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Aviation Industry Updates: December 1, 2020

By Industry News

Delta Air Lines Avoids Pilot Furloughs


  • A month ago, Delta Air Lines reached a tentative agreement with its pilot union — the Air Line Pilots Association (ALPA) — to avoid pilot furloughs. The deal offered partial pay for more than 1,700 pilots who would have been furloughed, in exchange for a modest reduction in the number of guaranteed hours for the rest of Delta’s pilots.
  • Last week, ALPA announced that Delta’s pilots had ratified the agreement with a strong 74% majority.
  • The company addressed much of its overstaffing through a voluntary early retirement program, which reduced its headcount by about 18,000 (nearly 20%). As of October, Delta still had 12,000 employees out on voluntary unpaid leaves of absence as well. These programs — along with reduced work schedules for non-union employees — enabled Delta to avoid involuntary furloughs for virtually all work groups.
  • Delta proposed reducing all pilots’ guaranteed hours by 15% in exchange for forgoing furloughs. ALPA (the pilot union) refused, suggesting that Delta offer pilots partially paid leaves instead.
  • The two sides reached a compromise in late October. Delta will pay all of the pilots who would have been furloughed for 30 hours of flying per month: less than half of their normal guarantee. (They won’t have to work.) Meanwhile, the rest of its pilots will have their minimum guarantee reduced by a modest 5%.
  • That will still provide meaningful cost savings for Delta, as the more-senior pilots who are still working have much higher hourly wages than the junior pilots getting partial pay. ALPA also secured various other favorable contract amendments.
  • Delta will benefit in two main ways from avoiding pilot furloughs. First, the airline should be able to avoid some unnecessary pilot training events that would have been inevitable had it furloughed lots of pilots.
  • Second, by keeping all of its pilots on the payroll, Delta will have more flexibility to restore capacity as demand recovers. The furlough recall process can be slow, and frankly, airlines have no idea what demand will look like over the next two years. Being able to react to booking trends by adjusting flying on short notice will be an important competitive advantage in the near term.

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Four Trends To Watch | These Plot The Recovery ​


While we’re likely years away from a full recovery, the passage of time has allowed the industry to recalibrate and reevaluate business models, market assumptions and day-to-day operations. The following four trends will be important to watch.

Business and leisure travel demand will return

  • There is still no real substitute for in-person meetings, especially when it comes to establishing the rapport and trust necessary to win new business.
  • After all, it was widely predicted at the time of the telegraph, telephone, the fax machine and email that these new technologies would slash the need for travel. The opposite occurred. Each one enabled even more business travel.
  • Ultimately, travel is a global phenomenon that is not going away. It’s a badge of a middle-class lifestyle and an experience that millennials value more highly than goods.

Proper government action is crucial

  • As of the end of August, 81 separate countries and EU-level entities had committed up to $158 billion in support for the airline industry, according to industry reports.
  • Overall worldwide spending on air transport was estimated at $873 billion in 2019.
  • There is no consensus on the proper path nations should take, but it’s safe to say the viability of the airline industry worldwide hinges in large part from a balanced border control strategy that accounts for both needs of safety and openness.

Airlines will experiment with pricing and cost structure

  • The strength of leisure travel rebound will depend, in part, on how effectively airlines can use pricing to stimulate demand.
  • If passengers have positive experiences, the airline would have effectively “broken the seal” on their reluctance to travel, giving way to more frequent excursions and positive word of mouth stemming from their positive (and safe) experiences.
  • Look for creative ways airlines are shifting operations and cost management which will allow for demand-stimulating pricing and business model innovation.

More airline bankruptcies and consolidations, but also new entrants

  • Here’s a near certainty: Only the stronger airlines will survive coming out of COVID-19. Those that were well capitalized and well-operated are best positioned to be victors of the consolidation game — a much-needed strategy to weather a multi-year recovery of passenger demand. Other winners include airlines that have coordinated government support.
  • The airline industry is no stranger to bankruptcies and consolidations (remember TWA, Northwest, Mexicana and Pan Am), so we should expect orderly restructurings and mergers in the months (and years) ahead.
  • But consolidation creates a window for new entrants who are able to start-up at the bottom of the cycle leveraging available surplus skilled labor and assets (aircraft) at their disposal.

These four trends illustrate the tensions the airline industry face now and the moves that are being made in response. The airline industry will survive and thrive once again, but how it changes, who the key players will be, what the passenger experience will be and how all stakeholders work to operate in the black will be a fascinating case study in organizational management, competitive positioning, and operational efficiency. And with all of that change, there is opportunity.

The Hill

Airlines On Track To Lose $157 Billion | Cargo Continues Kicking A**


  • Airlines are on track to lose up to $157 billion between this year and next year, according to the International Air Transport Association (IATA) – a sharp increase over their June projection of $100 billion in losses they made in June for the same period.
  • The new projection includes a $118.5 billion deficit for 2020, and at least $38.7 billion for 2021, according to Reuters, which suggests that the bleak outlook “underscores challenges still facing the sector despite upbeat news on development of COVID-19 vaccines, whose global deployment will continue throughout next year.”
  • Passenger numbers are expected to drop to 1.8 billion this year from 4.5 billion in 2019, IATA estimates, and will recover only partially to 2.8 billion next year. Passenger revenue for 2020 is expected to have plunged 69% to $191 billion.
  • IATA recommends that governments stop travel-killing quarantines and instead implement widespread testing for COVID-19.
  • Meanwhile, air cargo is doing extremely well during the pandemic – and will likely see global revenues rise 15% to $117.7 billion in 2020 despite a decline in volume of 11.6% to 54.2 million tons according to the IATA


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Aviation Industry Updates: November 24, 2020

By Industry News

The 737 MAX Is Back | Just What Passenger Confidence Needs


  • Twenty months after it was first grounded following two fatal accidents, the US Federal Aviation Administration (FAA) has cleared the way for the airplane to fly again.
  • For the airlines that will operate the MAX, this creates a complex problem. How will they handle it when a traveler is afraid to get on board?
  • At the time of the grounding, American, Southwest, and United were the only US-based operators flying the MAX with a total of 72 aircraft in their fleets, according to Cirium data. Those were promptly sent to long-term storage and further deliveries were suspended.
  • …the belief that the MAX was unsafe became pervasive in travelers’ minds.
    The MAX has now been so thoroughly reviewed by regulators and reworked by Boeing that it should be considered incredibly safe.
  • Earlier this year, Boeing CEO Dave Calhoun seemed inclined not to make changes. “My instincts are that a change, just a straight-out change with a new name would be sort of silly,” he said. “Our opportunity is simply to restore the faith and trust in the 737 family.”
  • Airlines also seem to be embracing the idea that cutting the connection with the past is a bad idea for building customer confidence. All of the US-based operators have made it clear they’ll ensure the customer knows they will be flying on a MAX for the sake of transparency.
  • If a traveler doesn’t want to fly the airplane, a spokesperson for the airline succinctly explained the airline’s strategy, “In short: transparency and flexibility.”
  • American says it will have an “enhanced notification process” to tell travelers they’ve been moved to a MAX. Travelers will then be able to switch to a different flight or, if no other option is available, change their destination to anywhere within 300 miles of the original destination. Travelers can always cancel the flight and put it into a credit for future travel as well.
  • United also confirmed that travelers who do not want to fly on a MAX will either be rebooked at no cost or will be eligible to have their tickets refunded.
  • Southwest was the largest operator before the grounding with 34 MAX aircraft in the fleet. It is taking a slower approach with no return to service until the second quarter of 2021. In the meantime, it has created an online 737 MAX Resource Center for customers.
  • When the MAX does return to service and travelers see the aircraft flying safely day after day, the hope is that the fear will fade and most people can go back to forgetting about what aircraft they’re flying on, just as it used to be.
    Until that happens, however, travelers will have plenty of options to avoid the airplane.

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International COVID-Free Flights Now In Operation | How Are Passengers Reacting?


  • The first proven Covid-19-free flight will touch down at London Heathrow from New York’s Newark airport. It’s the first plane to arrive in a month-long trial that is hoped will get the travel bridge between the U.K. and the U.S. up and running again.
  • It will be Covid-19-free because all the passengers and crew onboard the United Airlines flight will have been tested for Covid-19, at the airport immediately before they fly, and only travelers with negative results will be allowed to travel.
  • According to a company statement, United Airlines said, “from November 16 through December 11, the airline will offer rapid tests to every passenger over 2 years old and crew members on board select flights from Newark Liberty International Airport (EWR) to London Heathrow (LHR), free of charge.
  • The economic value of flights between the U.K. and the U.S. shouldn’t be underestimated. A leading aviation industry company calculated that with an expected 85% decrease in flight capacity planned between the U.K. and the U.S. from October onwards, approximately £32 million ($42 million) is wiped off U.K. GDP each day.
  • Industry professionals have been pushing for rapid PCR testing at airports to allow passengers to board planes after taking a test upon arrival at the airport, rather than having to quarantine upon arrival for 14 days.
  • On 10 November, the U.K. government signaled that it was ready to expand rapid airport testing for Covid-19 across all U.K. airports should the results of several trials prove their effectiveness.


Rosy Rebound | Private Air Travel Sees Spikes… What Does This Mean?


  • Speaking separately, top executives for the three largest fractional and charter aircraft operators offered a rosy view of the rebound and the likelihood that it has wings.
  • Andrew Collins, the CEO in charge of Directional Aviation’s jet card and charter units – Sentient Jet, FXAIR, and PrivateFly – told attendees he recently reinstated his pre-pandemic budgets for the year and is “hitting most of those numbers.”
  • Kenny Dichter, the founder and CEO of Wheels Up, told attendees his company would increase members from 6,000 at the end of 2019 to 10,000 by year’s end.
  • Speaking about the recovery, he noted, “If you look at the flight action, we’re at pre-COVID levels, and you have only one leg of the demand stool pushing that, and that would be the high net worth travel. We’re really bullish that the traditional vacation flyer and business flyer, which are the other two legs of the stool, are going to come back strong. I think we are going to see unprecedented levels of flying in the domestic profiles.”
  • After initially pulling back at the outset of the crisis, NetJets reversed course by July. That enthusiastic outlook is still in full force.
  • Patrick Gallagher, president of Berkshire Hathaway’s business aviation unit, said the seller of fractional shares and jet cards would take delivery of 10 new private jets through the end of 2020 and over 30 for the full year. What’s more, he said plans call for at least 40 new aircraft deliveries in 2021 and each year for the next decade. “We think we have a nice long runway of an increase in new business.”
  • In terms of activity, he says flying is at about 85% of pre-COVID levels, with expectations that numbers will bounce back to 2019 levels by the middle of next year.
  • Rob Scholl, senior vice president of sales for Textron Aviation, said turboprops and smaller private jets are attracting first-time buyers.
  • Michael Amalfitano, the CEO of Embraer Executive Jets, said while first-time buyers typically make up just 10% of purchasers, for entry-level jets, it is running as high as 50%.


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Aviation Industry Updates: October 20, 2020

By Industry News

Ticket Prices Plummet While Cargo Revenues Increase


  • “US airlines are in the crappiest recovery ever. They’re getting hit in two ways: The number of passengers is still way down, seven months into the pandemic, or actually over eight months into it because for airlines it started at the end of January with flight bans; and on top of it, ticket prices have plunged — the toxic mix of crushed volume and crushed prices.”

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