Every post I had in the hopper suddenly seems irrelevant. I was working on a story about growing capacity in a small town, and I had been digging into Contour’s model. Now none of it matters thanks to this coronavirus crisis which is very close to shutting down the entire airline industry.
Naturally, the big question on my mind is the same as yours… how long will this last and how bad will it get? Of course, we have no idea. We also have no data to accurately model what is happening right now, but that won’t stop me from trying.
I decided to take a look at previous shocks to see how airlines and passengers behaved. Let’s start with the response to the Spanish flu in 1918. It was brutal.
Ok, so obviously we can’t go that far back, but if it got you to chuckle, I’ll consider it a small victory.
Let’s go a little more recent and start with what happened around 9/11. I’ll focus on flights to/from/within the US. Naturally, I turned to Diio by Cirium and pulled up departure, seat, and passenger numbers by month using T100 data.
The drop was swift and brutal right after 9/11. You can see the first thing that happened was the number of passengers plunged. September 2001 saw 33 percent fewer passengers than the year prior, but remember that on some of those days, airplanes weren’t flying at all.
Airlines were left trying to play catch-up, but they did it quickly. The number of departures dropped down by 27.8 percent year-over-year at its nadir in December 2001. Seats were down just shy of 23 percent around that time. This, of course, doesn’t say anything about the dreadfully low fares that were being paid, but you get a sense of base demand.
Within a year, things had started to rebound. By December 2003 departures were down just over 6 percent from December 2000. Passengers were down nearly 10 percent. Even though they rebounded, those numbers didn’t reach their pre-9/11 levels for some time. In fact, as 2008 approached, they were still clawing their way back up when the next crisis hit.
The Great Recession that happened toward the tail-end of 2007 looked different.
The Great Recession was a less sudden shock than we saw after 9/11. The mortgage crisis and failure of the financial system led to weakness, but the final nail in the coffin was when oil prices skyrocketed toward $150 in 2008.
Though demand was weakened, the cost jump was what pushed airlines into action. After peak summer — peaking in November 2008 — they cut departures by as much as 22 percent year-over-year. Passenger numbers followed, naturally.
So, what will we see this time? Oh, it will be much worse.
The airlines, at least some, are already preparing for the battle. United led the way with an international cut of 25 percent, but it is now pushing a total system cut of 50 percent. Delta came later, but it’s going with a 40 percent cut. American slashed all of its long-haul widebody flying except for 17 measly flights per week. Even Southwest is cutting capacity by 20 percent, and it doesn’t even leave North America.
Even with these cuts, the situation is dire. United said its 50 percent cut would still leave it with a 20 to 30 percent load factor, so it may want to cut more. Even if the airline doesn’t want to cut more, it may be forced to do so. It wouldn’t shock me if the industry was forced to shut down completely for at least two weeks if not longer.
The profile here is more like 9/11 than the Great Recession. Both 9/11 and current reactions are fear-related, the former a fear of terrorism and the latter a fear of getting sick. After 9/11, there was plenty of uncertainty about whether more attacks would take place, and some people stopped traveling. But this coronavirus is different. There’s a general fear out there, and it has no expiration date. It won’t fade with time like the 9/11 fear. It will only fade when the virus’s spread goes on the decline or a vaccine is found.
I’ve heard many people suggest that everything will bounce back quickly once the threat is over, but every day that goes by suggests otherwise. The current piecemeal strategy of just banning entry from non-residents who have been to countries drip by drip is only going to drag this out. People will keep getting scared all over again each time another drip comes out.
If we continue down this path, it’s going to last a lot longer and the cuts will get deeper. I’m beginning to think dramatic action is more and more likely to be the best option. Shut it all down for 2 weeks or a month and then do a hard reset. That’s probably the best way to minimize the damage. And when that’s something that will minimize the damage, you know things are downright terrible.
Airlines are receiving fewer bookings than they are cancellations. That happened at 9/11 too, but not for that long. This may drag on. So those charts above may be interesting and instructive, but they might very well look like brief dips by the time this whole fiasco is done.
47 comments on “All of a Sudden, The Airline Industry Disappears”
From discussions with my friends in corporate travel, they are getting absolutely smashed. Cancellation after cancellation. Brett may be right that it could pick up again, but it doesn’t look that way from where we are standing. Governments need to step in to limit job losses because otherwise we could see an entire industry ruined in a matter of weeks/months.
Of course, I also just read this story at Bloomberg:
“ U.S. Airlines Spent 96% of Free Cash Flow on Buybacks”. 2010-2019.
THIS!
Yeah. Issue some shares, airlines, surely those investors will give you your $45 billion back.
United has $8b in cash and equivalents. March takes a billion ($1.5b revenue drop and conservatively save $0.5b in fuel and other marginal costs), April, May and maybe June too. Free cash flow is also a problem as forward bookings don’t recover. But you know, that’s why you issue shares, so that your grateful investors can give you your money back. Owners, employees, customers — they all share the pain. No bailouts.
[youtube https://www.youtube.com/watch?v=N-FV2akzUg8&w=560&h=315%5D
From a YouTube channel called Company Man.
It all sounds like the right direction they should take. Actions the airlines can take, should be done. They are bleeding cash. BUT, speaking of cash, when they go crying to Uncle for money to keep from going out of business, let’s not forget where a lot of their cash they were stockpiling went. The airlines, and most other major corporations used their cash to buy back stock, slowing down the outgoing dividend payments, and to raise the stock price.
I feel for their pain. I do. But let’s not forget that the airlines retroactively denied refunds to their passengers, to hold on to cash. And then they will cry to Uncle Donald for help. It may be harsh, but airlines going bankrupt will be bought up by others. In the end, capacity and destinations will remain.
It all sounds like the right direction they should take. Actions the airlines can take, should be done. They are bleeding cash. BUT, speaking of cash, when they go crying to Uncle for money to keep from going out of business, let’s not forget where a lot of their cash they were stockpiling went. The airlines, and most other major corporations used their cash to buy back stock, slowing down the outgoing dividend payments, and to raise the stock price.
That’s why yesterday I said on the comment section no bailouts. Sucks to be them.
We were out of town this weekend but got scared and left days early. American was cooperative and the hotel fantastic on early departure.
However, I just cancelled a huge golf trip set for December that included our grown children. A bucket list destination. We felt we shouldn’t have ~10,000 tied up right now. May, I hope, reschedule later this year.
Also a trip to the southern Caribbean in May will now be cancelled.
All of this impacts airlines.
Wow and I just bought four tickets for a new years vacation overseas… They were actually get reasonably priced. I just hope the airline is still around when we get there, but they’re a national flag carrier so they’ll probably still be flying.
Your charts did not display. There is just a link to a website, which asks for a username and password.
Tom and others – If you are having trouble with the charts, it’s probably from the email? I am having issues with the email provider. Just go to the website and you’ll see it properly.
Thanks. That works!
The profile here is more like 9/11 than the Great Recession. Both 9/11 and current reactions are fear-related, the former a fear of terrorism and the latter a fear of getting sick. After 9/11, there was plenty of uncertainty about whether more attacks would take place, and some people stopped traveling. But this coronavirus is different. There’s a general fear out there, and it has no expiration date. It won’t fade with time like the 9/11 fear. It will only fade when the virus’s spread goes on the decline or a vaccine is found.
Giving this a little thought there’s another aspect we need to consider that didn’t exist then & that is teleconferencing/ telecommuting. If this goes on long enough could corporations say lets keep doing this & eliminate the need for most travel including commuting to the office every day. That would certainly decrease the need for office space, a huge expense.
Just my four cents.
“Giving this a little thought there’s another aspect we need to consider that didn’t exist then & that is teleconferencing/ telecommuting. If this goes on long enough could corporations say lets keep doing this & eliminate the need for most travel including commuting to the office every day.”
Exactly this. Telecommuting/videoconferencing/virtual meetings weren’t really an option at all in 2001, and the technology was better but still not great in 2008/09. Now? It’s a whole different ballgame. Like you, I’m really curious to see if Big Business looks at the cost savings from not flying 20,000 people in from everywhere for a live conference and decides to try it full time going forward. Are we headed towards a paradigm where the mix shifts farther towards leisure travel, as businesses tell their employees not to plunk down big bucks on airfare for in-person meetings? That would be…interesting, to say the least.
Funny. I personally know of one Major European carrier that has de-faulted to teleconferences almost exclusively since 2008 to save on hotels, meals, etc. A very well kept, ironic secret.
If it be the case that airlines will be solely dependent on the leisure traveler, then they may not be a viable business going forward as customers are fickle & will focus on staying employed & not waist money going to Disney World.
It’s not just a fear of getting sick, Brett – the main reason COVID-19 has spread as quickly as it has, is through our global transport network i.e. flights. Economically, this is a terrible situation for the travel industry – but it is the right thing to do, morally and ethically – for people to stop flying – to try to prevent even further spread. The travel industry is just one area of commerce that is set to go t*ts up very soon because of this – I very much doubt any us work in a COVID-19-resistant industry.
Stay safe and healthy, y’all. R
Why are there no charts (to which you refer) in this and every other post using Dilio data? When I click the link it takes me to the website you quote and asks me to sign in with a password which of course, I do not have.
Using chrome on Android, I can see them. You might want to try another browser or clear your cookies
Good thing there’s no global warming now because of all of those parked planes. The environmental zealots are all happy now, right?
Your point?
Having had a Financial and Operating position at a major US carrier before, during, and after 9/11 and the great recession, and $150 barrel oil, including a trip through Chapter 11, I believe the current environment is exponentially worse than any of them by a wide margin. The rapidity and near complete destruction of demand is unprecedented, with forecasts at this point being a bit of a shot in the dark.
I never worked in airline finance, but was employed by one on 9/11. The thing with 9/11 is that for as much as we could all be worried about whether or not repeated attacks could occur, I think enough of us knew deep down that 9/11 was a one-time thing, and cheap enough fares would get the planes flying again. And for that matter, while the tremors were felt world-wide, the major shocks were to the US.
The trouble with COVID-19 is certainly much broader than that. First, it’s not a “one and done” thing like 9/11 was. Second, it’s world-wide. And compounding (1) is the drip-drip-drip, compounded with UAL’s onerous and ever changing cancellation policy. As a consumer, it’s near impossible to make future bookings at the moment. I won’t book until the airlines have a schedule they will commit to flying, especially given some of UAL’s recent positions. Will those positions spread to the other airlines? What I’m talking about is the 25 hour schedule-change policy to get a refund, compounded with, “We’ll refund you in a year if your schedule change actually qualifies.” Even if I got that screwed up, the confusion and uncertainty is part of the point here, especially for the general consumer. The easy thing is to not book, er keep my money in my pocket.
So to get the gears unstuck, the airlines *will* have to publish a schedule that they will commit to flying. And TBH, it wouldn’t hurt to make the cheap fares refundable, no questions asked. Right now it’s chicken and egg, and the airlines need passengers far more than any given passenger needs any specific flight.
If United thinks that a 50% cut and then a 30% load, the graph will need to have -100% when comparing this on a month-by-month. I mean what is March expected to be -60%? -70%? That puts the perspective above into context.
It’s piecemeal because the Federal govt is largely missing-in-action. There’s insufficient leadership from the top, so everyone is doing their own thing. Taken in isolation (heh) each one of these things done by locals seems reasonable (or is at least well-intentioned). What’s missing is coordination on a national scale and ensuring that one apparently reasonable action doesn’t interact with another one in unfortunate ways – e.g. apparently 38% of all nurses have school-age children, so if all kids stay home from school that puts pressure on nursing. But at this point, even if the Feds tried to do their jobs it’s unclear whether anyone would listen, because they’ve lost credibility.
Also, the length of any airline shutdown, or required reduction in capacity, will be (or at least should be) determined by medical progress. If, after two months, the medical conditions require that we continue to isolate ourselves, then, so sorry, this is going to last longer. Shutting the whole system down for 2 weeks or a month may or may not do the trick. That’s up to medical professionals to determine. Yesterday Trump finally admitted that this situation could drag on for longer – he mentioned August. But who knows how long this lasts.
Who knows what information the feds are paying attention to at this point. The states were more or less told you’re on your own. A mixture of states rights & social Darwinism.
Had it not been for the action of the Potus in January to block China residents from entering this country it would have been much worse. It was people like you that cried it was racist. It doesn’t matter what the Feds do at this point it will never get your approval because you are blinded by your liberal bias.
Can you show me some proof of your statement? I think not Small Ed as calling me liberal shows your own bias.
On the subject of “Airline Industry Disappears”, Qantas, which is a well established, profitable, modern operator of 300 airliners engaged in Domestic, Regional, and long-haul International flights, yesterday announced it is temporarily cutting its international flights by a massive 90% until at least June, due to the Covid 19 virus and the economic knock-on effects of that! OMG.
SSmith3104
SORRY! Not a member of Diio by Cirium [nor do I want to be], so I couldn’t log in.
“Airlines are receiving fewer bookings than they are cancellations” — naturally. I’m not going to book flights in advance for events that I think might not happen, and with the expectation that if they do happen, tickets will be cheap anyway. It’s also obvious why the airlines aren’t receiving many cancellations: it’s because they are giving us no incentive to cancel in advance. I have two trips with purchased tickets which I know now are not going to happen. But the penalty for canceling now is the same as canceling the day of the flight, so I might as well hold out and see if the airline cancels so I can get a full refund.
@cranky : perhaps to revise your previous post from 3/2 telling everyone is pure hysteria at play and in your own words : “it doesn’t sound nearly as scary” ?
(https://crankyflier.com/2020/03/02/airlines-face-disappearing-demand-coronavirus-panic-spins-out-control/, quote “This is where everyone needs to take a deep breath. First, read this article comparing this new virus to the flu. Put in context, it doesn’t sound nearly as scary.”)
did you guys think i was fear-mongering when i tried sounding the alarm bells on this forum quite a while back ?
henry – I don’t revise old posts unless something is factually incorrect.
Every post is a snapshot of a moment in time.
Its hard to have sympathy for these clowns after nulti-billion dollar buybacks, ever increasing change and baggage fees, etc..
No bailouts. Loans, maybe, with strings attached like treating customers at least as well as WN.
It must be nice to work in a too big to fail industry while we watch smaller businesses be left to their own devices.
my current projection is that any airline not re-nationalized will not be able to avoid either Chp 11 or Chp 7. Globally. Every single airline. No exceptions.
The $13.8B liquidity line draw-down for Boeing will likely not be sufficient. Boeing will need *both* a bail-out and a pre-packaged trip to Chp 11 courts.
if you wanna gauge what’s the true level of progress of China’s containment measures, count % flights re-instated on their PEK-SHA-CAN trunk triangle (% seats is most ideal but that’s a huge ask for most folks, so % flights give you a rough ballpark. % RPM isn’t that great a metric cuz it’ll be skewed by PEK-CAN). I like this metric cuz it’s very strongly linked to economic activity, public info everyone can see for themselves no subscription required, no fancy math models needed, no underlying assumptions to be made, no previous familiarization with the intricacies of the aviation required, and no fudging by CCP possible.
And Beijing Daxing, that flattened out golden kraken, will eventually become the white elephant symbol of maximum global hubris that kicked started the death spiral.
for instance, PEK-SHA from flightaware
https://flightaware.com/live/findflight?origin=ZBAA&destination=ZSSS
for all of Tuesday, only 8 flights (that’s total 8 flights across all airlines) listed as “Arrived” (7) or “Estimated Arrival” (1, likely a data error) on PEK-SHA south-bound direction , 6 of which operated by a narrowbody.
That tells you EVERYTHING you need to know regarding how well the containment measures are working there.
It would be nice if everything shut down for a few weeks and magically everything went back to normal (minus some paychecks) but unfortunately I’m not sure it would solve much. The virus would still be there somewhere and no one knows how immunity would work, or whether a vaccine would even work long term.
Lots of unknowns, it is just possible that society will have to live with the virus and a new normal has arrived. Hopefully not.
While I’m trying to be somewhat careful, fortunately I do have a job but cannot telecommute so I’m out. I kind of figure it is only a matter of time before I catch it (50-75% change) and just have to hope it won’t be too bad. Most survive. The sad part will be if hospitals get overrun with serious ill people.
Seems like Tom Hanks and his wife has made it through the worst part and Tom is 63.
Everytime you think nothing will surprise you, something does.
We have a public health issue, worldwide. We are experiencing an aircraft production debacle. At the same time, fuel prices have dropped through the floor. (Can you imagine what would be happening if they were spiking upward to the same degree?
We seem to have vacuum of leadership at every level to manage the situation, based on contingency plans smart people–airline execs, White House officials, Gov’t international affairs and national defense execs, Gov’t transportation officials, and our elected officials and their staff should have. Anybody see evidence of that in this situation? I don’t.
Makes me yearn for Roosevelt, Bob Crandall, Everett Dirkson, even John McCain, people I don’t always think of fondly. But, until we start really managing this, I ain’t flying nowhere, even if someone sends me a $1,000 check or a no-cost airline ticket!
Is the cost for airlines to stop and do a hard reset cheaper than continuing with a stripped-down schedule and capacity?
Stan – This is a great question. I would bet it may be less costly to do a hard reset, but the question really is, are the airlines making enough revenue to cover variable costs? It is a high fixed cost industry, so normally you’d think it would be better to fly, but if you’re talking about a full shutdown, that may not be the case.
I believe it is a symbolic issue as well. By completely shutting down, you yield to the virus. By fighting, even with government guaranteed loans and with greatly reduced loads, you fight for another day.
James’ comment below is completely accurate. This is a continually evolving situation for the worse.
Fighting to beat this things and then ensure this never happens again is what will ensure survival. People need a reason to live; fight instead of fright is a powerful motivator.
I’ve shared the same thought as some other posters: With 9/11 it was done in one day. Within a day the U.S. was locked down and the realization occurred within that week and month. Total shock, but the next steps of grieving then rebuilding (physically, emotionally, and economically) were in place.
The “not knowing” is something we haven’t dealt with before. Boring as it is, I’m fortunate to sit at home working (getting paid), watching Netflix at night, and a run or two in the park. (My routine since Sunday). I have two neighbors who are on unpaid hiatus from there jobs, a ton of our clients are on hold indefinitely, and friends in the service industry are just done. I don’t even know what to say or think.
The unknown for health and our economic future is terrifying.
https://www.marketwatch.com/story/boeing-stock-plunges-as-bailout-prospects-fail-to-comfort-investors-and-may-even-be-a-bigger-concern-2020-03-18
funny how my insane dooms day fear mongering about Boeing i wrote yesterday already came true – Boeing trying to ask for $60b
CF – any plans for the “2020 Flying Summary” post on 31-Dec-2020 ? Will it still go ahead ?
David – Of course. I’ve already flown this year, so I’ll have something…
Hey, Brett! I got the Cranky Concierge email today. You did not ask us to do this, but I’m clicking the g**gle ads anyway. I hope that helps a little.
Marty – Hey, I appreciate that! Thank you.