestJet will slash planned capacity by 30% in February and March. All flyers must test negative for the virus and quarantine for 14-days under new rules implemented by Transport Canada on January 7. As a result, WestJet will suspend 11 international routes and temporarily close 13 stations, including: Antigua, Aruba, Barbados, Bonaire, Huatulco, Ixtapa, London Gatwick, Mazatlán, Nassau, Port of Spain, San Jose (Costa Rica), Tampa, and Turks and Caicos.
We all know last year was awful for airlines. What will this year bring?
At this time in 2020, the airline industry was preparing for another year of record-setting profits and traffic. They were in an arms race to add more premium services and products and — which now seems quaint — were focusing on other customer amenities, like faster Wi-Fi. And then the pandemic hit and the floor went out from under them. We all know how that story has gone.
But it’s instructive to remember that when the first sirens were sounded early in 2020, the conventional wisdom was that the industry would be back in growth mode by the end of that year or, at the very latest, by the first quarter of this year. And over the summer, signs of a recovery led by leisure traffic gave the industry hope. Despite another traffic bump over the holidays, it’s becoming increasingly clear that a recovery to 2019 levels is still some years off.
It’s also instructive to remember that year-over-year comparisons will quickly become less useful. The quarterly results airlines are about to announce will be the last that provide a meaningful comparison to pre-pandemic earnings.
So what does 2021 hold for U.S. airlines? Airline Weekly asked a number of analysts to look into their crystal balls and here’s what we found out.
1) It all depends on the trajectory of the disease: Coronavirus infections in the U.S. are reaching record highs, and more people are dying per day than in any other point in the almost year-long pandemic. The Trump administration’s rollout of vaccines has been fraught with problems, resulting in too few people being vaccinated. One estimate suggests that at the current pace of vaccinations, it could be up to 10 years to reach herd immunity through vaccinations in the U.S. President-elect Joe Biden has pledged to speed the process up, but much remains unclear.
One thing is clear: Demand will not return in any meaningful way until the vaccines are widely distributed. Of course, the disease could be contained in other ways. China has managed to contain the disease, and its domestic airline industry is almost back to where it was before the pandemic (international flights are another story). But given how the disease has spread in the U.S. and political opposition to public-health measures like masks and social distancing, it remains unlikely that the country will contain the disease without a vaccine, at least in the near term.
And that’s another point to consider. The U.S. has had no centralized response to the disease, leaving states to determine their public-health measures. This has led to a patchwork that airlines find hard to navigate, from the extremely strict lockdowns in Hawaii and California, to no statewide restrictions in several states. It remains unclear what, if anything, the incoming administration can do to change that.
Testing can help get some traffic back in the air, but this also needs to be coordinated. Effective tests need to be fast and cheap. Business travelers will be less likely to get back out on the road if they have to take a $200, 72-hour test every time they fly.
“Demand will come back when things open up and when vaccines are widespread,” said Cowen & Co. airlines analyst Helane Becker. “2021 will be a transition year, and 2022 may be a transition year if things don’t open up.”
2) Leisure travel leads the way, and business travel is segmenting: One throughline of the pandemic has been that leisure and visiting friends and relatives (VFR) traffic has recovered much more quickly than business traffic. Analysts say there is no reason to think that will change this year. Pent-up demand to visit friends and family manifested itself during the Thanksgiving and Christmas holidays, and it’s likely that vacation traffic will pick up during spring break in a few months. What the summer will look like is anyone’s guess, but it’s likely that leisure travel will pick up.
Business traffic won’t recover until companies feel safe putting their employees back on the road and until the logistics of testing and navigating lockdowns become clearer. Airline CEOs say it’s likely that a certain percentage of business travel is gone forever, killed off by Zoom and other technologies. Even after vaccines are widespread, companies are likely to scrutinize every trip more closely than they would have before the pandemic.
Airline leaders are starting to talk about business travel differently. They now segment the market more formally into “large-company” business travel and “small- and medium-sized” business travel, when before the distinction was made between companies that had corporate accounts and those that didn’t. Why are they doing this? Because small- and medium-sized businesses are the starting to let their employees travel again.
All of this — the strength of leisure and VFR traffic and the relative weakness of business travel — has affected yields. Leisure fares have dropped between 10-15% since the pandemic began. High-yield last-minute business fares are all but gone. It’s likely that yields will start to recover in the second half, but Raymond James analyst Savanthi Syth predicts yields probably won’t go back to 2019 levels until 2023.
3) Network planning remains a mystery: Before the pandemic, data drove airline route planning. Using data from last year to determine potential demand or, for an existing route, frequencies is useless. Airlines have to go back to 2019 for more accurate data, and that may not reflect current realities.
Instead, airlines are trying whatever they can to chase demand. This explains why Southwest is focusing on sun and ski destinations; why United is operating non-hub routes; why JetBlue has made changes to its California network, and so on. “Airlines have relaxed the rigor,” said Craig Jenks, founder of the Airline/Aircraft Projects consultancy. “There are too many variables to plan.”
But one thing is true. Airlines can’t afford for a route not to be profitable from day one. Before the pandemic, airlines could let a route develop over months — or longer, for an international route. “Airlines will not be able to test a market,” adds Becker. “They have to start thinking differently about this business.” International route planning will depend on easing lockdowns and quarantines and the eventual return of demand. Airlines may be less eager to explore new international routes and may depend on airline partners, rather than operating their own metal on an untested route.
4) More Aid? More Consolidation? The U.S. government has provided two rounds of support to the airline industry, first through the CARES Act early in the pandemic and again at the end of last year. With these funds, airline employees are recalling some furloughed employees and have the funds to pay them through the end of March. But what happens on April 1? Most airlines expect to be between 10-20% smaller through 2021 and possibly longer. Will employees be furloughed again? Will the industry appeal for another round of aid? It’s looking increasingly likely that the second round of funding won’t float airlines long enough to last until demand returns.
The issue, Becker points out, is that airlines don’t really have a cost problem. Airlines spent much of 2020 cutting excess costs and reducing headcount through voluntary separation programs. Instead, they have a revenue problem. People simply aren’t flying. More government aid at this point doesn’t address the revenue problem. “It doesn’t help to give airlines money if everything is closed and people aren’t traveling,” she said.
The industry has turned to mergers in past downturns, but that’s probably not an option now. The conventional wisdom holds that there is little regulatory appetite for more consolidation, especially with the incoming administration. But never say never, Syth said. “If things get much worse and it takes longer to recover, then the chances of [mergers and acquisitions] increase.” This probably won’t occur among the biggest airlines — Delta, American, United, and Southwest as they are now are the products of recent mergers, after all. But perhaps there’s room for more consolidation in the second tier.
But maybe we’ll see more partnerships instead of mergers. American’s partnerships with JetBlue and Alaska give it some of the benefits of a merger without the complexity (but also presents the complexity and the uncertain success of codesharing).
In other words, the crystal ball provides little clarity. Anything is possible, but everything depends on the trajectory of the disease and how comfortable people will be with traveling. “This year will be a roller coaster,” Syth said. Buckle up.