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Aviation Industry Updates: May 4, 2021

By May 4, 2021 May 11th, 2021 Industry News

United Airlines | 2 Big Variables Preventing Profitability

KEY POINTS:

  • United Airlines CEO Scott Kirby says business and international travel has to return to about 65 percent for the airline to see profitability.

  • “We’re not sure on the timing. There’s two big variables that we need. One, we need business travel to come back, and two, we need the international border to reopen….What we really need to do is get back to about 65 percent of normal levels for business demand and international, long-haul demand to get to break even.”
  • United’s best guess for when business travel will come back in earnest will be September
  • Kirby states that they are definitely coming back but it’s currently biased towards the leisure markets
  • “Our guess is, by the end of the year, we will be back to where we were pre-pandemic” – in response to being asked about hiring

Video – Washington Post

New 737 Max Issues | Boeing Shares Fall As A Result

KEY POINTS:

  • Boeing said Wednesday it paused 737 Max deliveries over an electrical issue that has partly re-grounded the fleet, and sounded notes of caution over surging coronavirus cases in India and simmering US-China geopolitical tensions
  • A barrage of technical and financial challenges clouded optimism over a resurgent US domestic travel market fueled by vaccinations and pent-up demand.
  • Boeing has delivered more than 85 737 Max jetliners since it was cleared by most regulators to re-enter service late last year following two fatal crashes, lifting revenue and cash flow.
  • Boeing said it still expects to deliver half the 400 Max jets in inventory by end of 2021, with a return to positive cash flow in 2022.
  • Boeing reported a core operating loss of $353 million in the first quarter, its sixth-straight quarterly loss, compared with a loss of $1.70 billion a year earlier.

New York Post

New Survey Shows Business Travelers Ready To Fly | Here’s Why Many Won’t

KEY POINTS:

  • A recent survey sponsored by Chubb and published by Dynata shows that just under 50% of business travelers say they would be comfortable flying domestically, while just 31% say would fly internationally.
  • Yet, despite what these data show, the real number traveling may be quite different from what was estimated. That’s because surveys like this are notoriously inaccurate, since what people say they will do or pay often does not relate to what they actually do. Further, business travel is not always only the choice of the passenger.
  • A recent study showed that about 20% of all pre-pandemic business travel was for intra-company travel. This means expenses to see other members of the same company, without ever touching a client. This travel must be sanctioned by the company, and likely going forward much of this will be done by video to save expenses. The traveler won’t make this decision in most cases — the company will decide they don’t need to take the trip.
  • Another reason that a survey like this must be used carefully is due to what researchers call stated vs revealed preferences. Stated preferences are what people say they will do, but their actions reveal what they really do. Ask people if they would pay for faster wi-fi on an airplane, and many would say they would happily pay $1 or more for this. But airlines that have funded this expense find virtually no increase in purchased revenue, because once faced with having to pull out a credit card, the slower wi-fi seems just fine.
  • I earlier wrote that October would be a bellwether for airline business traffic. That’s because by October, at least domestically, everyone who wants to be vaccinated will have had that opportunity and more people are likely to be open to in-person meetings. Health concerns are reduced at that point, so more real data points of how companies choose to fund business travel and how many conventions really happen will start to be revealed.
  • Asking people if they will fly this fall for business would not give an accurate answer to this, but seeing how many people really do travel for business during a normal peak for annual business travel will tell a lot.
  • Surveys can tell businesses a lot of things, but they are not the best tool for determining how people will actually behave. For that, dig a little deeper and watch the data.

Forbes

Far Less Government Aid | Here’s How ULCC’s Compare To United, Delta, & American

KEY POINTS:

  • American ultra-low-cost carriers Sun Country Airlines and Frontier Airlines will – combined – receive just over $180 million in government aid. Under the third round of payroll support extensions, the two carriers will receive an additional influx of cash to keep the carriers running through the summer and beyond.
  • Frontier Airlines also, separately, agreed to additional government support. Under the agreement, Frontier will receive a total of $150.2 million. The first installment of around $75.1 million was disbursed to the airline on April 29th, 2021.
  • Sun Country’s $34.5 million and Frontier’s $150 million are far less than the likes of larger airlines. United Airlines will receive a total of $3 billion in government aid. Delta Air Lines is set to take $3 billion in payroll support. American Airlines will take roughly $3.3 billion in payroll support.
  • Both airlines are also coming off of successful initial public offerings (IPOs). The two airlines came on the stock exchange within a few weeks of each other, and both IPOs brought a financial windfall to each carrier. Sun Country Airlines is planning to expand significantly and take on more mid-life used Boeing 737 jets.
  • Spring break showed that there was truly pent-up demand in the US, and fewer summer travel restrictions combined with growing vaccinations and declining case counts spell good news for the summer.
  • For now, having the additional liquidity will help keep both airlines’ coffers full in case turbulence does hit either airline. In addition, it also makes it easier for the carriers to run flights with payroll paid for, as the threshold for turning a profit is reduced with the fixed costs of employees already covered.

Simple Flying

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