It was a year of hell going through for United Airlines. Delta Air Lines has had ‘the hardest year’ in its history. And for American Airlines, it was ‘the most challenging year’. This is how the executives who run the companies described 2020 over the past few weeks.
The airline industry is eager to move on, but he does not know how.
Air travel has recovered somewhat over the past few months, but it remains deeply depressed compared to 2019, and no one knows when business will return to normal. Two essential money makers for airlines – corporate and international travel – are likely to stay on the sidelines for another year and possibly even longer.
Now and for the next few months airlines are flying at least where they can. This often means that you have to take care of a small group of hardy leisure travelers who are uncomfortable traveling to ski slopes or beaches due to the pandemic.
“As a quick strategy, fly where people are,” said Ben Baldanza, a former CEO of Spirit Airlines, the low-cost airline. “It was a really smart strategy, but it’s not a long-term way for those airlines to make money.”
Recreational travel offers limited comfort for an industry that has been so thoroughly battered. Tourists and people visiting family and friends usually take up the most seats in airplanes, but airlines rely excessively on the income of business travelers in the front of the cabin. Before the pandemic, business travel accounted for 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 American airlines – American, Delta, United and Southwest Airlines – lost more than $ 31 billion last year, and the industry as a whole continues to shed more than $ 150 million every day, according to an estimate by Airlines for America.
The losses are even stronger when you consider that airlines have received $ 40 billion in federal grants to help pay employees and tens of billions more in cheap government loans. The problem is that airlines these days are not able to fly planes with enough people at enough fares to level up.
The industry has shrunk and saved a large portion of the past year, cutting older, less efficient aircraft out of their fleet; renegotiation of contracts; and encourage tens of thousands of workers to take out purchases or packages for early retirement.
But that was not enough to compensate for a nearly two-thirds drop in air travel, as public health experts and the Center for Disease Control and Prevention continue to discourage travel. Airline for America does not expect passenger numbers to recover until at least 2023 to 2019. 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.
Yet airlines say they are hopeful for the year ahead.
Suidwes said sales were better this month than expected. Alaska Airlines said it hopes to fly about 80 percent more flights this summer than in 2019, while Hawaiian Airlines offered a similarly optimistic forecast. Delta CEO Ed Bastian said in a message to customers last week that he would see a “turning point in the spring” as consumer confidence grew, travel restrictions eased and vaccine distribution increased. Last week, JetBlue started daily flights from New York, Boston and Los Angeles to Miami, adding seasonal flights to Key West, serving one city or another for the first time.
“The discussion is shifting from who is a survivor to who is taking more part in the recovery,” said Sheila Kahyaoglu, an aviation and defense analyst at Jefferies, an investment bank. “It’s about who has the best access to certain markets.”
There are a few things the airlines do. Lawmakers in Washington appear to be prepared to give the industry a third major aid package since the pandemic hit last spring. A House committee last week backed a $ 14 billion grant that airlines could use through September to pay workers and add it to the coronavirus relief package being considered in Congress.
Airlines are also doing what they can to advance demand.
Delta recently extended its ban on booking passengers in the middle seats until April and appointed a health official. The moves are part of Delta’s effort to brand itself as a first-class, health-conscious carrier. Southwest is offering deals, including a sale that promises one-time rates of up to $ 50 to celebrate its 50th anniversary. The airline usually sells in the fall and sometimes has it in the summer.
“I don’t think any of us can remember making a wild purchase in January, but that’s where we are,” Southwest CEO Gary Kelly told investors and reporters last month. “The goal is simple: we need to stimulate travel. We need to get more bookings. ”
Most industry experts say they expect travelers to return in greater numbers in the spring or summer as the weather improves and more people are vaccinated.
But planning for it is not easy. Passengers used to book flights months in advance, but now plans are often only confirmed a few weeks. And trends in discussions were often volatile.
“Every time the question showed signs of life, it took another step backwards,” said Hunter Keay, senior aviation analyst at Wolfe Research. “So it’s very difficult for airlines to go there and put planes on the market, because if you do it wrong, you exacerbate the problem of cash burning.”
Perhaps the most difficult demand for airlines and other travel companies is when executives, middle managers and other business travelers will feel comfortable flying. In the last three months of 2020, business travel, according to the airlines, dropped 85 percent or more in America, Delta and Southwest.
The American Hotel and Shelter Association, a trade group, said they do not expect business travel to fully recover by 2024. Other groups think it may take longer. By comparison, international business travel declined by just 13 percent a decade ago during the financial crisis, but according to McKinsey, it took five years to return to its previous peak.
Some experts argue that business travel can never fully recover, and many personal meetings are permanently replaced by video conferencing and phone calls. The journey for sales meetings, conventions and exhibitions is least likely to be permanently affected, IdeaWorks, an industry consulting firm, said in a December report. But shorter trips to meet a few hours with colleagues – from New York to Washington – can be harder to hit, the conclusion came.
Airlines are more hopeful, perhaps because they rely heavily on business travel.
About 40 percent of Delta’s major business customers expect their own business trips to fully recover by 2022, and by 2023 an additional 11 percent, Mr. Bastian said at a conference in January referring to the airline’s internal research. Only 7 percent said business travel might never be restored, while the rest said they were not sure when things would return to normal.
American is ‘very optimistic’ that the corporate journey will return as vaccines are distributed, Vasu Raja, chief executive of the airline, told investors and reporters last month. But, he added, “its rate is at best unclear.”