I’m sure this has been a really challenging month for you. After all, since you were hired in the last decade, you’ve never seen anything like this before. Take a deep breath and get ready. It’s going to be a rough ride. I don’t know how long this will last, but eventually, we’ll all come out on the other side.
You are certainly not alone. Back in 2009, we were coming out of the Great Recession. At the end of the year, there were 563,689 people working for airlines in the US. By the end of 2019, that number had soared to 749,965. When you count retirements and turnover, it’s easy to imagine even more employees who have seen nothing but unprecedented expansion since they started.
The most you’ve had to complain about is merging seniority lists, switching payroll systems, and itchy uniforms. Sure there have been pockets of trouble, but there hasn’t been anything that has made you wonder whether your airline would continue to exist until now, at least not on this level. That can lull you into a sense of complacency that no previous airline employee has ever experienced since deregulation.
Just look at those wild swings in airline profits. Oh sure, the 1990s eventually had a few good years between the Gulf War and the one-two punch of the dot com bubble bursting and 9/11, but it was nothing like what we’ve seen this last decade.
Though I don’t know how bad this current coronavirus crisis will be or how long it will last, it’s safe to say it’s going to be very, very bad for the airline industry. It already is, of course, and there’s room for it to get worse. That means all of those concerns about improving work rules and getting pay raises will take a back seat to just hoping you still have a job.
What can you do about it? Well, not much. That’s what’s most frustrating. You are ultimately at the whim of the fickle demand curve. If enough people will pay enough money to buy plane tickets, then all is well. If they won’t, well, trouble is brewing. And right now, nobody is buying plane tickets. This is on a scale none of us have seen before. A great management team can help to limit some of the carnage, but even the best management team can’t get an airline through this madness unscathed. You need to prepare yourself for that reality.
Sit down with those coworkers who have seen this rodeo before. Instead of just rolling your eyes at their stories from the old days as you’ve likely done countless times, listen to them and understand what it was like the last time airlines went through something like this.
That’s not to say this crisis will be just like the others. Airlines today are in much better financial shape than they were at the turn of the millennium or during the Great Recession. It’s not even close. That being said, this drop in demand is far worse than anything we’ve ever seen so those strong balance sheets will be tested immediately. Case-in-point, even with a 50 percent cut in capacity, United says it expects load factors in the 20 to 30 percent range. The net effect will be as bad or worse than 9/11.
I think back to 2001 when I was working at America West. We weren’t in good shape before 9/11, but it got much worse very quickly. The first couple of days were a blur. We were so busy just trying to keep our policies up to date as government rules changed by the minute — not to mention just getting airplanes back in the air — that I didn’t have time to think about much else. But I do remember the Thursday afternoon when our first airplane came back to Phoenix on a ferry flight. We all stood at the windows of our headquarters building and watched as it flew by to land. There were a lot of tears shed that day, and I think much of that was due to the reality that we didn’t know what would happen next.
That was an unsettling feeling, but soon enough I found myself getting used to the new routine. Profit-sharing was a long-lost dream. Victory meant not getting laid off and not having my pay cut. This went on for a very long time.
When I went to work for United in 2004, the airline was bankrupt. I knew that coming in, and I was excited at the possibility of being part of a turnaround story. That certainly didn’t pan out. When I left for another job, I was asked what my starting and ending salaries were at my previous job. When they saw the numbers, they assumed I had reversed them, but no. I had forgotten that having a lower salary than I started with was not normal.
The lack of certainty is the worst part, but ultimately everyone who works for an airline signs up for that at some point in their career. In this case, I expect it is going to stick around for awhile. It wouldn’t surprise me if the effects of this virus on the industry last long beyond the end of the threat. We are heading into uncharted territory.
If you can handle the stress of not knowing what’s next, then there is a certain exhilaration coming back into this industry that has been lacking for many years now. There’s something about fighting for your life that makes for a whole lot of excitement. The urgency builds camaraderie, and it creates lasting memories and friendships.
This will also finally put to the test many of the theses that have been put out in the last decade about how the airlines can now withstand a downturn. We should finally be able to prove whether American CEO Doug Parker’s bold claim that the airline will never lose money again is true or not. (I’m most certainly betting against that stance, though there’s no way Doug had this catastrophe in mind when he made that claim.) We’ll also see if the industry can sustain the much higher salaries that have been negotiated with unions over the last few years. (I’m also betting against that stance.)
I generally try to expect the worst and hope for the best. In that sense I guess I’m more like United with its aggressive early response than others. But even I’m having trouble hoping for the best right now.
If this goes on, I imagine we’ll get back into the land of concessionary contracts and service cuts that have always plagued this industry when things get tough. That being said, I do hold on to that glimmer of hope that maybe I’ll be proven wrong. Maybe the industry is different now. There’s nothing wrong with hoping that’s the case, but every day that passes makes it harder to keep that hope alive.
Either way, you’ll have plenty of stories to tell when this is done. Then you’ll understand why the newbies all roll their eyes when you start talking. I’m sure it doesn’t feel that way now, but you’ll be able to laugh once we’re on the other side. All we can do now is hope we get there sooner rather than later.
What a thoughtful, sobering, but well timed piece! Although I don’t work in the industry, I’ve followed your blog for the past 13 years and throughout that time watched the changes that have been brought about to secure a profitable future for airlines and enable them to better respond to these downturns. I sincerely hope this does not last long, that the damage is limited and people can feel the security again of having a job and getting paid. My heart goes out to all those in the industry that are being affected by this situation.
Unlike the dot com bubble & 9/11 a pandemic such as Covid 19 can & most likely will have impacts on the airline industry that may last for decades to come. As an example, LHR wants a new runway, but if demand craters for long enough that won’t be necessary. And yet we’ll not know for a wile if that will be the case or not.
This, unfortunately, can be a template for many other industries as well.
I think a sobering letter like this is warranted for just about any industry, sans maybe gov’t. The one thing I think you failed to mention is that each downturn fundamentally changes the industry somehow. The effects of 9/11 are a perfect example. The great recession was more consolidation. I’m sure this pandemic will mean a change somehow, just not sure what that is yet. If I were to guess…virtual meetings will finally gain traction and some of the more questionable air travel (I’ve taken lots of those trips) won’t happen quite as carefree. Just like if companies are able to maintain productivity with telecommuting, when things recover there won’t be as much need for massive office spaces. Right not it’s certainly not business-as-usual and not sure we will ever go back there.
“any industry, sans maybe gov’t”
Yes and no. I work on the government side of aviation, but I am not a fed. Political realities of the last couple of administrations being what they are, the public side isn’t always a walk in the park. I lost one job through the after effects of sequestration, and happened to be out of the country like three days before the month-long shut down occurred. Unlike true feds, us non-feds do not get paid for services not performed, so there’s no retro pay.
The flip side is that “they” tend to play budget games when the economy is going strong, so if push comes to shove, I can generally find private sector employment if I have to.
All that said, I cut my teeth as a ramp rat, and was working for an airline during and after 9/11. There is a lot more stability on the government side, that’s for sure.
I was a 320 F.O. at America West at the same time you were there. And it changed my life watching my career evaporate before my eyes. Now a senior captain at B6, I fly with F.O.’s all the time who had just started learning how to fly when 9-11 happened. They just don’t see the world the way I do, but after this I think they might.
very well done.
The US airline industry might have figured out how to manage its own affairs in order to be profitable in a constant state world.
But this crisis simply proves that the airline industry is always at the front of nearly every macroeconomic event; all of the internal strength that airlines might build cannot insulate them from external shocks as we are seeing.
Some airlines will survive while others will fail.
As has been noted, the airline industry will be very different. It had to significantly change in order to adapt to a world where aviation became an instrument of terrorism. Now, it must figure out how to safely transport billions of people and keep disease from spreading.
There will be no easy answers.
People will still travel; the reason the industry is still here that it serves a key component of the free enterprise system and of freedom itself.
It is also worth noting that the manufacturing side of the business is highly vulnerable right now for many reasons, not the least of which is the lingering MAX issue and the glut of aircraft that was already hurting some airline and manufacturer margins.
Could we see a global consolidation in the airline industry similar to what happened in the US a few years back?
could we see a global consolidation in the airline industry similar to what happened in the US between 2005 & 2015?
yes. Europe esp. needs to consolidate. Asian carriers still compete too much against each other. Chinese carriers grew rapidly and the government was subsidizing international travel even before this.
Perhaps a few more consolidation possibilities in the US but there is dead wood in existing carriers that needs to come out.
US airlines probably stand to benefit from consolidation elsewhere because the US was expected to generate 2/3 of global airline profits before the virus crisis began.
Hey Brett, I was at HP at the same time, it was rough, and yeah, watching the plane come in (from the 3rd floor) was pretty amazing. Good friends, good bonding, good experience, crazy industry……
Thanks for brightening up my Monday morning ?
all Big 4 will most definitely need bailouts, and if you want me to make a bet which US airline will collapse and liquidate, I’d place the odds on Allegiant.
My thoughts exactly on Allegiant, but no bailouts as far as I’m concerned. If you cant make it, well that sucks.
And isn’t it interesting that Allegiant spent a bunch of money for the naming rights for the new home of the Raiders & now it may appear they will need that money soon to stay afloat.
How exactly do you make it when there is literally zero demand for months?
This isn’t the airlines fault. They aren’t running a bad business here in the US. In fact they’ve been operating as healthy and responsible businesses. To say “sorry a global catastrophe has disrupted your vital industry, guess all your employees are out of a job now, sucks to be all of you” would not only be disrespectful and cruel, but actively further chaos in an already volatile environment.
Point 2. “Bailouts” are not free money. They are typically low interest long term loans, and the government and taxpayer nearly always make a profit from them in the end
It’s socialism to bailout industries like this
Good little article. I can add perspective starting from Dec 1967 when I started with Eastern Air Lines. Yes, I’ve seen them come and go. One went from King of the Hill, to the bottom of the heap almost overnight. Then claw your way back up, for years. Meanwhile the crafty capitalists are always looking for leverage to use against the unionized work force. There was never any ‘snap back’ to previous wages and rules. Expect to see a Chapter 11 thrown in the mix, and maybe Republican sponsored rules embedded in a bail out package. The unions are always a fat unwavering target.
I truly hope I’m wrong about this, but…
If you had to look into your crystal ball Brett, who do you think files for bankruptcy because of COVID-19?
If I had to guess I’m thinking: >Sun Country >Silver Airways > United (Because of the exposure to china) >Southwest (they are already dealing with the whole MAX issue this will make things worse)
Any leisure focused airline bears watching such as Sun Country or Allegiant, well at least at first glance. Beyond that you fall on American & their issues, United as noted above & even the ME III as oil prices continue to plunge. The latter cant be supported if their economies falter on cratering oil prices.
Paul – I think it’s going to be every airline unless there is a government bailout… which is why I expect there is going to be a government bailout. Spirit is very vulnerable. Sun Country may be, but ultimately it’s the big private equity owner’s decision if they want to keep propping it up or not. I don’t see Allegiant as being all that vulnerable as others suggest. It has very low fixed costs and can just park its fleet. It’s probably in the best position of all.
What are the odds that Sun Country throws in the towel on their passenger business, but continues as a contractor for Amazon? From what I’ve been hearing Amazon’s business is going gangbusters…
My guess is that SY pares back to focus just on charters and Amazon work again.
Nick – Well, certainly it would be a wise move for the short term, but there’s no reason to think it couldn’t come back into the passenger game when this is over.
I would think the MAX issue is no longer an issue since demand has cratered. Southwest can still operate the 737NG and still park a quite a few for a while.
Strangely enough this gives both Boeing and Airbus time to get their narrowbody projects back on track because airlines will be asking to delay deliveries.
Thanks Brett. As someone in the industry (RM) who has only known the good times, I’m still in shock, but am thankful for good leadership and camaraderie. Who knows what will happen, but we are all more or less in the same boat, and hopefully this will lead to a stronger industry overall.
Great article. Hard to see it now, but we’ve actually been here before. Most of the immediate, direct economic effects of this event are based upon irrational levels of fear and panic actions. But much like with 9-11 (which I saw from the mil-flying side), our country did amazing things to contain and ultimately crush the virus that was Al Qaida. In a few months, we will begin to see that we are also crushing the onslaught of this disease and will soon after become less fearful, and able to rejoin our optimism, our activity and our growth.
Although the disease is progressing at a rapid pace, we are also watching, learning and communicating exponentially. And unlike facing the implied danger of that terrorist threat from foreign shores…in this we all have an active role to play. We are all on the front lines, but because of that we will soon be a nation full of victorious survivors and hero’s. We will learn how to protect ourselves and regain our footing. And we will eventually find a cure for this disease. But we already have the antidote for fear – that is our faith, our tenacity, and our will to fight for what we love.
very well said, Richard.
The reason why the US airline industry was in much better shape relative to the world is because of 9/11 and the collective need for Americans to fight back. The 2008 financial crisis also originated in the US and impacted the world but Americans have endured far more blows of this type than the rest of the world’s airline industry = and we have no idea how far or how long this will last but hopes, based on China’s experience, is that containment will come as soon as people take the governments’ directions to stop the spread of the disease.
US airlines were already much stronger than the world – paralleling the US economy.
There is a lot of excess capacity that was put into the system including from players that built a business model around trying to siphon traffic off of other airlines’ networks. much of that will not be viable again for years to come.
Networks that were based on strong, business driven demand in local markets will return even on a reduced capacity basis.
This event is a hard reset for the global aviation world; most airlines were dependent on state aid not many moons ago.
And to those that say that the US airline industry will be bailed out, the most likely scenario based on what has been said is that the Feds will provide loan guarantees to private loans which are backed by asset – tens of billions of dollars aircraft that can be used as collateral for debt. Interest rates are low throughout the world and the Fed dropped them further in the US. No one will be paying much to borrow money in the near future.
There are many airlines and airline employees that have survived multiple deep, deep crises and the same will be true coming out of this one.
As Brett noted, some will choose to walk away while others will hunker down and be a part of the rebuilding process one more time.
I just saw a report that your favorite airline, Alitalia, is going to be nationalized.
People are going to get pretty tired pretty fast of hunkering down. How dangerous can it be to fly in a half full or quarter full plane to Hawaii or Florida and enjoy the beaches? The problem will be how many folks will be able to afford to do that? Pretty soon it is not going to be fear of flying that hurts the airlines, instead it is going to be fear of not having money for rent or house payments or other necessities that will hurt the airlines. Massive federal aid to laid off workers and to workers to with reduced income (fewer hours, fewer tips) could help the airlines and in a fairer way than just giving aid to big businesses.
I’m assuming you guys were swamped when things started happening and people were trying to cancel trips, or find ways home?
And now it is mostly nothing?
How about your employees?
Rich – We still have some people struggling to get home as some countries shut down flights without notice. It’s been quite the circus trying to fix those. But yes, other than that, we have slowed to a trickle, if that.
I’ve never quite seen anything like it. As for my employees, my primary goal has been to avoid layoffs and do everything I can to keep people from being put in an unsustainable financial position. We are working on a plan that will temporarily shrink the business down, but it will keep everyone here. We have reserves that are there to help us through times like these when completely avoiding losses is impossible. Then we just have to hope it doesn’t stretch longer than we are planning. It’s just awful.