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James Onieal & Jason DuVernay

Aviation Industry Updates: July 5, 2020

By Industry News

Airline Recovery Slower Than Expected | Who’s Winning? Who’s Losing?

KEY POINTS:

  • “The recent uptick in coronavirus cases in the U.S. has many wondering about the economic impact of the continuing pandemic, especially how it plays out for the travel industry.”
  • “Goldman Sachs now expects the recovery in air travel to take at least an extra year — to 2023 instead of 2022 — to return to 2019 levels, according to the latest update to the firm’s COVID-19 recovery forecast”
  • “While analysts at J.P. Morgan do not expect domestic air travel to recover until 2022 “at the earliest.”
  • “But the forecast is not all bad. Southwest Airlines, as well as other domestic-focused carriers, are expected to recover earlier and faster than their peers, according to the forecast.”
  • “The recovery could take longer for the “Big 3” — American Airlines, Delta Air Lines and United Airlines — due to their larger reliance on international and corporate travel.”
  • “Domestic travel is still expected to come back first, though that will be led by leisure travelers and not the high-revenue business flyers many carriers depend on.”
  • “Other countries where the virus has been brought under control faster, for example China, have seen a quicker recovery in domestic travel.”
  • “These analyses will determine how many employees will be furloughed or laid off on Oct. 1, the day after protections under the federal government’s coronavirus aid package expire.”
  • “American, Delta and United are all evaluating how many staff they will need for the next year.”

Click here to read the full article.

Southwest Down 70% | CEO Gives Clear Assessment

KEY POINTS:

  • “Our business currently is down roughly 70 percent.”
  • “If we were to reduce our 60,000-strong workforce by 70 percent, we’re talking about a loss of 42,000 jobs.”
  • “If things are still this bad in the fourth quarter, and we’re continuing to lose $20 million dollars a day, we can all quickly see we have very few options.”
  • Referring to participation in the voluntary leave programs, Mr Kelly said, “we want to get as many volunteers as we possibly can.”
  • “There will not be another offer. This is it, and this one will expire on July 15.”
  • “Our business remains far below what is sustainable to support 60,000 jobs.”
  • “The pandemic is surging, not receding, and this increases the threat of furloughs.”

We thank all our clients that have shared this information with our advisors.

Spirit MEC Memo | Furlough Mitigation Next

KEY POINTS:

  • Bookings have been reduced industry-wide and at Spirit, fortunately not as much as April or May.
  • Instead of growth, August schedules will be more like June.
  • Additional Voluntary Leaves will be offered.
  • Fleet and pilot group size into the winter and for 2021 has not been determined.
  • “There still remain three possible scenarios: a smaller airline, an airline that remains the same size, and an airline that potentially grows.”
  • “Demand in July will give Spirit a good idea as to the potential demand in the latter portion of 2020 and into 2021. Unfortunately, July doesn’t seem to be shaping up as we had hoped.”
  • Spirit ALPA MEC Leaders and company leaders will be meeting July 13 to discuss scenarios that include a “possible reduction of our pilot workforce.”
  • “Furlough mitigation options that may be helpful in reducing or eliminating the need for an involuntary furlough” will also be discussed.
  • As opposed to multi-fleet legacy airlines, “A reduction at Spirit takes far less time to implement” giving “Spirit more time to analyze data and trends prior to making their decision, and that’s a really good thing.”
  • “If a decision needed to be made today, Spirit likely would have to make the conservative move and proceed with a pilot furlough. The extra time afforded to us gives Spirit the opportunity to delay that decision and hopefully see things trend in a more positive direction.”

We thank all our clients that have shared this information with our advisors.

Weekly TSA Numbers | What’s The Trend Showing?

TSA Numbers July5 Email

Will Voluntary Programs Stop Furloughs?

The general optimism of recovery within our industry has taken a painful hit this week as airlines reported a new round of reductions in future bookings, right where the recovery is supposed to be led – domestic leisure. We saw some disheartening industry developments this week.

  • Spirit Airlines MEC leaders began messaging about furlough mitigation and will meet with management to discuss scenarios that include a “possible reduction of our pilot workforce.”
  • The upstart airline Breeze, led by David Neeleman, announced that they would delay their launch until 2021.
  • Southwest CEO Gary Kelly appeals to his employee groups to embrace voluntary leave programs.
  • The main TSA screening area was shut down in Atlanta after an employee tested positive for the virus.
  • Cities and states have individually added emergency quarantine restrictions, mandates on wearing masks, and in some cases reversing or stopped reopening plans.
  • Foreign governments have halted travel inbound from the United States.
  • Delta Air Lines sent over 2,500 pilots their contractually required 90-day warning of furloughs stating in part, “We regret to inform you that your position is anticipated to be affected and we anticipate that you will be furloughed on October 1. You will not have bumping rights because this furlough may be rescinded if necessary to meet operational needs. You should, however, plan accordingly and prepare as if you will be furloughed on October 1.”

On a positive note, JetBlue announced a plan to protect all of their pilots from furlough until May 1, 2021. The LOA doesn’t include “any changes to CBA pay rates or make significant modifications to work rules.”

Just as the rapid rise in Covid-19 stories began to climb United Airlines published an optimistic rally-cry to their employees and investors, “United Airlines Adds Nearly 25,000 Flights in August.” The story was shared broadly as an exciting turning point, the first sentence was clear, United would be “tripling the size of their August schedule compared to the June 2020 schedule.” United is looking to capitalize on leisure traffic focusing on mountain states, coastal areas, and islands.

While any news of growth is welcome, this increase brings United up to only 40% of what they flew in 2019. United went on to admit their domestic schedule in August will be 48% of their 2019 schedule, while their international trips account for 25% of last year’s schedule.

For comparison, American Airlines announced they plan to fly 55% of their domestic market compared to 2019 in July. American’s plan includes growth to 20% of its international market in the same timeframe.

Early June saw Delta set a goal of 1,000 flights a day added to their August schedule, Ed Bastian recently softened his tone stating that the August schedule is “probably going to come down a little bit.” Ed Bastian also noted that their August plans have the airline operating at about 40-45% of “normal” capacity in a shareholder call this week.

On the regional front, AirlineGeeks.com interviewed Mesa Airlines CEO, Jonathan Ornstein. The Fee-For-Departure CEO stated “Some of the regionals have had trouble and probably won’t make it. The three big independents – Mesa, Republic, and SkyWest – we should be okay” leading us to ask the question; how will legacy airlines redeploy their regional aircraft? Ornstein went on to say, “Owning your own regionals was the flavor of the month, the number of regionals has diminished incredibly.” Delta and American have wholly-owned regional partners.

Some regionals do stand to benefit from the domestic growth plans of their legacy partners. Mesa and SkyWest both reported quarterly profits in May. United Airlines clearly stated an intention to expand usage of GoJet Airlines CRJ-550 aircraft in multiple networks as part of their memo on August growth.

Recent headlines have pushed continued instability into the industry. Airline Executives and Union leaders are taking their best guesses based on frequently changing and opaque information, especially when attempting to forecast business travel. While we hope progress towards normalcy continues, weeks like this show us how precarious this recovery continues to be.

Click here to read the interview with Jonathan Ornstein.

Additional Resources

Why Applying for Jobs Online Won’t Work

How Does the Coronavirus Compare to 9/11?

How to Survive Disruptive Change

Are Furloughs Coming?

What Should Pilots Do In These Uncertain Times?

Aviation Industry Updates: June 28, 2020

By Industry News

Delta Preparing to WARN 2,558 Pilots | Just Another Negotiating Tactic?

This past Friday (June 26) Delta Air Lines and DAL ALPA released LOA #20-02, “2020 Voluntary Early Out Program (VEOP)” to “incentivize pilots to retire in lieu of a possible involuntary reduction in pilots.”

In a separate memo from Director of Flight Operations, John Laughter, he reiterates his message from previous communications “early retirements alone likely won’t be enough to avoid pilot furloughs altogether.” Read More

Aviation Industry Updates: June 21, 2020

By Industry News

Will the Legacy Airlines Declare Bankruptcy? | Crazy Talk or Probable?

KEY POINTS:

  • “The nature of the airline business causes enormous operating leverage. For a given flight almost all of the costs are fixed. Thus, a small decline in revenue causes a very large decline in operating profit.”
  • “On top of enormous operating leverage, the capital intensity of the business, causes most legacy airlines to also use tremendous financial leverage. Financial leverage is the use of debt, or debt-like instruments such as financial leases, to acquire the assets required to operate the business.”
  • “The combination of operating and financial leverage, usually means that a 15% decline in revenue is enough to send an airline into chapter 11 bankruptcy.”
  • “Events such as Hurricane Katrina, the 9-11 terrorist attacks and recessions have typically caused reductions in revenue that pushed some legacy airlines into bankruptcy and wiped out the shareholders.”
  • “A 15% decline in revenue has been fatal for many airlines. Covid-19 has reduced airline revenue by 80%. There has been some recovery in bookings. However, normally most reasonable estimates of legacy airline revenues for the next 12-month period, are such that would have caused at least one legacy airline bankruptcy, and brought the share prices of the others down to single-digit levels. That has not happened this time. Yet.”
  • “Doug Parker, head of American Airlines is probably the one airline CEO who is likely to resist bankruptcy the most, even if he could personally benefit from it. Unfortunately for Mr. Parker and AAL shareholders, American Airlines is probably the weakest major US airline, as it already has negative book value and thus no equity. It will probably the first to be insolvent, although other airlines may file for bankruptcy first.”
  • “Without massive infusions of cash from the government, there is no possibility that any of the legacy airlines could ever get to breakeven as long as Covid-19 is still a significant factor.”
  • “Most of the legacy airlines have assets on their books whose value is now far overstated. Before Covid-19 slots and landing rights were very valuable assets. That was because airport capacity was constrained in many markets. Whether air travel is at 15% or previous levels, or at 50% previous levels, there is still substantial over-capacity at every airport. Not only do slots and landing rights have no market value now, but airport operators are going to be looking to the airlines to pay higher fees, to offset the airport’s vastly reduced revenues.”
  • “Even a vaccine would not turn ALL’s book value positive, but it probably would boost all share prices including the legacy airlines. However, unless the legacy airlines are able to use such a rally to sell new shares to the public such a medical advance might be too late for the legacy airlines.”

Click here for the full article.

U.S. Travel Spending Not Expected to Recover to Pre-Covid Numbers Until 2024

“Total travel spending from both domestic and international travelers in the U.S. is forecast to plunge 45 percent by the end of 2020, and not expected to recover to pre-Covid numbers until into 2024, with international visitor spend maybe until 2025, according to new research from analytics firm Tourism Economics commissioned by the U.S. Travel Association.”

US Travel Forecast June 21 Email
  • “There is some hope that would-be U.S. outbound travelers who can’t go abroad this year will pivot to being domestic travelers, but these new numbers still predict a significant loss.”
  • “The data is telling us that travel and tourism has been more severely damaged than any other U.S. industry by the economic fallout of the health crisis.”
  • “Given that travel employed one in 10 Americans and was the No. 2 U.S. export before the pandemic, supporting this industry through to the recovery phase ought to be a national priority.”

Click here for the full article.

Corporate Aviation Continues to Surge on Health Fears, Lower Prices

KEY POINTS:

  • “While commercial airlines are having a slow recovery, private-jet companies are seeing a surge in business from new customers.”
  • “Commercial traffic is running about 15% to 17% of last year’s totals, but private flights are running at up to 70% or more of normal, according to industry data and Private Jet Card Comparisons.”
  • “The private-jet industry is seeing a rapid rebound from the coronavirus crisis, as new customers who had never flown private splurge to avoid the crowds and lines of commercial flying.”
  • “New customer sign-ups with industry leader NetJets in May were more than double the typical May, according to Pat Gallagher, the company’s president of sales, marketing and service.”
  • “While business travel remains almost nonexistent, private-jet companies say personal travel by wealthy affluent fliers — many of them older — have more than taken up the slack. They say that while many families who could afford to fly private couldn’t justify the costs, they are willing to spend the extra money for greater health safety.”
  • “Prices for certain flights are now 30% to 50% cheaper than they were a year ago, bringing private-jet flights closer in line with first-class or business-class seats.”
  • “Because commercial airlines have also suspended flights out of certain smaller airports, private jets have become more attractive to fliers who don’t want to travel to larger airports.”

Click here for the full article.

Does JetBlue Have Enough Cash To Support Losses In 2020?

KEY POINTS:

  • “JetBlue Airways stock has lost nearly 36% of its value since the beginning of the year.”
  • “At $5 million of daily cash burn and gradual demand recovery possibly in Q3, the company has a strong liquidity position to cover fixed costs and repay its short-term debt obligations.”
  • “Even in the pessimistic scenario, where demand recovery happens by October and the cash burn rate remains the same, the $3 billion of liquidity can address operating losses.”
  • “However, if the demand does not recover by October, the daily cash burn rate would surge by $6 million just from employee costs. While the company can raise $1 billion in additional debt under the CARES Act, it would have to re-negotiate with all stakeholders to further reduce the cash outflow.”

Read on to see Forbes break down two possible scenarios for JetBlue.

Weekly TSA Numbers:

“There’s a lot you can do far above and beyond being positive. There is no reason to be hopeless here, you can take control over how you adapt and react to highly unfair circumstances…Hopium, irrational or unwarranted optimism, is a dangerous and addictive drug. Friends don’t let friends do Hopium…it’s equally as dangerous as hopelessness but for different reasons.”

-James Onieal

TSA Numbers June 21 Email

Mega U.S. Business Travel Buyer Looks to Shrink Air Travel Post-Pandemic

Will EY’s decision ring true with the other Big Four accounting firms? Airlines depend on corporate travel and with billions of dollars to lose, the repercussions could be staggering.

KEY POINTS:

  • “Ernst and Young LLP sees an opportunity to cut its carbon footprint measurably when pandemic travel restrictions end by not returning to the amount of air travel its accountants and consultants used to do.”
  • “For EY, $1 billion worth of air travel amounts to 85% of the firm’s carbon footprint normally.”
  • “We don’t think we need to be back to spending a billion dollars and creating the carbon footprint that we had. We think we can do our jobs with less of that.”
  • “The pandemic offers companies like EY the chance to rethink how they conduct business and will accelerate efforts to meet long-term sustainability goals.”

Click here for the full article.

Additional Resources

Why Applying for Jobs Online Won’t Work

How Does the Coronavirus Compare to 9/11?

How to Survive Disruptive Change

Are Furloughs Coming?

What Should Pilots Do In These Uncertain Times?

Aviation Industry Updates: June 14, 2020

By Industry News

American Publishes Preliminary Displacement | Why So Different Than United & Delta?

The Preliminary American Airlines Displacement award for the September 2020 vacancy run has been published and it affects approximately 2,291 pilots. The final award is expected to be published on June 18th with an effective date of August 31, 2020. We will continue to monitor the airline and Allied Pilots Association union (APA) communications, as well as input from our clients, to provide you with accurate final results.

Bottom line, if you’re an airline, military, or corporate pilot looking for work, American’s displacement bid is optimistic news for you. While American may very well furlough enough pilots to significantly increase competition they may still furlough less than United and Delta. We will find out more as their bid process progresses. Read More

Aviation Industry Updates: June 7, 2020

By Industry News

United Publishes Second Displacement Bid | Management’s Math Inconsistent

Disclaimer: Our writers have spent the past week painstakingly verifying all information contained below and recognize a few limitations in United’s data. United does not publish dates of hire, only seniority numbers on their seniority list. Because of previous mergers, seniority numbers don’t easily correlate to dates of hire. Additionally, United’s bidding system is very complex which leads to constantly changing information. As such, we commit to keeping you updated as information changes and recognize some information may become inaccurate as bidding progresses.

United published their 2nd Pilot Displacement Bid on June 4, 2020 uprooting approximately 1,591 pilots. According to a memo published by United Airlines ALPA “this displacement was reduced more than 50 percent from what was originally planned only hours ago.” This comes on the heels of United’s first bid which occurred on May 2, 2020 and displaced over 4,700 pilots, as part of the company’s plan to cut the airline by 30%. Read More

Aviation Industry Updates: June 2, 2020

By Industry News

Delta Publishes 7,000+ Pilot Displacement Bid | What Does This Mean for Furlough?

KEY POINTS & HISTORICAL CONTEXT:

  • This displacement will affect 7,096 pilots of which 6,633 of those pilots will be displaced by force, not choice. This equates to over 47% of the Delta seniority list.
  • Anyone hired after December 2016, within the past 2 years and 3 months, will not be assigned an aircraft. This means approximately 2,327, 16% of their pilots, are in severe danger of possible furlough.
  • For historical comparison, post 9/11, airlines saw a 30% traffic decline, similar to the projections airline executives are currently making for the Covid-19 recovery.
  • Prior to 9/11, if you were to combine their seniority lists, Northwest and Delta employed 13,753 pilots. Post 9/11 they furloughed a combined 1,988 pilots which was 15% of their seniority list.
  • Currently, the most junior Captain at Delta was hired in mid-2018. After displacements and furloughs are complete, a junior Captain will be around a February 2001 hire date.

BOTTOM LINE: Read More

Aviation Industry Updates: May 24, 2020

By Industry News

Leisure Travel on the Rebound? | ULCC’s Show Signs of Recovery

If you’ve been fortunate enough to fly in the past few days I am sure you noticed what I have, the seats are starting to fill up again. It seems one sector is starting to tick toward profitability, or at least toward a halt of cash burn. Many are saying that the recovery in air travel will be led with domestic leisure travel; are Low Cost Carriers going to lead the way to recovery? Read More

Aviation Industry Updates: May 17, 2020

By Industry News

Delta Publishes Displacement Bid | What Does This Mean For Furloughs?

Editorial Disclaimer:

The below post references numerous facts and figures sited by Delta in their recent May 2020 Advance Entitlement/Surplus Bid Posting. When reading the bullets from the Delta memo, you will notice the numbers published are confusing at times. For instance, Delta has stated in an open company memo that they are overstaffed by 7,000 pilots come this fall, yet in this recent bid posting they go on to say that by Q3 2021, they will be overstaffed by between 2,500 and 3,500 pilots. Please read carefully and if you have any questions, don’t hesitate to reach out. Read More

Aviation Industry Updates: May 10, 2020

By Industry News

United Reduces Pilot Displacement Numbers | How Will This Affect Furloughs?

This week saw a reversal in United Airlines initial displacement award according to comments from our clients. Last week United Airlines and the UAL ALPA MEC published memos to their pilot group outlining plans to displace 5,007 pilots. The pandemic of COVID-19 has resulted in a massive drop in demand for the airline industry. Read More

Aviation Industry Updates: May 3, 2020

By Industry News

United Publishes 5,000+ Pilot Displacement Bid | What Does This Mean For Other Majors?

KEY POINTS:

  • United has announced the largest displacement in its history which will impact all pilots in one way or another.
  • The displacement notice stated this is likely the first in a series of changes to pilot staffing that will ultimately be driven by demand.
  • More than 5,007 total pilots were named in displacement letters. Read More