Airline analysts and executives predict it will take up to 5 years for the industry to recover, but airlines as big as American may not survive. Read their bleak forecasts here. (AAL, DAL, UAL, LUV, BA)
Airlines are without question among the industries hardest hit by the COVID-19 pandemic. With virtually zero travel demand during the worst of the crisis, airline executives and rank-and-file workers, analysts, and shareholders are anxiously trying to predict when the travel business will return to normal. Analysts and airline executives offered a wide range of predictions during the early months of the outbreak, but over recent weeks seem to have reached a consensus through a variety of models: For airlines that survive, it will likely take two to three years, possibly as many as five, before business returns to pre-pandemic levels. Visit Business Insider's homepage for more stories.
The airline industry is limping into the third month of what insiders have called the biggest crisis in its history. Travel demand began to fall off in the Asia region in mid- to late-January, and broadly in the rest of the world by mid-March. As it became evident by late-March that this would be a prolonged crisis, squashing any hope for the type of rapid decline-rapid recovery seen after the 2003 SARS outbreak, experts began to forecast a recovery that would likely extend beyond 2020. Now, as analysts begin to reach a consensus on when the industry may bounce back, the outlook remains bleak. Earlier this month, a research report from airline analyst Joseph DeNardi at Stifel indicated air travel demand would likely not return to normal until mid-2021 at the earliest, noting that such a return was a best-case scenario, and that a more bearish course appears to be emerging. At the time, the estimate seemed conservative. Now, however, analysts and experts including DeNardi are reaching a consensus that it will take at least two full years for travel demand to return to 2019 levels, and possibly as long as five. The evolving outlook on the airline industry has been as swift as the outbreak itself. Ken Herbert of Canaccord Genuity wrote in late January that the virus posed a "substantial" risk to global air travel and the aerospace sector, while Tourism Economics warned of a $10 billion hit to the US travel industry if visits from China fell substantially. In the three months since, the outbreak has swept across the globe and decimated the entire global airline sector. What initially looked like a potentially quick rebound — Canaccord's Herbert predicted a V-shaped recovery, using other outbreaks like SARS as a framework — is now widely believed to be slow, and difficult. The initial reports worked under the assumption that, like past outbreaks such as SARS and MERS, COVID-19 would be a mainly regional crisis, possibly with flare-ups in other areas, but primarily affecting Asian markets. During fourth-quarter 2019 earnings calls, which took place in January, airline analysts and executives hardly mentioned the coronavirus outbreak aside from consideration of service to China and Hong Kong. Now, as the virus has brought much of the world to a standstill, the focus has shifted.
A long, slow march Over the past several weeks, travel demand has tanked. "It certainly feels like we're at the bottom," American Airlines CEO Doug Parker said during a television interview on April 15. "Our revenues are down 90% on a year-over-year basis. And they've been that way now for a few weeks. So, the real question is how long do you stay at the bottom? And when do we begin to recover?" Analysts across the board agree that even if the recovery begins soon, it will be prolonged. "We are growing increasingly convinced that industry recovery to 2019 levels of output will be a multi-year affair," analyst Jamie Baker of JPMorgan wrote in early April, "resulting in the material shedding of aircraft and headcount along the way." "Airline bookings remain at unprecedented lows," Bank of America analyst Andrew Didora wrote in an April 26 research note. "Based on what has transpired in China, volumes could stay at these levels for a few weeks before beginning to recover. Then, we think the recovery could be slow." "We assume a 2-3 year period for demand to return to 2019 levels," Joseph DeNardi of Stifel wrote in an April 21 note, observing that the reduced supply resulting from airlines temporarily grounding fleets would help make up for a "historically slower return to normal." During the CNBC interview, American's Parker noted there were perhaps early signs of an impending recovery, noting that the airline had seen a slight uptick in bookings for more than 90 days out, as well as some corporate interest in travel for the fourth quarter. But Parker (and a spokesperson for the airline, in a follow-up discussion with Business Insider) acknowledged that even if a recovery begins in the coming months, it will take a while before the industry returns to 2019 levels of revenue and demand. Boeing CEO David Calhoun agreed, making headlines earlier this week when he said, "it will take two to three years for travel to return to 2019 levels and an additional few years beyond that for the industry's long-term growth trend to return." Calhoun also noted that reduced travel demand means a reduced need for new airplanes. Helane Becker of Cowen thinks a turnaround could take even longer. "We expect it to take 2 to 5 years to recover to 2019 levels," she wrote in a lengthy April 13 report titled A Winding Road to Recovery, adding: "our working assumption is 2021 revenues will be back to 2016 levels." "April and May will be the worst months for the airlines as social distancing and sheltering in place continue," she wrote. "June and July seem to be a targeting timeline for return to work for much of the US economy." "Unfortunately, return to work might not mean immediate return to the air," she added. "It is highly likely that any recovery won't start until the fourth quarter at the earliest, and then continue slowly through 2021 and into 2022." Southwest Airlines CEO Gary Kelly agreed with the longer-term assessment. On the airline's first quarter earnings call this week, he said that based on past recessions, he expects business travel to take about five years to return to pre-outbreak trends, possibly even longer. "Based on history, in a recessionary environment, it is a long recovery period for businesses. And it's intuitive to me on why that would be," Kelly said. "This one feels like it could be worse."
A mixed recovery for business and leisure travel Analysts and industry leaders are also beginning to agree that leisure travel may recover faster, even if business travel begins its recovery sooner. "We may see an initial surge in business travel, but nothing we would view as sustainable," Becker wrote. "There is significant liability for companies that push their employees to travel too quickly. Leisure travel, which traditionally comes back first, is likely to be slow to return as well." "We believe business travel is likely to return ahead of leisure travel," she added, "but given the amount of teleconferencing, the use of Zoom, Skype, WebEx, GoToMeeting and other ways people are staying in touch and conducting meetings, this suggests that while business travel will return, it also will return at a slower pace than prior recoveries." According to an April 19 note from Bank of America's Didora, leisure bookings declined at a slower rate than corporate, but have reached roughly the same low level. Regardless, the industry's financial outlook is likely to remain grim for a while. "For purposes of modeling, we assume the phenomenon of negative net bookings (refunds exceeding sales) continues well into the third quarter," JPMorgan's Baker wrote on April 22.
The airline landscape may look very different post-recovery Over the past several years, the airline industry — both globally and in the US — has been on a rapid and steady expansion, adding capacity, new planes, and new routes. Almost overnight, that expansion screeched to a halt, and that reversal could continue, even after the pandemic is contained. "[W]e believe the airlines will end 2020 at least 20% smaller than they ended 2019 and probably closer to 30% smaller," Cowen's Becker wrote. The downsizing would see airlines cut costs wherever possible, but the two major savings areas will be labor and aircraft. According to Becker, mainline US airlines employ about 473,000 people. Airlines for America, an industry trade and lobbying organization, puts that number at 750,000 people, when regional carriers are included. Despite payroll assistance from the federal government, which helps airlines cover employee salaries and prohibits layoffs before October, 2020, Becker wrote that she expects to see the mainline carriers eliminate 95,000-105,000 jobs by the end of this year. "United and American have said they could be 15-20% smaller in 2021 than they would have otherwise," Stifel's DiNardi wrote. He also noted that during past recessions, using the 2008 crisis as an example, airlines emerged with more disciplined growth strategies and more deliberate expansions as they focused on profitability. That suggests that the recovery years could see fewer new, interesting, or leisure-focused direct flights launched as airlines focus on more proven measures. "We believe a return to capacity discipline and lower capex spending could drive a period of strong performance for the group coming out of the pandemic," DeNardi said. Airlines are likely to retire older aircraft or place them into long-term storage to cut costs. "Aircraft over 20 years old are unlikely to ever fly again in passenger revenue service," Becker wrote. "They are the first aircraft to go into storage and will be the last to come out." She added that American Airlines has already begun reevaluating its fleet by retiring the 757, 767, E190, and some A330 planes, as well as some older 737NGs. The move would eliminate at least three types of plane from the airline's fleet, helping it save money in the long term. The major US airlines are likely to retire a total of 800-1,000 aircraft during the crisis, Becker wrote, which would inherently come with job cuts. US airlines employ an average of 97 people per aircraft, she said.
The specter of airline bankruptcies and consolidation looms large over this crisis In March, the aviation consultancy CAPA said that by the end of May, "most airlines in the world will be bankrupt" without coordinated government and industry intervention. Several have already occurred, including the UK's FlyBe, which ceased operations, and Virgin Australia, which entered voluntary administration — a form of bankruptcy restructuring. Several regional airlines in the US — Trans States, Compass Airlines, and RavnAir — have also folded. The risk of a larger-scale consolidation in the industry is likely, several analysts have said. "As the mainline airlines cut capacity and eliminate routes, we expect them to eliminate or scale back service to smaller cities. As they do that, it is likely to put pressure on the regional airlines," Cowen's Becker wrote. "We expect regional airline consolidation first, as we are already seeing, followed by consolidation among medium-sized airlines." "Among the larger airlines, we would not be surprised to see the ultra-low cost airlines consider merging to get through the downturn," she added. According to JPMorgan's Jamie Baker, however, it's possible that major carriers could also be vulnerable. In an April 6 research note, Baker focused primarily on American, though suggested that the analysis could apply to other airlines. American is not necessarily "mortally wounded," Baker wrote that the risk of a bankruptcy is, arguably for the first time in the crisis, becoming more pronounced, given the fact that the airline will likely need to significantly downsize its staff and its aircraft fleet. There are "five, and basically only five, reasons why airlines file for bankruptcy," the report said:
Labor costs above what the airline can afford, and an inability to negotiate a way to lower the expenses; Pension costs, which can be shifted under the federal Pension Benefit Guaranty Corporation to reduce outbound cash flow; Fleets filled with older, no-longer-needed or wanted aircraft given a resizing or restructuring, or a significant debt load on newer planes; High cost "other" debt, or just too much debt, such as what the airline could emerge from the current crisis with; and Dangerously low levels of liquidity.
Given those historical reasons for past bankruptcies, the report says, it's theoretically possible that a bankruptcy would be the most effective play for the airlines following the crisis. The report cautions that this is only one possible scenario: "We don't think management is rushing to file for bankruptcy. We also don't think it's inevitable." Over at Cowen, while raising the possibility of bankruptcies, Becker wrote that even with new debt, she thinks the major US airlines will be able to avoid considering bankruptcies at least through the end of the year, by which time demand may be recovering. "Ultimately, we find the airlines have sufficient liquidity to survive through at least July," she wrote. "At this point, we do not have bankruptcy concerns for any of the US airlines we cover for the remainder of 2020, assuming each opts for and receives Phase III stimulus grants."SEE ALSO: Coronavirus demolished air travel around the globe. These 14 charts show how empty the skies are right now. Join the conversation about this story » NOW WATCH: Tax Day is now July 15 — this is what it's like to do your own taxes for the very first time
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American Airlines says it will furlough 19,000 workers unless Congress agrees on more COVID-19 relief (AAL)
American Airlines will furlough and lay off 19,000 employees on October 1, the airline said in...American Airlines will furlough and lay off 19,000 employees on October 1, the airline said in a memo on Tuesday. The furloughs come as the coronavirus pandemic continues to severely depress air travel demand. Including buyouts and early retirements, American will shrink by nearly 40,000 employees compared to pre-pandemic levels. Visit Business Insider's homepage for more stories. American Airlines will furlough up to 19,000 employees on October 1, the airline said in a memo to staff on Tuesday, unless Congress extends the CARES Act's payroll support program. "Today is the hardest message we have had to share so far," CEO Doug Parker and airline president Robert Isom wrote in a memo to employees, seen by Business Insider. The furloughs include 17,500 front-line employees, as well as 1,500 management and support workers, whose furloughs were announced in late June. About 1,600 pilots, 8,100 flight attendants, and 2,225 fleet service specialists are included in the front-line furloughs. Airlines have been hit particularly hard by COVID-19, with travel demand collapsing early in the pandemic and making only modest recoveries since, hampered by summer spikes across the US. Are you an employee at American or another airline? Contact this reporter with tips, thoughts, or other feedback at email@example.com. American received more than $5.8 billion in payroll support through the CARES Act. The airline agreed not to furlough or cut pay for workers until October 1 in exchange for the aid. "The only problem with the legislation is that when it was enacted in March, it was assumed that by Sept. 30, the virus would be under control and demand for air travel would have returned," Parker and Isom wrote. "That is obviously not the case." The airline needs to shrink by 40,000 employees compared to its size entering the pandemic, Parker and Isom wrote. About 12,500 employees have taken early retirement or other buyout packages, while a further 11,000 have applied for voluntary unpaid leaves of absence in October. American and and other airlines, which expect to emerge from the pandemic significantly smaller, have urged employees to take such buyouts or voluntary unpaid leave programs. American plans to fly about 50% of 2019 levels in the fourth quarter, Parker and Isom wrote, with international flying at just 25% the previous year. "So, as Sept. 30 approaches, we have announced reductions in service, including the complete elimination of service to certain markets in early October, and today we are announcing the related reductions in our workforce," the pair wrote. The furloughs will be distributed among work groups based on demand — for instance, work groups with a higher emphasis on international travel will likely be more heavily impacted. The memo added that furloughs may be avoided if the CARES Act's payroll support program is extended. "Led by your labor unions, with the support of the industry, we have generated enormous bipartisan support for such an extension," Parker and Isom wrote. "But, despite this broad bipartisan support, a PSP extension is tied up in a larger COVID-19 relief package, which our elected officials haven't yet been able to negotiate." American also announced last week that it would cut unprofitable routes that it was operating in order to comply with CARES Act terms, barring an extension of the support. Delta Air Lines announced Monday that more than 1,900 pilots will be furloughed. It has not announced numbers of other work groups. Are you an employee at American or another airline? Contact this reporter with tips, thoughts, or other feedback at firstname.lastname@example.org.SEE ALSO: COVID-19 could eliminate 197 million travel industry jobs and wipe $5.5 trillion from the global GDP, a trade group warns Join the conversation about this story » NOW WATCH: What it's like inside North Korea's controversial restaurant chain
United Airlines is warning of tens of thousands of possible layoffs as new coronavirus outbreaks across the US slam the airline industry (UAL)
United Airlines said travel demand is falling again, as COVID-19 hotspots break out across the US....United Airlines said travel demand is falling again, as COVID-19 hotspots break out across the US. The airline expects to warn tens of thousands of workers of impending furloughs and layoffs. United said it expects the airline industry to recover slowly, with demand rising and falling until there's a vaccine for the coronavirus. Visit Business Insider's homepage for more stories. Just as things were starting to improve for US airlines, the explosion of new coronavirus cases is set to send the industry back into a tail spin. Complicating matters are government travel restrictions and quarantine orders, which are making people nervous about booking flights. United Airlines told employees in a recent presentation that new bookings began to slide almost as soon as New York, New Jersey, and Connecticut said that they would require people coming from states with COVID-19 spikes to quarantine for 14 days. Specifically, reservations for near-term travel within the next 30 days began to plummet after steadily rebounding for months. The presentation, which was disclosed by United on Tuesday, was first reported by the Wall Street Journal. The fall was most severe at the airline's New York City-area hub in Newark, New Jersey, where near-term net bookings were just 16% of the previous year's levels — down from about a third shortly before the tri-state quarantine order was announced. The decrease in demand also coincides with when airlines are largely expected to begin notifying employees of furloughs and layoffs. While airlines are prohibited from furloughing or laying off workers until October 1 under the terms of the payroll support they received from the CARES Act, most employers are required to give 60 days of notice, where possible, under the Worker Adjustment and Retraining Notification Act, known as the WARN Act. In the presentation, United told its employees to expect WARN notices in early to mid July, with a final notice about their position's status coming in early August. American Airlines began informing some employees of furloughs in late June. Airlines including United have tried to limit involuntary layoffs by reducing head count through voluntary measures including buyouts, leaves, and early retirements. But it seems like that wasn't enough for United, and the airline reportedly said on Tuesday that tens of thousands of layoffs were coming. Notably, as the coronavirus resurgence has spread across the US, United said it was now clear that the airline industry's recovery will be a slow and protracted one, with many fits and starts. United "does not expect the recovery from COVID-19 to follow a linear path, as illustrated by recent booking and demand trends," the airline wrote in a filing with the SEC on Tuesday. "[C]onsolidated capacity through the end of 2020 is expected to be generally consistent with August 2020," the filing continued, indicating that the airline does not expect a material improvement in demand until at least 2021. Henry Harteveldt, an airline and travel-industry analyst, said he was not surprised by the bad news. "Houston, one of United's major hubs, is a virus hotspot, as is Los Angeles, another major United market," Harteveldt wrote to Business Insider on Tuesday. "Plus, Florida, a popular summer vacation destination, is another Covid hotspot. With the New York metro area and Chicago requiring quarantines from multiple states, including Florida, Texas and California, it's logical that United is seeing a fall-off in reservations. "Unfortunately, they won't be the only airline affected." In the SEC filing, United said it expects capacity to fall 65% in August compared to 2019. The airline estimated last week that the drop would be 60%, but United said it made adjustments to that announced schedule "resulting from reduced demand to destinations experiencing increases in COVID-19 cases and/or new quarantine requirements or other restrictions on travel." As air-travel demand has slowly picked up from lows reached in April, airlines have said most of the demand is coming from leisure and "VFR" travelers — those visiting friends and relatives — as states lift lockdowns and Americans seek to shake off the cabin fever built up after months in quarantine. Corporate travel, which yields higher margins for airlines than leisure, has not begun to meaningfully return.SEE ALSO: Leaked memo shows United is trying to convince some workers to quit ahead of layoffs, and it's offering up to 5 years of free flights as an incentive Join the conversation about this story » NOW WATCH: Swayze Valentine is the only female treating fighters' cuts and bruises inside the UFC octagon
Airlines saw a spike in passenger volume for the July 4th holiday weekend, but the numbers are still dismal for the industry (AAL, DAL, LUV, UAL)
US airlines saw more than 700,000 passengers per day three times over the July 4 holiday...US airlines saw more than 700,000 passengers per day three times over the July 4 holiday weekend. That's a new record for travel demand since the COVID-19 pandemic began. However, the numbers remained far below 2019 levels, as airlines continue to burn cash amid the drop in demand. More than 3.3 million people flew over the first five days of July, compared to more than 11.9 million during the same period in 2019. Visit Business Insider's homepage for more stories. More than 3.3 million people traveled by air over the first five days of July, setting a new record for air travel during the coronavirus pandemic. Additionally, more than 700,000 people flew over three days of the long holiday weekend — July 2, 3, and 5, according to the US Transportation Security Administration — breaking that barrier for the first time since March 18, early into the pandemic quarantines. Despite the uptick in travel over the holiday period, however, the larger picture remains bleak for airlines in the US and globally. For instance, although the TSA saw 764,761 passengers on July 2, nearly 2.1 million people flew on the same day in 2019. Last year, nearly 12 million people flew during the first five days of July. Even with the holiday increase, travel demand is likely to come back slowly, especially as states across the US see record spikes in coronavirus cases. The overall number of travelers published by the TSA represents the total distributed across the nation's commercial airlines. Delta Air Lines CEO Ed Bastian said last week that the airline expected to fly just 600,000 passengers over the July 4 holiday weekend, compared to 3.2 million passengers last year — an 80% reduction. An American Airlines spokesperson told Business Insider that it was the airline's busiest weekend since March. Daily passenger counts in the US have grown steadily since mid-April, when the total hit a low of just over 87,000. However, that growth has been slow, and typically consists of passengers traveling for leisure, rather than more profitable business travelers. "Business travelers, who provide the bulk of our revenue, have not yet returned in significant numbers," Bastian wrote in last week's memo. Airlines in the US and globally have been decimated by the collapse of travel demand, particularly of business travel. Even as some corporate travel bans are lifted and certain unavoidable business travel resumes, such as that within the manufacturing sector, demand is expected to take 3-5 years to fully recover across the industry. US airlines are consequently seeking to cut staffing. While they are prohibited from laying off or furloughing workers through September 30, under the terms of the CARES Act, the notices have already started to go out to employees who will be impacted. American, for instance, issued its first furlough notices to management and support workers last week, while warning that it was overstaffed by about 7,000 to 8,000 flight attendants, and about 20,000 employees overall. In an effort to avoid or minimize layoffs, the major airlines have offered various voluntary separation options to workers, including buyouts and early retirements. These packages typically offer departing employees some form of continued pay, as well as helath and travel benefits. In Thursday's memo, Bastian urged workers to consider taking the "a once-in-a-career opportunity to depart Delta with generous cash severance and retiree medical and flight benefits." The airline said it would accept applications through July 13.SEE ALSO: American Airlines' decision to sell middle seats shows that the pandemic won't lead to more comfortable flights Join the conversation about this story » NOW WATCH: How waste is dealt with on the world's largest cruise ship