Issue No. 811
The Pandemic's Network Legacy
The pandemic prompted some out-of-the-box network changes at U.S. airlines, but are they here to stay?
Pushing Back: Inside the Issue
Airline networks have changed as a result of the pandemic. Some were clear money grabs — United flying from cities in the Upper Midwest to Florida in the winter — but others are more strategic, like JetBlue moving its Southern California base to LAX. We dive into what's likely to stick around and what's not since Covid-19 grounded most fleets a year ago in the Feature Story this week.
Elsewhere in the issue, Delta sees possible profits this fall but is still awash in red ink as lucrative business travelers continue to sit out the recovery. Airbus continued to outpace Boeing in the delivery race, and Air France-KLM shareholders France (the country) and China Eastern are on track to increase their holdings in the Franco-Dutch company with a new $1.1 billion capital increase. And in Canada, while aid is beginning to flow, Air Canada and WestJet delayed their return to lucrative sun spots as travel restrictions remain.
"Our customers are reclaiming their lives, air travel will be central as people reconnect with loved ones and business colleagues replacing their screens with real human touch points as they venture out of their homes and communities to experience the world again."Delta CEO Ed Bastian
The Airline Weekly Lounge Podcast
New episodes drop every week and are available wherever you get your podcasts and on AirlineWeekly.com. In the latest podcast, Edward "Ned" Russell and Madhu Unnikrishnan talk all things Canada, and Ottawa's new financial support for Air Canada with more funds — maybe — coming for its competitors. Listen to the episode.
With bookings rising and demand for leisure travel surging, the recovery is within sight for Delta Air Lines, which now says it will return to profitability by the third quarter of this year. But that’s the future. The present for Delta, like for all of its competitors, is stained with red ink.
The Atlanta-based carrier made news last week when it said from May 1 it would no longer block middle seats, a coronavirus-mitigation tactic that Delta will be the last to abandon. This despite the U.S. Centers for Disease Control and Prevention reporting this week that an empty middle seat reduces virus transmission. Still, Delta CEO Ed Bastian believes that by May 1 enough of the population will be vaccinated to make selling the middle seat safe again.
The move to unblock the middle seat will almost immediately increase Delta’s capacity and help its bottom line. The policy cost Delta between $100-150 million in March alone, President Glen Hauenstein told analysts during Delta’s first-quarter earnings call last week. When it goes back to selling middle-seat tickets, Delta will increase the number of seats available to sell by almost one-third. Because of the policy, Delta had been operating more flights during the pandemic than its competitors, so opening up the middle seat will allow it to serve the expected surge in summer capacity without having to put more aircraft in the sky, Bastian said.
As to the summer, Delta is licking its chops. Summer 2021 will not be summer 2019, but it could be close. Bastian expects demand to surge as a population that’s largely been cooped up for 13 months resumes taking summer vacations and visiting family and friends. “Our customers are reclaiming their lives, air travel will be central as people reconnect with loved ones and business colleagues replacing their screens with real human touch points as they venture out of their homes and communities to experience the world again,’ he said.
Bookings are up and the window is lengthening, Bastian said. In other words, customers are increasingly confident about the future to plan holidays further out than they had during the height of the pandemic. Travel restrictions are easing as states drop quarantine requirements and lift shelter-at-home rules. Furthermore, consumers have saved a record amount during the pandemic, and Delta executives believe they will be eager to spend those savings on leisure travel. Bastian also noted that Delta’s hubs on the coasts and in the Mountain West position it well to take advantage of the expected boom in travel to outdoors-leisure travel destinations.
The company is well positioned to increase — or decrease, if necessary — the number of flights it operates to match demand, Bastian said. Government payroll support has let Delta maintain staffing. The company is recalling more than 1,000 pilots in anticipation of the summer surge. But executives noted that recent cancellations during the Easter holiday weekend were not due to insufficient staffing but to scheduling issues,
Notably muted in Delta’s planning is business travel, a sector that generated much of its — and its competitors’ — profits before the pandemic. Business travel is about 20 percent of pre-pandemic levels, which is better than it was at the end of 2020, when corporate travel was about 15 percent of 2019. Hauenstein said one-third of Delta’s corporate customers expect to resume some travel by the next quarter, but the recovery won’t begin in earnest until after September’s Labor Day holiday. Much of this recovery will depend on the pace of vaccinations and whether companies continue reopening offices. Small- and medium-sized businesses have sent employees out on the road more than large companies, and this trend is expected to continue. Travel to trade shows and conferences is expected to recover last, he said.
International travel also is a fraction of what it was in 2019. Bookings are between 15-25 percent of pre-pandemic levels now and will only change as countries ease travel restrictions. Bastian believes U.S.-Europe traffic will recover first. A U.S.-UK travel corridor could “possibly” begin by the early summer, he said. The next region to recover will be travel to Latin America, provided countries in that region can control the virus and step up vaccinations. It will probably be a “year or more” until travel to the Asia-Pacific region returns to 2019 levels, he said.
When that travel does return, though, it will be to a vastly different market. The U.S. has been generous with aid to the airline industry. Other countries have not. Several of Delta’s international competitors, like Norwegian Air, have declared bankruptcy. This could redound to the U.S. airlines’ benefit when travel resumes, he said.
Delta’s daily cash burn for the quarter was $11 million per day, down from $12 million per day at the end of last year. Notably, however, the company’s cash burn turned into cash generation, earning $4 million per day. “Our cash flow and earnings [are] close to inflection,” said Chief Financial Officer Garrett Chase.
Delta generated a fair amount of controversy this month when Bastian, after facing blowback for a tepid initial response, came out publicly against a new voting law in Georgia that critics say restricts access to the polls. Senate Minority Leader Mitch McConnell (R-Ky.) and other Republicans reacted furiously to Bastian’s criticism, saying companies should stay out of politics. Georgia state lawmakers have threatened to revoke a jet fuel-tax exemption that could cost Delta up to $35 million this year. But Bastian said consumer sentiment has not been affected, despite Republican calls to boycott the airline. Bookings have remained steady.
Another controversial topic Delta waded into in recent years is government subsidies for Qatar Airways, Emirates Airline, and Etihad Airways. Bastian led the charge in the U.S. to argue that state aid to those airlines distorted the market. But Delta this year has benefited from the more than $70 billion the U.S. government has funneled to the airline industry. The U.S. aid was to stabilize the airline industry during an emergency, he said, while state aid to the Middle Eastern carriers was aimed to help them grow. “I don’t think [U.S. aid] changes the character of what our issues were in the past,” Bastian said.
Delta reported a $1.5 billion first-quarter loss on revenues of $4.2 billion, down 65 percent from March 2019. (Airlines are comparing this year’s results with 2019, as they began to experience the pandemic’s effects in March of last year.) The company’s first quarter loss was offset by $1.2 billion in payroll support from the federal government. This benefit will continue, as Bastian confirmed the company will take payroll support funds provided in the most recent round of coronavirus economic aid. Capacity fell by 55 percent from 2019. Bookings are approaching 85 percent of 2019 levels, and with the resumption in selling middle seats, Delta expects revenues to be 45-50 percent of 2019 in the third quarter.
Ottawa Lends Air Canada a Lifeline
Since the pandemic began, Canadian carriers have lobbied the federal government to provide aid to the industry, but other than supporting laid-off airline workers through existing unemployment assistance programs, Ottawa has stayed on the sidelines. That changed last week, when the federal government extended an $4.7 billion (CAD$5.9 billion) aid package to Air Canada.
The aid package comes from the government’s Large Employer Emergency Financing Facility, a program of the Canada Enterprise Emergency Funding Corporation.
Ottawa’s hesitance to provide support for the country’s airline sector has stood out among developed countries. The U.S., by contrast, has provided $74 billion in airline-industry support through the CARES Act last March and two subsequent coronavirus economic stimulus packages. France, last week, provided additional aid to Air France after it, and most other European countries, extended relief to their airlines last summer.
“Canada’s major airlines are still operating without sector-specific aid and are consequently losing market share to foreign competitors who have received strong sectoral support from their governments,” National Airlines Council of Canada (NACC) President Mike McNaney said in January to press the government to support airlines.
But this could change. The country’s other carriers said they are in talks with the federal government for more aid. Sources close to those discussions have said a broader airline-specific airline bailout could be part of the 2021 federal budget, which Prime Minister Justin Trudeau’s government is expected to deliver to Parliament this week.
As part of the aid package, Air Canada will issue warrants worth up to $399 million of its shares to the Canadian government, which the state can later sell for a profit if the carrier’s fortunes reverse. The Montreal-based carrier reported losses of $3.7 billion last year. Canada’s government could own up to 10 percent of the carrier. Air Canada CEO Michael Rousseau called the aid package “insurance” that that will allow the struggling carrier to recover from the collapse in travel demand.
Air Canada has reduced its workforce by 22,000 employees since the pandemic began. For the most part, those workers are eligible for Canada’s wage support program, separate from airline-specific aid. The new aid package requires Air Canada to keep the 15,000 employees it had on April 1 but it does not require the carrier to recall furloughed workers.
By taking the funds, Air Canada agreed to restore service to more than a dozen cities that it suspended from its route network, and to offer refunds to all travelers who canceled their non-refundable tickets since the pandemic began last year.
Air Canada also has recommitted to its order for 33 Airbus A220s — formerly Bombardier CSeries jets —manufactured in Mirabel, Quebec. “For our economic recovery and to build back better, we need a strong Canadian air sector that creates good jobs, grows the economy and helps connect communities across Canada,” Transport Minister Omar Alghabra said.
Until now, the federal government had not made it easy for Canada’s struggling airlines. The U.S. border remains largely closed. International traffic has all but evaporated. And in January, the government imposed among the strictest travel restrictions in the world, requiring incoming passengers to present proof of a negative Covid test and also to quarantine, at great expense. At the time, the NACC decried the quarantines and renewed calls for federal aid for the industry.
A WestJet spokesperson said it has operated “self-sufficiently” since the pandemic began, and already has pledged to restore its entire pre-pandemic route network of 42 cities. The Calgary-based carrier is in talks with the government on a safe travel restart but did not specify if it is also seeking an aid package. WestJet is said to be in talks with the government for an aid package, a person familiar with the matter said.
Porter Airlines, which has not operated since last March and this week said it will delay its restart until at least June 21, lauded the “strong step” the federal government took with its aid to Air Canada. “We look forward to a broader industry solution being finalized as part of our continuing discussions with the government,” a spokesperson said.
Connect Wants to be the 3rd U.S. Startup This Year
The coronavirus pandemic has proved a double-edged sword for airlines. While many carriers have faced the toughest challenges in their history, others are using those same struggles as an opportunity to expand — or start an entirely new airline.
The list of new startups in just the U.S. alone keeps growing. After a decade of little new competition, Avelo Airlines will begin flights at the Burbank airport in Southern California on April 28; David Neeleman’s latest venture Breeze Airways plans to launch soon after; and now Connect Airways has joined the list with a launch targeted for October.
Owned by Massachusetts-based Waltzing Matilda Aviation, Connect plans to connect Toronto’s Billy Bishop Airport with major U.S. Midwestern and East Coast cities. It has lease agreements in place for two de Havilland Dash 8-400 turboprops and plans to expand its fleet to five aircraft following its launch. And on the certification front, Waltzing Matilda is in the process of converting its FAA Part 135 certification — the company has flown private charters since 2008 — to Part 121, which would allow it to operate scheduled commercial flights.
“We’re trying to ride the wave of the recovery,” Waltzing Matilda CEO John Thomas told Airline Weekly. “There’s a quiet confidence, certainly in the U.S. market, more than some people give credit to.”
Among reasons to start an airline now include the availability of cheap, abundant aircraft. To cite one example, more than 50 Dash 8-400s are now available that were formerly flown by Flybe before it became the first airline Covid-19 casualty in March 2020. Talent is available from the ranks of former airline employees either furloughed or laid off during the downturn. And lower traffic levels that have opened slots and facilities at otherwise busy airports to new entrants, including at Connect’s planned Billy Bishop base.
A spokesperson for Billy Bishop operator PortsToronto said the airport has slots available and would “welcome” new competition.
But the curious thing about Connect is not its plan to ride the recovery, or even the fact that it is a U.S. company planning a base in Canada’s largest city. It is the fact that there is — or maybe was — already a Dash 8-400 operator connecting Billy Bishop to major eastern U.S. cities: Porter Airlines.
“Porter has done a nice job serving the market there, but we think we can do a better job serving the U.S.,” said Thomas. He added that Porter does well connecting Billy Bishop to points in Canada — something Connect cannot do as a foreign carrier — than flying to the U.S.
What he did not say was that Porter has been grounded since March 2020, when it suspended flights during the early days of the crisis. Amid questions over whether it will ever resume flights, the Toronto-based carrier recently pushed its planned restart to June 21 — the umpteenth postponement in the what has become something of the ultimate rolling delay.
“We are looking ahead to summer and preparing for the possibility of some travel restrictions unwinding,” Porter CEO Michael Deluce said in a statement Monday citing the possibility of eased travel restrictions. “We will begin the process of rebuilding our operations as soon as conditions allow based on government decisions.”
The U.S.-Canadian border has been closed to most travelers since early in the pandemic.
There is also the fact that Thomas, a former Virgin Australia executive, briefly sat on the advisory board of Billy Bishop terminal operator Nieuport Aviation for six months in 2018 and 2019. This has raised questions among some whether he has an inside understanding on operating an airline base at the airport.
Asked about his involvement with Nieuport, Thomas said he does not believe it raises any concerns given his brief tenure and the more than two-years since he left the board.
Whether or not Porter returns to the skies, Thomas thinks Connect can do a better job moving U.S. travelers — particularly ones with strong frequent flyer loyalty — to Billy Bishop. The start-up is in talks with major U.S. carriers regarding loyalty and codeshare partnerships, he said without naming names.
It is no secret that Porter’s relationships south-of-the-border were limited. Its only U.S. partner is JetBlue Airways, though the pact did not include a codeshare or reciprocal frequent flyer benefits. Connect’s strategy appears to be a closer tie-up with a major U.S. carrier than the one between JetBlue and Porter — something that would likely include both a codeshare and loyalty benefits.
Thomas was also mum on Connect’s first destinations. They will depend on what slots the start-up can secure at Billy Bishop, he said. However, Thomas added that there is potential for service to up to 25 U.S. cities within roughly 700 miles from Toronto — for example Charlotte, Minneapolis/St. Paul and Nashville.
But Connect has a lot to do before it can apply for slots. It first needs to complete the conversion of its FAA certificate to Part 121 a process that began in December, and then Transport Canada must authorize it to serve the country. Only after that can it officially approach PortsToronto.
The venture is currently self-funded by Waltzing Matilda’s existing private charter business. However, Thomas said it is in the process of attracting outside investors.
“We’re well on track,” he said.
In Other News
- Bankrupt Avianca is on track to exit Chapter 11 this year according to an investor update last week. As part of its restructuring, the Bogotá-based carrier has slashed annual operating expenses by $500 million, and cut aircraft debt and lease obligations by $2 billion over the two-year period ending in 2022. In addition, Avianca aims to raise $1.8 billion in bankruptcy exit financing that it will use to boost liquidity and refinance the debtor-in-possession funds it borrowed in Chapter 11.
- Norway’s bankruptcy courts have approved Norwegian Air’s restructuring plan, allowing the company to raise more than NOK6 billion ($710 million) or about NOK4.5 billion more than it had originally planned. As part of its restricting plan, Norwegian Air has reduced its debt by NOK62-65 billion and its aircraft orders by NOK85 billion, the company said in a notice to the Oslo Stock Exchange. The plan requires Norwegian Air to end its long-haul ambitions and focus on short-haul Nordic and European routes.
- Ryanair is taking its fight against European countries’ state aid to airlines to the European Court of Justice. At issue is aid from Finland, Denmark, and Sweden to Finnair and SAS. Finland provided Finnair with €1.2 billion ($1.4 billion) in state aid since the start of the pandemic, while Denmark and Sweden gave SAS €1.3 billion ($1.6 billion), all approved by the European Commission. “If Europe is to emerge from this crisis with a functioning single market, airlines must be allowed to compete on a level playing field,” Ryanair said. “Undistorted competition can weed out inefficiency and benefit consumers through low fares and choice. Subsidies, on the other hand, encourage inefficiency and will harm consumers for decades to come.”
- The U.S. Justice Department (DOJ) is reviewing the controversial “Northeast Alliance” between JetBlue and American, which the Transportation Department approved earlier this year, the Wall Street Journal first reported. Spirit and Southwest are among the airlines that objected to the partnership, arguing that two carriers would dominate at congested airports like New York Kennedy, LaGuardia, Boston, and Washington Reagan National. It remains unknown what way DOJ’s antitrust review will go, especially in the new administration.
Both JetBlue and American have defended the alliance, arguing that it will bring more choices for consumers and would reduce fares.
“Through the Northeast Alliance, we finally have immediate and long-term growth opportunities that will bring lower fares, more options and JetBlue’s great service,” a JetBlue spokesperson said. “Through this unique alliance, we are also able to bring benefits to more customers in the northeast than JetBlue could reach alone.”
“After a transparent and exhaustive months-long review by the Department of Transportation, which included input from customers and industry competitors, both airlines made a series of commitments to ensure the alliance delivers those benefits, and increases competition and travel options for consumers,” an American spokesperson added.
- People around the world may be done with the coronavirus, but the coronavirus is not done with us. That is the cautionary tale emerging from Brazil, home to one of the world’s worst Covid surges. Part of the blame for the most recent surge lies with the government of President Jair Bolsonaro, who has consistently downplayed the severity of the disease, and part with the virus itself, which has mutated and spawned more infectious variants.
In December, Brazil’s Gol and Azul reported that capacity was almost back to 2019 levels. By last month, however, things had changed. Gol said in an investor update that its March capacity was down 31 percent from February. Searches for future travel on the airline’s website were down 25 percent in March, suggesting the near-term is not looking good. More will be revealed when the two airlines report earnings.
- Former United Express operator ExpressJet Airlines hopes to resume flights this year. The regional airline is seeking U.S. DOT sign off to begin flying point-to-point routes between small- and medium-sized cities with up to 10 Embraer ERJ-145s in the second quarter, it said in a regulatory filing last week. ExpressJet stopped flying in September as United moved to streamline its regional affiliates during the crisis.
- Air France-KLM will raise at least €968 million ($1.16 billion) through a private placement of new shares. The Franco-Dutch group will issue at least 200 million new shares at €4.84 each — a price at the low end of initial guidance — for net proceeds of roughly €958 million. However, as many as 214 million shares could be issued if investors exercise options. The French state and China Eastern Airlines have committed to subscribing to as many as 96 million and 23.9 million shares, respectively.
- Airlines are still seeking any cost savings they can, even budget carriers that appear poised to emerge from the crisis stronger than when they went in. That’s the case with Mexican discounter Volaris, which eked out $87 million in additional working capital relief during the first quarter, just shy of its $100 million goal. The savings came as the airline’s revenue seat kilometers (RSKs) were down just 14 percent in March compared to 2019. And Cirium schedules show Volaris flying nearly 7 percent more capacity in April than two years ago.
Airbus beat Boeing in March deliveries by several dozen aircraft. The European airframer delivered 72 commercial aircraft in the month to 34 customers. These deliveries were comprised of four A220s; 57 A320neos and three A320s; and eight A350s. In the year to date, Airbus has delivered 125 commercial aircraft.
Boeing, on the other hand, delivered 29 aircraft in March: 19 737 Maxes; two 777-300ERs; three freighters (two 767-300Fs and one 747-8F); three military 737-800s. In addition, deliveries of the 787 resumed in March, with two 787-9s to United Airlines. The 787 had faced production issues earlier this year that required further inspections and delayed deliveries.
Meanwhile, some of the company’s 737 Max aircraft remain grounded. Boeing told 16 worldwide operators of the type that certain Max aircraft may require further inspections of their electrical systems. In the U.S., Alaska, American, Southwest United confirmed that they had grounded more than 60 of the type.
Separately, Boeing Capital in a report found that aircraft financing came to $59 billion last year, down 40 percent from 2019. Lessors will be more important as the industry grows out of the pandemic. Almost half of the world’s fleet now is owned by lessors and this ratio is expected to increase. During the crisis, airlines turned to commercial banks, and long-term debt became less important. And export credit agencies, like the Export-Import Bank of the United States, continued playing a small “but important” role in aircraft financing, the report said.
- LATAM Airlines bankruptcy restructuring continues with plans to dump its fleet of Airbus A350s. The carrier will remove the 10 A350-900s operated by its Brazilian subsidiary in favor of a widebody fleet made up of Boeing 767s, 777s and 787s. The timeline for removing the A350s is not set pending court approval, a LATAM spokesperson said. At the end of 2020, the airline operated 28 767-300ERs including freighters, 10 777-300ERs, and 22 787-8s and -9s.
- United Airlines unveiled a new plan that would source 3.4 million gallons of sustainable aviation fuel for the carrier this year. The plan is in partnership with several companies, including Nike, Siemens, and Deloitte, that will help fund the 3.4 million gallons of fuel. Customers also can buy sustainable aviation fuel when they book tickets on United. The goal is ambitious, but CEO Scott Kirby admitted that 3.4 million gallons is “less than 1 percent” of United’s fuel needs.
- Even with the possibility of state aid in Canada’s 2021 federal budget, Air Canada and WestJet has extended flight suspensions to the Caribbean and Mexico. The former through the end of May, and the latter through June 4. Both suspended flights to the popular destinations for leisure travelers at the end of January and had planned to resume service by April 30. However, Canada has yet to remove its travel restrictions that include both negative Covid-19 tests and quarantines.
- Air France hopes to add a link to Denver — the “Mile High City” — in July. The SkyTeam Alliance carrier plans to connect the Mile High City to its Paris Charles de Gaulle hub with a Boeing 787-9 from July 2. But don’t get your hiking boots out yet, the flight is subject to an easing of travel restrictions between Europe and the U.S. Norwegian Air last flew the Denver-Paris route but exited the market as part of the closure of its long-haul business in January.
- Etihad Airways‘ equity alliance strategy continues to break with the news that Air Seychelles wants out. The Seychelles government is finalizing plans to buy Etihad’s stake in its nakesake carrier and turn it into an entirely nationalized airline. The purchase would likely end Etihad’s partnership with Air Seychelles when complete.
- Airlines are in a frenzy with new leisure-oriented routes this summer with American Airlines adding to the fray. The carrier plans Saturday-only nonstops between Orlando and Birmingham, Ala., Dayton, Indianapolis, Louisville, Memphis, Nashville, Pittsburgh and Raleigh-Durham, as well as between Austin and Nassau from June 5. In addition, American will connect Nashville and Raleigh-Durham daily from June 2.
- Newly public Frontier Airlines is on a growth tear. Fresh off unveiling more than a dozen new routes at the beginning of April, it has added seven more new destinations to its summer roster: Anchorage; Durango and Grand Junction, Colo.; Kalispell, Mont.; Nassau; San Jose, Costa Rica; and St. Maarten. The latest additions complement 16 new routes across its network, including Denver to Anchorage, Durango, Grand Junction and Kalispell; and Miami to Myrtle Beach, Nassau, San Jose and St. Maarten. The new service begins in June, except the San Jose and St. Maarten routes that begin in July.
- JetBlue Airways may not be joining Oneworld but it certainly is expanding its relationships with the alliance’s members. The carrier will add its “B6” code to Qatar Airways flights on 17 routes under an expanded codeshare partnership. JetBlue will market Qatar flights from nine U.S. gateways, including Boston and New York JFK, to Doha, as well as on eight routes beyond Qatar’s hub, including to Entebbe, Uganda, Kuala Lumpur, and the Seychelles. Qatar already places its “QR” code on more than 70 routes operated by JetBlue.
- Southwest Airlines has unveiled its routes from Eugene, Ore. The airline will connect the city, which is home to the fleet-footed University of Oregon track and field team, to Las Vegas and Oakland from August 29.
Allegiant and the union representing its 415 mechanics reached an agreement on the workgroup’s first ever collective bargaining agreement. The agreement in principle now must be finalized by the union and Allegiant, before going before members for a ratification vote this July, the Teamsters said. “It wasn’t always easy to negotiate a contract in the middle of a pandemic, but those involved on both sides of the table worked hard to make it happen and that hard work paid off,” David Bourne, director of the Teamsters Airline Division said.
The Teamsters represent Allegiant’s pilots and dispatches and were certified to represent mechanics in 2018. Negotiations on the first agreement for the mechanics began in 2019, but talks were called off last year due to the pandemic.
“I applaud this important milestone and look forward to finalizing the first contract with this critical, skilled group of team members,” Allegiant CEO Maurice Gallagher said in a statement.
In Other Labor News
- Anticipating a surge in summer demand, Southwest is recalling 2,700 flight attendants who were on voluntary extended leaves of absence. The flight attendants will rejoin the airline on June 1. The carrier, remember, downsized last summer by offering employees voluntary separations or extended leaves of absence. Earlier this month, Southwest recalled 209 pilots. The pilots and flight attendant recalls are to “position Southwest for planned flight increases in the summer schedule,” a spokesperson said. “The flight increases are based on improvements in leisure travel demand.” After the recalls, Southwest still will have more than 11,000 employees on extended leave, including more than 850 pilots.
- Atlas Air, which operates passenger charters in addition to cargo flights, and its 400 flight attendants have a new contract. Flight attendants, represented by TWU, ratified the five-year deal last week. This is the first contract for the workgroup since it organized with the TWU.
It was clear things had changed when the coronavirus pandemic forced airlines to put down most of their fleets a year ago. Not only did health and safety become paramount as the airborne Covid-19 virus spread, but airlines’ planning playbooks were also out the window.
Nowhere have the network changes been more dramatic than in the U.S. A mature — and highly profitable — market prior to the crisis, the country was dominated by three large hub-and-spoke carriers and one large nationwide point-to-point carrier. Few people living in, say, Bozeman, Mont., would have imagined any significant changes to their flying options in the near future had you asked them in January 2020.
Bozeman has been the welcoming recipient of 13 new routes and one, big, new carrier — Southwest Airlines — during the pandemic. From boasting almost exclusively connections to Western hubs, the Montana city now has nonstop flights at least of the year to places as far afield as Charlotte, Fort Lauderdale and Nashville, according to Cirium schedules. And in April, seats will be a quarter — yes, 25 percent — higher than they were in 2019.
The Montana city is part of a larger pivot U.S. airlines made to flying almost entirely leisure travelers to outdoor-oriented destinations in the past year. A weekend shopping and taking in a show in New York was replaced by a Florida beach or hiking in the Rockies. In the first quarter, while overall U.S. domestic capacity was down 35 percent, capacity to the mountain region — including Colorado, Montana and Utah — was down just over 21 percent, the lowest of any region, Cirium data show. Capacity to the Mid-Atlantic, which includes New York and Washington, D.C., was down more than 53 percent.
“I’m happy to play offense,” Southwest CEO Gary Kelly said in October on the airline’s expansion, which came even as the carrier remained smaller overall compared to 2019. “I’m happy to generate more revenue on minimal incremental cost, which means more cash, and I’m happy to put idle aircraft and excess staff to work.”
That seems the playbook underway at the U.S. legacies. With the government mostly covering labor expenses under billions of dollars from the CARES Act and subsequent payroll support relief, map planning becomes an exercise in chasing revenue rather than weighing where to most cost-effectively fly a plane. American Airlines has added numerous outdoors-oriented nonstops — that Bozeman-Charlotte route for example — and will dip its toes into point-to-point flying with at least eight new weekend routes to Orlando this summer. United Airlines tested this market with a slew of Midwest-Florida nonstops that bypassed its hubs over the winter, and is back for more with 26 new non-hub routes to beach destinations this summer.
“The cost to try [this] now is much lower, and we might not have tried it in any normal time,” American Vice President of Network Planning Brian Znotins told Airline Weekly on the airlines point-to-point routes this summer. The Fort Worth, Texas-based carrier also plans have “most” of its mainline fleet back in the air by June.
But while American and United’s additions are exciting and out-of-the-box, there is no clarity whether they represent permanent changes or simply temporary efforts to capture all the passenger revenue they can. Neither airline is dedicating too much capacity to the routes, with sub-weekly frequencies on mostly regional jets, making the lift low in terms of cost and effort.
“A lot of that is more flash than substance,” said Brad DiFiore, managing director of Ailevon Pacific Aviation Consulting. “They aren’t neglecting their hubs, that’s for sure.”
Delta Air Lines, he said, has done much the same as American and United significantly boosting flying to small destinations where outdoor attractions feature highly. However, Delta has done it by mostly adding routes to their hubs and flying larger aircraft — rather than with new point-to-point routes. This has attracted less attention but fits the Atlanta-based carrier’s long-term strategy.
This is not to say Delta has not made changes to its map. Earlier this year, the airline trimmed its “focus city” strategy — one that more often signals something of an increased investment in a market for sales purposes rather than new routes — to concentrate on just Austin and Raleigh-Durham. Cincinnati, Nashville and San Jose, Calif., were all part of its focus city network prior to Covid-19.
The network changes at airlines like JetBlue Airways and Southwest Airlines are the ones to watch, industry insiders say. Both have made permanent moves that set them up for future growth as travel returns after the pandemic. That recovery appears well underway with the leisure segment this summer, with forecasts of a full domestic recovery in the next two years.
JetBlue was one of the first airlines to use the crisis to add a plethora of new point-to-point routes aimed at capturing what few leisure travelers were flying last summer. But more critically, it used the crisis to establish beachheads at both Los Angeles International and Newark Liberty airports — two gateways where facility constraints all but kept JetBlue from expanding in normal times. Bases at both airports are here to stay, executives have said.
“To go in on day one and have the presence that would have taken three-to-five years to build, was probably one of the more pleasantly surprising changes to see,” Kevin Schorr, a vice president at Campbell-Hill Aviation Group, said of JetBlue’s map changes.
Southwest has added 17 airports and counting to its map since Covid-19 hit. All of these, which range from small cities like Bozeman and Eugene, Ore., to major gateways like Chicago O’Hare and Miami, were somewhere on its list of future destinations, said Southwest Commercial Chief Andrew Watterson. All are due to stick around once the pandemic recedes into memory though some, like Miami, are already outperforming expectations, he added.
Frontier Airlines, Hawaiian Airlines, Spirit Airlines and Sun Country Airlines have also used the crisis to their network advantage. Newly public Frontier continues to expand its bases at big airports, including Miami, while Hawaiian has chased relocating Californians to Florida and Texas. Spirit has added Milwaukee, Louisville, Orange County, Pensacola and St. Louis to its U.S. map, though executives have said it will not return to 2019-levels of growth until 2022 at the earliest.
And this is not to say some of the additions at American and United will not stay. The former is expanding in Austin in a big way, in what can be seen as either a competitive move or a strategic response to the city’s strong economic growth — or maybe both. At least some of these routes, as many indicate, are likely to stick around once the coronavirus recedes.
The return of business travelers will ultimately make or break airlines’ network changes. Once this lucrative travel segment returns, carriers — especially the legacies, plus Alaska Airlines, JetBlue and Southwest — will resume the high-frequency flying to corporate centers like New York and San Francisco that they did before Covid-19. When that occurs is still up in the air, though the latest commentary suggests the trend could begin in earnest after Labor Day.
“Right now is not the time for short-haul business, but business travelers will come back,” said Watterson. When asked when that may occur he was cautious, saying he planned to “wait a little bit before I say Covid is over.”