It was “a year of suffering” for United Airlines. Delta Air Lines had “the most difficult year” in its history. And for American Airlines it was “the most challenging year”. That’s how the executives who run these companies described 2020 in recent weeks.
The airline industry is eager to move on, but has yet to figure out how.
Air travel has rebounded somewhat in recent months, but remains deeply depressed compared to 2019, and no one knows when business will return to more normal levels. Two essential cash generators for airlines – corporate and international travel – are likely to be out for another year and possibly much more.
Now and in the coming months, at least, airlines are flying with who can and where they can. This usually means catering to a small group of die-hard leisure travelers who are not intimidated by the pandemic of traveling to ski runs or beaches.
“As a quick strategy, fly to where people are,” said Ben Baldanza, former chief executive of Spirit Airlines, the low-cost airline. “This has been a really smart strategy, but it is not a long-term way for airlines to make money.”
But leisure travel offers limited comfort for such a devastated industry. Tourists and people visiting family and friends usually occupy the majority of seats on planes, but airlines depend disproportionately on the revenue of corporate travelers in front of the cabin. Before the pandemic, business travel accounted for about 30% of travel, but 40 to 50% 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 United States’ four largest airlines – American, Delta, United and Southwest Airlines – lost more than $ 31 billion last year, and the industry as a whole is still losing more than $ 150 million a day, according to an estimate from Airlines for America.
The losses are even more marked when you consider that airlines received $ 40 billion in federal subsidies to help pay employees and tens of billions more in low-cost government loans. The problem is that airlines today are unable to fly planes with enough people and high enough fares to balance the bills.
The industry spent much of last year saving and saving, trimming older, less efficient planes from its fleets; renegotiate contracts; and encouraging tens of thousands of workers to accept takeover or early retirement packages.
But it was not enough to make up for a nearly two-third drop 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 the number of passengers to recover to 2019 levels until at least 2023. And airlines may have to wait even longer if the economic recovery falters because of the spread of coronavirus variants or a delay in vaccinations .
Still, airlines say they are hopeful for next year.
Southwest said sales this month were better than expected. Alaska Airlines said it expects to operate about 80 percent of the number of flights this summer than in 2019, while Hawaiian Airlines offers a similar optimistic forecast. Delta Chief Executive Ed Bastian said in a message to customers last week that he hoped to see a “tipping point in the spring” as consumer confidence increased, travel restrictions were relaxed and distribution of expanded vaccine. Last week, JetBlue started daily flights from New York, Boston and Los Angeles to Miami and added seasonal flights to Key West, its first time serving any of the cities.
“The discussion is shifting from who is the survivor to who is most involved in the recovery,” said Sheila Kahyaoglu, aerospace and defense analyst at Jefferies, an investment bank. “It will be about who can best access certain markets.”
Airlines have a few things going for them. Lawmakers in Washington seem willing to provide the industry with a third major aid package since the pandemic began last spring. A House committee last week supported $ 14 billion in subsidies that airlines could use to pay workers through September, adding them to the coronavirus relief package under consideration in Congress.
Airlines are also doing what they can to increase demand.
Delta recently extended its ban on reserving passengers in intermediate seats until April and hired a health director. The changes are part of Delta’s effort to become a premium health-conscious carrier. Southwest is offering deals, including a sale promising one-way fares of up to $ 50 in celebration of its 50th anniversary. The airline usually has big sales in the fall and sometimes in the summer.
“I don’t think any of us remember making a big sale in January, but that’s where we are,” Southwest Chief Executive Gary Kelly told investors and reporters last month. “The objective is simple: we need to encourage travel. We need to get more reserves. “
Most industry experts say they expect travelers to return in greater numbers this spring or summer, as the weather improves and more people are vaccinated.
But planning this is not easy. Passengers used to book flights months in advance, but now plans are usually confirmed weeks in advance. And trends in reserves are usually transient.
“Every time demand shows signs of life, it takes another step back,” said Hunter Keay, senior airline analyst at Wolfe Research. “So it is very difficult for airlines to go there and put aircraft on the markets, because if you get it wrong, it just exacerbates the cash burn problem.”
Perhaps the most difficult question for airlines and other travel companies is when executives, middle managers and other business travelers will be comfortable flying. In the last three months of 2020, corporate travel fell 85% or more on American, Delta and Southwest, according to airlines.
The American Hotel and Lodging Association, a trade group, said it does not expect business travel to fully recover by 2024. Other groups think it may take longer. In comparison, international business travel declined by just 13% during the financial crisis a decade ago, but it took five years to return to its previous high, according to McKinsey.
Some experts argue that corporate travel may never fully recover, with many face-to-face meetings permanently replaced by video conferences and phone calls. Trips to sales meetings, conventions and trade shows are less likely to be affected permanently, IdeaWorks, an industry consulting firm, said in a December report. But shorter trips to meet coworkers for a few hours – from New York to Washington, say – may be more affected, he concluded.
Airlines are more hopeful, perhaps because they rely heavily on corporate travel.
About 40 percent of Delta’s large corporate customers expect their business travel to be fully recovered by 2022, and another 11 percent by 2023, Bastian said in a conference call in January, citing internal airline research. Only 7% said business travel can never be fully restored, while the rest said they were not sure when things would return to normal.
American is “very optimistic” that corporate travel will return as vaccines are distributed, Vasu Raja, the airline’s chief revenue officer, told investors and reporters last month. But, he added, “the rate of this is not clear at best.”