Airlines around the world are racing to preserve cash as demand for flights craters after political leaders turn to increasingly draconian measures that have disrupted daily life in an effort to stop the spread of COVID-19.
Now U.S. airlines are grappling a scenario that unthinkable earlier this year when they reported record revenues: a suspension of U.S. air travel.
On Sunday, acting Homeland Security Secretary Chad Wolf said “all options remain on the table” when asked at a White House press conference whether the administration is considering a halt of domestic air travel. A day earlier, President Donald Trump said the American public should avoid unnecessary travel. Early Monday, the administration expanded its 30-day ban on most European visitors to Ireland and the U.K., an unprecedented curb on international travel.
While it is not guaranteed that the administration will take that route, which would be the first time the U.S. instituted a blanket air travel ban since the wake of the Sept. 11, 2001 attacks, or whether it would last two weeks, a month or longer, several executives told CNBC that they are considering all possibilities. Trump, speaking on Saturday, said he is considering potential travel curbs to areas hard hit by the new coronavirus, which has infected roughly 170,000 across the world and killed more than 6,500, according to data compiled by Johns Hopkins University. In the U.S., It’s spread to roughly 3,800 and killed at least 69, according to Hopkins.
The abrupt cuts across airlines promises to reverberate around the economy. U.S. airlines alone employed some 747,000 people as of the end of January, federal data show, but as carriers park aircraft and defer orders manufacturers as large as Boeing and Airbus, and their suppliers, are now on shakier footing.
A United Airlines plane sits parked at a gate at San Francisco International Airport on March 06, 2020 in San Francisco, California.
Justin Sullivan | Getty Images
Airlines expect to receive some form of government support but it’s not yet clear what form it will take. Executives have warned the drop in demand is more severe than after 9/11.
“We are working night and day on support and ideas to keep as much pay as we possibly can flowing to you — even if gets worse from here and demand temporarily plummets to zero,” United Airlines CEO Oscar Munoz and the airline’s president, Scott Kirby, who is scheduled to take the reins in May, wrote to employees on Sunday night.
United said it expected its March revenue to be $1.5 billion lower than at the same time in 2019 and said it will slash capacity by 50% in April and May, cuts it expects to extend to the summer, the lucrative peak travel period. The Chicago-based airline, which had about 96,000 employees as of the end of last year, is in talks with unions to figure out how to reduce payroll expenses.
“We took early, aggressive action because we have been determined to do everything possible to avoid painful steps that affect your paycheck,” the United executives wrote. “But, based on the severity of the situation, that no longer appears realistic.”
Stifel analyst Joseph DeNardi on Monday lowered its rating of United to hold saying: “Given recent trends and chatter that some form of a domestic travel ban is likely, our estimates now assume United stops flying in 2Q20.” He estimated revenue would decline 9% in the first quarter, 95% in the second quarter of this year.
American Airlines over the weekend said it plans to slash its international flying by 75% to May 6 and that it will cut domestic capacity by 20% in April from a year earlier’s level and by 30% in May. It will park most of its wide-body fleet.
On Monday, the union that represents American’s some 15,000 pilots said it reached an agreement with management to offer aviators up to 12 months of unpaid leave. Pilots nearing the federally-mandatory retirement age of 65 can choose not to fly and receive partial pay, the union said.
The cuts follow a grim announcement on Friday from Delta Air Lines’ CEO Ed Bastian, who told employees the company would cut capacity by 40% in the coming months — the largest cut in its history — freeze hiring, park 300 planes and defer new aircraft deliveries. It will also ask employees to take unpaid leave to help preserve cash.
“The speed of the demand fall-off is unlike anything we’ve seen – and we’ve seen a lot in our business. We are moving quickly to preserve cash and protect our company,” Bastian wrote.
Both United and Delta executives have said they’re in touch with officials in Washington about possible measures to help the industry through the turmoil.
“We are in discussions with the White House and Congress regarding the support they can provide to help us through this period. I’m optimistic we will receive their support,” Bastian wrote. “That said, the form and value is unpredictable, and we can’t put our company’s future at risk waiting on aid from our government.”
In Europe, where countries are also taking extreme measures such as a shut down of public activities, airlines acted to cut costs on Monday, a scramble executives cast as a bid for the airlines’ survival.
British Airways and Iberia parent International Airlines Group said it will cut capacity by “at least” 75% from 2019 levels in April and May.
Austrian Airlines said Monday that it will suspend its entire regular schedule by Wednesday because of entry bans and the spread of coronavirus. Scandinavian carrier SAS said it would stop most of its flying and temporarily lay of 90% of its staff, or about 10,000 employees.