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more than two years before we see a sustainable recovery

That's a quote from Delta Airlines CEO Bastian in the Wall Street Journal. Passenger revenue collapsed by 94% year-over-year. Its highly profitable business cabin and other premium sales (usually over 1/3 of total revenues): -95%. Revenues, domestic flights -93%; Atlantic -97%; Latin America -98%; Pacific -95%. And Uncle Sam (read us taxpayers) just gave them $5.4 BILLION to burn why they try to put some wind under the golden parachutes. Efforts to cut spending have cut its cash-burn rate to $27 million a day.

Folks, Delta's in better shape than a lot of other airlines. Plan all you want, but there's a really good chance there isn't going to be any international air travel for a long time, as these airlines are going to flat out die. And I'm betting fares, if you can find a seat, are going to be 3-4 times what we're used to paying.

1 October is going to be very interesting, as that's the day the Fed stops bankrolling unemployment and the major industries can actually start layoffs.

Posted by
5641 posts

KGC, if the existing airlines die, as long as there is a demand, don't you think new airlines will pop up to take their place? Its about the demand, and that depends on the survival of the rest of the economies, not just leisure travel.

Posted by
757 posts

Over 90% of Delta's income was passenger revenue. I really don't see a lot of these airlines that have heavy debt loads surviving. Maybe someone else will step up. This is an industry that requires constant business to pay off the loans on equipment, berthing zones at airports, etc, and they just don't have that right now, or for the foreseeable future. People are the easiest to cut, because they rarely have a fee attached if they no longer work for you. But how can you sell the collateral on your loans and stay in business? And who's going to buy it when every other like business is also burning what cash they have?

Posted by
9183 posts

Oh, doom and gloom. Doom and gloom.

One of the great things about American capitalism is that there is always going to be someone willing to take the risk for a large payday. If there is demand, someone will ready to offer supply (Economics 101).

As an example, David Neeleman, the founder of Jet Blue, is starting a new airline, Breeze. Launch will be next May. The virus has not hindered his plans. His former airline, Jet Blue, is looking at expanding to Europe.

Under current U.S. law, no U.S. based airline can have more than 49% foreign ownership. And, foreign airlines can only operate to their own country. (The EU is seen as one country.) It would take a change in rules to allow a Chinese airline to fly say from New York to London. You have to remember that not everyone going to Europe is carrying a Rick Steves guidebook. The big money makers for airlines are passengers sitting in upper classes and business folks buying last minute tickets. I hate to say it but the 'I got a great fare 10 months before my flight" are not high priority to the airlines. (Except the discount carriers.) Since flights will be needed for these passengers, and they will not fill the planes, the airlines will do their best to fill the planes with passengers willing to pay in advance for non-refundable tickets. Just like now.

What the major airlines have said is that as they will be more streamlined than in the past. Many of the non-profitable routes, and planes, will be sidelined. Airlines can operate for years in the red. They have in the past, they will do so in the future if necessary. Many of the economic announcements are not geared towards the traveling public but to their investors. It's gives them a warning not to expect great numbers in the near future.

Much of the bailout money was to keep their rank and file employed. Once the money runs out, we can expect to see massive layoffs in the travel industry. Not just airines. This will not be good for the economy in general. But as the industry picks up, new players will arrrive to compete.

As for fares, they can only go so high. If people refuse to pay the high fares, they will come down.

Posted by
5641 posts

Yeah I know foreign airlines cant currently operate in the US. Just pointing out that if demand returns someone will step in, and some countries airlines will be better positioned to gear up.

Posted by
9183 posts

What we may see are the following:

1) Larger U.S. airlines, domestically, will stick to longer more proiftable routes and let the regional airlines handle the rest. Right now, most short flights in the U.S., on regional size aircraft, are operated by regional airlines most have never heard of. The plane might say Delta or United or American, but they may actually be run by Skywest, Mesa, Endeavor, etc.

2) Airline alliances will have more codesharing. As an example, American and British Airways are in the same alliance. They both fly from some of the same U.S. cities to the UK. They could consolidate from two flights a day to one and codeshare. The flight would carry both a BA and AA flight number regardless of who actually operates it. The bad part about this, of course, is less supply could mean higher demand and higher prices.

Most long haul U.S. airlines have already announced that some of the international routes they flew prior to the pandemic will not resume afterwards.

Both of these have been reported in the press.

Posted by
3444 posts

I am having a difficult time understanding where all the record profits went. The major US airlines had reported huge numbers of billions in profits for the past several quarters and everybody was fat and happy with all the money they were stashing away, but as soon as the covid shutdowns started they were in desperate need of funds. Something just doesn't make sense there. I understand that when you are burning through $20 or $30 million a day, the money doesn't last forever, but if you have $15 BILLION in the bank as United reported end of the quarter, where has the money suddenly gone?

I do think the government requirement that there would be no layoffs of removal of airports from any airline's schedule was wrong. It is like they are trying to return to the era of government control of every airline decision. A business needs to be free to adjust to customer demand. Yes, it is no fun to be one of those employees facing the lay off, but is it really beneficial to delay the inevitable from a business standpoint?

Some airlines have reported higher than expected customer loads (resulting in the "middle seat empty policy" being discarded almost before it could be seen in action). These passengers are paying to fly so there is income. So there is a need that has to be met and the existing airlines just have to find a way to meet it or someone else will come along and do it for them. There will apparently be lots and lots of planes available for purchase or lease, probably at pennies on the dollar, requiring nothing more than a quick paint job and a few decals replaced inside to brand it to a new or different airline. It has happened before. After 9-11 it looked like all the airlines would be going under. While that was a completely different cause, the impact was very similar until people got over their fears.

Posted by
3444 posts

The statement made by United was NOT their dollars of profit. It was their unrestricted funds in the bank already. I understand the difference between dollars of profit vs dollars on hand. I also understand the difference between net income and profit.

At their highest rate of burn, $30 million a day, $15 billion would last 500 days with zero additional income and zero reductions in spending. The statement also showed they expected $5 billion in additional income from selling frequent flyer miles to their branded credit card and other vendors. They are also looking for ways to further reduce spending, as any company would in their situation.

I can't speak to other airlines finances because I have not read up on their numbers. However, if they were operating solely off their 5% margin and had nothing put aside, I can see where they could have issues. And maybe they need different management.

Posted by
6538 posts

According to the Wall Street Journal, it took 6 years for the airlines to recover from 9/11. This is an even bigger shock to the system, so using 2 years as some kind of anchor value sounds like an underestimation. Will business travel be in any hurry to return now that it has been demonstrated how much can be done virtually?

https://www.wsj.com/articles/the-devastated-travel-industry-by-the-numbers-11586959775
"Destruction from the coronavirus pandemic is greater than the 2001 terrorist attacks. Recovery will be tougher, too. After 9/11, it was clear what fixes needed to be made—hardened cockpit doors, stepped-up airport screening, vetting of potentially dangerous passengers. It’s less clear what the fixes will be coming out of this health emergency."

Posted by
757 posts

Nick -

I could have worded it better, I'll admit, but the point is that it's not going to be a return to the over the ocean travel by air that most people are used to for a long time. It may be coming back, but airlines are going to fail long before we get to 50% of the bookings of even a year ago.

That 5% profit is high. Most airlines have been bleeding cash for years. Alitalia, Norwegian, most of the Asian ones; it's a rare airline that can show a profit 5 years of 10. El Al has folded, PIA is getting hammered, HOP! is laying off 50% of the company and fading, and even RyanAir (which has been profitable) is taking Gov't money.

Posted by
9183 posts

El Al has not folded. It just received a $400 million payout from the Israeli government. It's possible the airline might become nationalized. They are having union problems which, combined with the effects of the virus, has grounded the airline.

Airlines don't pay off all their profits to stockholders. As an example. American pays 40 cents a share per year. There are approximately 500 million shares. So $200 million goes to stockholders every year. United doesn't pay a dividend.

Airlines have lots of bills even if their planes are not flying. You have the cost of new planes and equipment, insurance, rent, etc. There is a cost to ground and store airlines as well as getting them ready for flght. They can't just be turned on and flown.

Pilots, if laid off for too long, need to get recertified. An example, a pilot in command carrying passengers may not fly at night unless he made at least three takeoffs and landings to a full stop in the previous 90 days. Normally this is not a problem. But with furloughs, hundreds of pilots will need to get requalified. That costs.

Money has to be set aside for these extenuating circumstances and not considered daily operating expenses.

The money they recently got from Uncle Sam was not for golden parachutes but to prevent employee layoffs. The money went to pay salaries.

Airlines will come back. They will streamline their operations. They will layoff huge amounts of people. They will not be the same as before.

But if you want to see who is traveling, let's look at the TSA numbers. The following are the number of people screened by TSA on a particular date compared to the same date last year. (This is just in the U.S.)

Thursday, April 16, 2020--95,085
Thursday, April 18, 2019--2,616,158

Thursday, July 9, 2020--709,653
Thursday, July 11, 2019--2,608,209

While numbers are way down compared to last year, almost seven and a half times as many people flew in July than in April.

Air travel is definitely picking up.

Posted by
866 posts

Frank II, I think you have a typo in the above post--I believe your first set of TSA figures is from April, not July.

Also, a minor nit. Those TSA figures aren't for the same date as last year, but the same day (ie, a Tuesday compared to a Tuesday). If they didn't do this, the typical fluctuations of flyers during the week would skew the comparison.

Posted by
9183 posts

I made the changes to show travel around the same date and day of the week. I also changed to make sure there were no holidays to interfere.

The numbers still show a big disparity but that they are increasing.

Posted by
6538 posts

Example of what to expect from today's Wall Street Journal - competitors making alliances to strengthen their respective positions. In other industries, I'd expect greater consolidation and pruning of product offerings to be as competitive as possible.
https://www.wsj.com/articles/american-plans-alliance-with-jetblue-11594902601?mod=hp_lista_pos1

"American Airlines Group Inc. (AAL -6.66%) and JetBlue (JBLU -3.05%) Airways Corp. on Thursday announced an alliance that the carriers said would speed their recovery from the pandemic-driven travel downturn by boosting their position in large Northeast markets.

The two airlines want to market each other’s flights and link loyalty programs to improve their competitiveness at the three New York area airports and in Boston. The move comes even as the recovery in leisure flying is stalling because of rising Covid-19 cases and business bookings remain dormant.

American’s move to shore up its Northeast presence comes just six months after it signed a similar deal on the West Coast with Seattle-based Alaska Air Group Inc. Both deals could pressure Delta Air Lines Inc. and other rivals.....

American said it would be able to launch new international routes with the extra traffic generated by JetBlue, which in turn still plans to launch its own trans-Atlantic services next year."

Posted by
9183 posts

I was about to post what Agnes posted but there was more news from the big three U.S. airlines:

American said they may have to layoff as many as 25,000 people in October as they currently have 20,000 more employees than they need for the fall schedule. If every employee coset $25,000, which is an estimate, that could save tjem $625 million/year.

United said they may layoff as many as 36,000 people.

Delta said they may not have layoffs as 17,000 employees have either left the company or taken early retirement.

Don't count these airlines out that quickly.

Additonally, Southwest said that if passenger numbers don't triple by the end of the year, 36,000 of their employees could see the ax.