Analysts, airlines and trade groups are warning that passenger traffic could be down as much as 50% compared with 2019 levels, at least for much of the year
The airline industry is starting to lower expectations for a robust recovery next year following signs that travelers just aren’t ready to get back on planes this holiday season.
Analysts, airlines and trade groups are warning that passenger traffic could be down as much as 50% compared with 2019 levels, at least for much of the year. A meaningful recovery could take even longer depending on how long it takes to develop and distribute a long-awaited COVID-19 vaccine.
“The reality is the virus is not at the level of containment that we all thought it would be when the first (stimulus) grant was issued, and we will all need additional time to get our businesses in a better spot over it to get ready for next year,” Delta Air Lines CEO Ed Bastian told investors Tuesday.
“To see a meaningful step up in demand from here, we will need business travel to further improve, local quarantines to end, and international restrictions to lift,” he said. “That will only come with widespread advances by the medical community and offices reopening, which many expect will start to happen in the first half of next year.”
In the meantime, airplane manufacturers and analysts are painting a bleak picture for 2021. They see airlines flying only a fraction of the travelers they carried in 2019 and struggling to stop losing money on a daily basis.
The International Air Transportation Association last week said it doesn’t expect cash burn for the global industry won’t stop until at least 2022. Airlines for America, a trade group representing the seven largest U.S. airlines, said air traffic will be down 35% to 60% from 2019 levels.
Helane Becker, an analyst with Cowan, estimated that airline revenues still will be down 44% by the end of next year.
After an initial boost in traffic in May and June following the worst of the pandemic’s effects on airlines, traffic has flattened and the recovery has slowed dramatically. Hopes for a robust holiday flying season are diminishing as airlines slash holiday travel schedules.
It could be spring break, nearly six months from now, before airlines truly see whether passengers come back in large numbers.
It will likely take even longer for airlines to stop bleeding money because of discounted fares and open middle seats on some carriers.
Even the economics of how full planes need to be to break even is working against airlines. In normal times with normal ticket prices, planes need to be between 75% and 79% full for a flight to break even on costs.
During the second quarter, 124% of seats had to be filled to break even and that number is only supposed to get to 89% by next year’s first quarter, according to Airlines for America. Of course, it’s impossible to fill more than 100% of seats on a commercial aircraft. With several airlines still underselling planes to leave middle seats open, it’s often impossible to get over 66%.
It’s those kinds of projections that are prompting airlines such as Southwest to demand wage cuts from its union employees next year and other carriers to beg the government for more stimulus to cover payrolls.
“Absent substantial improvements in our business, our quarterly losses could be in the billions until vaccines are available, distributed, and effectively kill the pandemic_and at best that’s looking like late next year,” said Southwest CEO Gary Kelly in a message to employees calling for 10% pay cuts in 2021.
Even by the CDC’s best estimates, a vaccine wouldn’t be widely available until the third quarter of 2021.
Kelly acknowledged that 10% pay cuts for its 60,000 employees “won’t restore our profitability” but said it’ll help the airline cut expenses while it works to grow revenue. That includes recent moves to expand into airports such as Miami, Palm Springs, Chicago O’Hare and Houston Intercontinental, even though Southwest already serves airports in those markets.
And airlines have another deadline coming next year.
Some 24,000 American Airlines employees took voluntary leave or early retirement. At Southwest Airlines, 17,000 workers took buyouts or time away. Most voluntary leave options were for three months to a year.
With a majority of those workers looking to return to work in 2021, airlines will need to find out what to do with thousands more workers added back to payrolls.