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.