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Aviation Industry Updates: July 5, 2020

By July 5, 2020 July 11th, 2020 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?