For United Airlines it was “a year of hell”. Delta Air Lines had the “toughest year” in its history. And for American Airlines it was “the most challenging year”. This is how the executives who run these companies have described 2020 in recent weeks.
The aviation industry is eager to keep going, but hasn’t figured out how.
Air travel has bounced back a bit in the past few months but is still deeply depressed compared to 2019 and no one knows when business will return to more normal levels. Two major airline money-makers – business travel and international travel – are likely to be on hold for another year and possibly much longer.
At least now and for the next few months, airlines fly wherever they can, wherever they can. That often means catering for a small group of vacationers who won’t be deterred by the pandemic to travel to ski slopes or beaches.
“Fly where people are as a quick strategy,” said Ben Baldanza, former managing director of Spirit Airlines, the low-cost airline. “It was a really smart strategy, but it’s not a long-term money making opportunity for these airlines.”
But vacation travel offers limited convenience to an industry so thoroughly overcrowded. Tourists and people visiting family and friends typically occupy most of the seats on airplanes, but airlines rely disproportionately on business travelers’ income in front of the cabin. Before the pandemic, business travel made up about 30 percent of travel but 40 to 50 percent of passenger revenue, according to Airlines for America, an industry association. And these customers are not expected to return in large numbers anytime soon.
The four largest US airlines – American, Delta, United, and Southwest Airlines – lost more than $ 31 billion last year, and the industry is still losing more than $ 150 million a day, according to an estimate by Airlines for America .
The losses are even bigger when you consider airlines received $ 40 billion federal grants to pay employees and tens of billions more in low-cost government loans. The problem is, airlines these days can’t fly planes with enough people high enough to break even.
The industry spent much of the past year removing older, less efficient aircraft from their fleets and saving. Renegotiation of contracts; and encourage tens of thousands of workers to adopt takeovers or early retirement packages.
However, it has not been enough to offset a nearly two-thirds decline in air travel as public health experts and the Centers for Disease Control and Prevention continue to discourage travel. Airlines for America does not expect passenger numbers to recover to 2019 levels until at least 2023. And airlines may have to wait even longer if the economic recovery falters due to the spread of coronavirus variants or a delay in vaccinations.
Still, airlines say they are hopeful for the year ahead.
Sales this month were better than expected, according to Southwest. Alaska Airlines was hoping to fly around 80 percent as many flights this summer as it did in 2019, while Hawaiian Airlines came up with a similarly positive forecast. Delta chief executive Ed Bastian said in a message to customers last week that he expected a “tipping point in spring” as consumer confidence increased, travel restrictions eased and vaccine distribution expanded. Last week, JetBlue launched daily flights from New York, Boston and Los Angeles to Miami, and added seasonal flights to Key West, which serves either city for the first time.
Apr. 19, 2021 at 4:59 pm ET
“The discussion is shifting from being a survivor to being more involved in recovery,” said Sheila Kahyaoglu, an aerospace and defense analyst at Jefferies, an investment bank. “It will be about who can best access certain markets.”
The airlines have a few things ahead of them. Washington lawmakers appear poised to provide industry with a third major aid package since the pandemic erupted last spring. A House committee last week backed $ 14 billion in grants that airlines could use to pay workers through September and added it to the coronavirus aid package under consideration in Congress.
The airlines are also doing everything they can to stimulate demand.
Delta recently extended its middle seat booking ban to April and hired a chief health officer. The steps are part of Delta’s efforts to distinguish itself as a world-class, health-conscious carrier. To mark its 50th anniversary, Southwest has offers including a sale that promises one-way prices starting at $ 50. The airline usually has big sales in the fall and sometimes in the summer.
“I don’t think either of us can remember making a wild sale in January, but here we are,” Southwest chief executive Gary Kelly told investors and reporters last month. “The goal is simple: we need to encourage travel. We need to make more bookings. “
Most industry experts expect travelers to return in greater numbers this spring or summer as the weather improves and more people are vaccinated.
But planning that is not easy. Passengers used to book flights months in advance, but now plans are often confirmed just weeks later. And booking trends were often fleeting.
“Every time the demand shows signs of life, it takes another step backwards,” said Hunter Keay, senior airline analyst at Wolfe Research. “So it is very difficult for airlines to bring airplanes to market because if you get this wrong, you will only exacerbate the problem of burning money.”
Perhaps the toughest question for airlines and other tour operators is when will executives, middle managers, and other business travelers be comfortable flying. In the final three months of 2020, business travel in the US, Delta and Southwest fell 85 percent or more, according to airlines.
The American Hotel and Lodging Association, a trade group, has announced that business travel will not fully recover until 2024. Other groups believe this could take longer. By comparison, international business travel declined only 13 percent during the financial crisis a decade ago, but it took five years for it to return to its previous peak, according to McKinsey.
Some experts argue that business travel may never fully recover as many face-to-face meetings are permanently replaced by video conferencing and phone calls. Travel for sales meetings, conventions, and trade shows are the least likely to be permanently affected, IdeaWorks, an industry consulting firm, said in a December report. But shorter trips to meet up with colleagues for a few hours – say from New York to Washington – could be hit harder, it concluded.
Airlines are more hopeful, perhaps because they rely heavily on business travel.
Around 40 percent of Delta’s large corporate customers expect their own business travel to be fully restored by 2022 and another 11 percent by 2023, Bastian said on a conference call in January, citing the airline’s internal investigations. Only 7 percent said business travel may never fully recover, while the rest said they weren’t sure when things would return to normal.
American is “very optimistic” that business travel will return with vaccine distribution, Vasu Raja, the airline’s chief revenue officer, told investors and reporters last month. But, he added, “the rate of this is unclear at best.”