The primary focus during this pandemic has been around which airlines are in better or worse shape financially. There’s good reason for that, but as the recovery speeds up, the time has come to look at other metrics. Since the recovery in air travel demand is uneven at best, there are significant differences between the airlines that will influence their near-term fortunes. Among the Big 3, United is the most poorly-positioned thanks to its fleet and network composition. Meanwhile, Delta’s conservative nature has created a further opening for American.
Over the weekend, United and American finalized their July schedules, and as expected, domestic is coming back much faster than international travel. Looking at a week in mid-July vs last year, here’s how each airline breaks down:
Nobody is bullish on international, though Delta seems a little more conservative. Meanwhile on domestic, it’s American that’s downright bullish while United is the most conservative.
The international perspective is easy to understand. This large deficit compared to last year is about people not wanting to cross borders due to complete confusion and fear around entry requirements, quarantines, etc. It isn’t really about short-haul vs long-haul, though empty widebodies going long distances are a lot more costly than empty narrowbodies going short distances. When we look at who has the most international exposure, that’s where we can start seeing why these numbers look the way they do.
United’s Fleet Skews Toward Widebodies In a Time When Nobody Wants Them
With international traffic sagging, airlines will be more successful if they have more narrowbody aircraft that are better suited to domestic travel. After all, those widebodies are expensive, and the payments don’t stop just because they aren’t flying. (And if they’re just flying empty, that’s even worse.) Looking at 10-Ks from the year-ending 2019, you can see that United has the highest percentage of widebodies in its fleet by far.
I didn’t dig into regionals to determine which aircraft were owned by the mainline carrier or which contracts were ending soon. I just looked at the numbers as a percentage of total fleet as well as the percentage excluding regionals. With regionals included, United compares better, but it’s still significantly higher than the others.
American and Delta actually have similar numbers of widebodies (150 and 154 respectively), but American has a larger regional and narrowbody fleet. It’s United with 196 widebodies at year-end that stands out.
All of these airlines have the ability to retire airplanes, and they’ve done just that since these December numbers. But now we have to look at why United has so many more widebodies. That’s because United has higher international exposure. And right now, that’s bad.
United Has Significantly Higher International Exposure
If we look at available seat miles for all of 2019, we can see how much capacity is regularly allocated to international flying.
It shouldn’t surprise anyone to see that United has the highest percentage of international flying since the airline has the highest percentage of widebodies. That means United has a bigger chunk of its network that won’t recover as quickly.
One interesting quirk here is that if you look at percentage of flights instead of ASMs, Delta is actually below American. What that says is that Delta has more long-haul flights while American does more short-haul. Considering American’s Miami strength going into shorter Latin American markets and Delta’s Asia strength going over the vast Pacific, that makes sense.
We’ve established so far that United has more exposure to weak international markets than anyone else, and that’s bad. But what about domestic? Why is there such a discrepancy on that side? Some of it is strategic, but some of it is just bad luck based on the network.
United Has More Flying In Domestic Hotspots
This metric is far from precise, but I have spoken with multiple people at multiple airlines, and they’ve all said the same thing. In effect, those people in the middle are traveling more while those on the coasts — specifically the West Coast and the Northeast — are not. In other words, those who were hit earliest and hardest are less willing to get on an airplane than those in the rest of the country. (I’m sure there are political beliefs and economic concerns influencing decisions here as well, but I’m not going to dive into that today.)
I wanted to look into this further, but the hard part is actually figuring out where to draw the lines. So, here’s what I did:
In Oregon and Washington, I took everything west of the Cascades. In California, I mostly took what’s west of the Sierra Nevadas, but I did leave out places like Fresno and Bakersfield. Then again, they’re so small they won’t have an impact. In the northeast, I took Washington/Dulles and National and then went northeast from there. I didn’t bother separating out New York since there’s not a huge amount outside of NYC anyway. But in Pennsylvania I did draw a line splitting the state. Feel free to argue amongst yourselves about what you’d change, but this was the cleanest way I could do it.
With that broken out, what do we find?
I started with the percentage of flights (left) in this geography, and United has more than half its flights touching those areas. It’s the major hubs in Newark, San Francisco, and Washington/Dulles plus a minor hub in Los Angeles that hurt. The other airlines are more than 7 points lower thanks to having more hub capacity in the middle.
But flights alone don’t say much, because you could still have a significant number of people connecting over hubs regardless of where the hub is located. That’s when I turned to the DOT O&D Survey to see passenger numbers. Those (right) are the percent of passengers originating or terminating in the hotspots regardless of connecting points. In this case, United has an even higher concentration versus the others.
This all makes sense rationally. Think about Delta funneling people into Florida via Atlanta and American handling much through Dallas/Fort Worth and Charlotte. Those are great hubs that have large catchment areas that fall outside the hotspots. United has Denver and Chicago has some benefits, but the rest of its network isn’t all well-suited to where demand is today.
What About Delta?
This helps to explain why United is scheduling less domestic capacity. Its network requires it. But what about Delta? These numbers are overly generous since Delta is really restricting capacity even further by having hard caps on load factors on its aircraft. This conservative restoration of service appears to be more of a strategic move than anything. Delta has said it wants to be a premium airline, so maybe that’s this strategy. Or maybe it knows it has enough cash on hand that it can afford to bring service back more slowly. I don’t really know. What I do know is that this is creating an opening for American.
If demand continues to return as it appears to be doing domestically, American is positioning itself to take more than its fair share due to Delta’s limited capacity. Of course, if demand doesn’t return, then American will have more exposure to losses. It’s a risk that makes sense for American since it needs demand to return faster. Being in the weakest financial state pushes you to take calculated chances.
United is hamstrung, Delta is hamstringing itself, and American is taking a swing. Whether it actually succeeds depends entirely on the American public’s willingness to get on a plane.
I’d be interested to know how airlines decide (and when they decide) to pull the trigger, in terms of cancelling flights that have few bookings.
Will be worth watching to see how many of these scheduled flights AA actually flies.
it appears that ULCCs have been more aggressive in adding capacity in AA hubs which might be part of the reasons for AA to start adding capacity back.
Also, CF, you accurately noted that DL flies more international capacity than AA which is counter to the narrative that many have which DL gives away its international routes to its joint venture partners. AA uses a higher percentage of its fleet to deep S. America which results in more planes sitting overnight in both directions or using them in the US for domestic flights.
“United is hamstrung, Delta is hamstringing itself, and American is taking a swing.”
I’ve mentioned it before, but it really seems like DL is betting wrong here. On a large scale, you can see the lack of connectivity across the network currently. The hard caps on seats just exacerbate it. On an anecdotal level, I see it when there are lines at the AA counter every morning and no one at DL’s…
This metric is far from precise, but I have spoken with multiple people at multiple airlines, and they’ve all said the same thing. In effect, those people in the middle are traveling more while those on the coasts — specifically the West Coast and the Northeast — are not. In other words, those who were hit earliest and hardest are less willing to get on an airplane than those in the rest of the country.
Just because those people “in the middle” weren’t hit as hard in the first wave as those on the coasts, doesn’t mean they will be spared from a second wave in the fall & winter. The 1918 flu pandemic is quite instructive on this point & the airlines must be ready to pull down again in case of this reality.
(I’m sure there are political beliefs and economic concerns influencing decisions here as well, but I’m not going to dive into that today.)
I realize you were focusing on the aviation side of this, but you cant really separate the political & social angles of the pandemic from the aviation angle as they are interwoven.
I work for a large company with locations across the US. While I am in the LA area, and the company’s HQ is in Chicago the rules are the same — zero travel unless you get someone insanely high to approve. Doesn’t matter if you come from an area with almost no COVID (Idaho) or high COVID (NYC). With business travel being say half (?) of travelers, I’m wondering now who exactly are these people that are hopping on planes? Are businesses’ loosening their policies? Is it just leisure?
Part of me is wondering how much the whole telework movement has changed the game and say 20% of business demand / 10% of overall demand is just not coming back.
Yes. We see reports of corporate travel being mostly banned, and we see people in mile-long queues at makeshift food banks. And (unrelated to this crisis) there are stats about a large percentage of the population even in good times not being able to afford an unexpected $500 car repair bill, so it’s probably not the newly unemployed using their time off the travel the country…
So it must be all those Flyertalkers anecdotally lining up at AA ticket counters. ;)
I work as a supplier to “essential businesses.” Some of my customers aren’t allowed to fly anywhere, but they will pay for me to fly there to install or service equipment.
Most of the people I’ve seen on board have been leisure travelers. I’m on either AA or UA, but AA more often because my biggest customer ends up being in little AA markets.
I prefer AA to UA usually, but I think UA is doing the right things with the passenger experience – the text to say 24 hours out that your flight is full and offering rebooking options and handing a Purell wipe as you walk on board are good ideas.
I haven’t flown DL in a couple of years.
As someone who works for an airline, it’s mostly leisure travelers flying right now. I’m not seeing elites traveling right now but a lot of first time or have not flown in a few years travelers. Why, I don’t know but that’s who I’m dealing with at check-in.
Many people have a good bit of time off built up (taking time off for a staycation has little appeal for those who have been working from home for the past 3 months) and frankly just want a change of scenery. Working from home also saves many people significant money, in terms of commuting costs, dry cleaning, not eating out for lunches, etc etc.
Add in low airfares and fare sales, and it makes a leisure trip (even just an extended long weekend) pretty appealing for those in low risk groups, especially to places with more outdoor activities (think beaches and national parks instead of casinos) where social distancing is a little easier.
Anecdotally, I’m seeing many roundtrips on the East Coast for holiday weekends go for < $200. The same routes would normally be $100+ higher even on non-holiday weekends, much more on holiday weekends… Fares like those are very tempting.
In practice, how fast can airlines push out schedule changes?
If demand turns out to be stronger than expected at the end of June or early July, I’d think it would be pretty straightforward for Delta to add more flights in August or maybe sooner. Even if the schedules don’t change, upgauging aircraft to use the idle widebody aircraft can be done even faster, maybe even hours before the flight. It isn’t like they are short on aircraft, staff, landing slots, or anything else.
DL has been adjusting schedules as close in as 10-14 days out.
Jason H – It’s a lot easier to cancel a flight than it is to add one. Then you don’t have to worry about scrambling to fill seats and schedule crews at the last minute. But that doesn’t mean it can’t be done if there was a reason. The way airlines have been doing it lately is to not finalize schedules until about 30 days out, one month at a time. So they sell a full schedule then trim back a month out as they see fit.
Another aspect which I believe plays a factor in AA’s ability to come out swinging is their much larger regional operation and wider scope compared to delta and united. Its easier to add flights when its on a regional jet which does not have the same amount of load factor issues like filling a mainline jet. Delta was more dependant on its mainline aircraft serving certain destinations while united was nowhere to be seen at times or not in any significant measure. All this is domestically speaking.
my2cents you nailed it. Currently at DFW the busiest terminal is B which is almost all regional planes. AA has a big advantage with regional planes.
My2cents – Actually, American’s scope clause works in the other direction when airlines are shrinking. American can have 40% of the mainline fleet operating as large regionals while Delta and United have fixed numbers.
So, if American shrinks mainline too much, then it can’t bring back those regionals.
Yes, but not immediately. I believe AA has a “force majeure” clause that allows them to be outside the ratio for 12 months. This had become an issue when the Max got grounded. Eventually some regional flying had to be removed. So for now, AA can use cheap regional capacity to test markets. My regular AA flights to DTW that were on 319s and 175s are on 145s now. But it appears they’ve added a flight, and moved all up to the CR7 or a 175 in July. So anecdotally, it might be working?
Chris P Bacon – I don’t know how it’s calculated or what the rules are, but if American is planning on taking advantage of the lag time, then it’s going to dig its own grave when it goes back to negotiate with pilots for a concessionary contract. Hopefully they’re thinking longer term, but yeah…
I did look back at regional ASMs vs mainline ASMs just to get an idea of how that’s changed. This is US domestic only, so it may not be the right number for calculations, but it gives you a sense of the trends. June 2018 had regional as 20.8% of mainline ASMs. That steadily climbed until March of this year where it rested at 23.5%. April went to 31.9% and then it’s been coming down from there. May was 31%, June 27.7%, and July back down to 22.8%.
How big of a concern is this really? Based on advanced bookings, airlines know how much supply to pump into the system. The only benefit this would have for AA would be to capitalize on an immediate surge in travel within a short period of time. However, the benefit would be would be short term until the other carriers brought more supply online.
Given AA’s precarious financial position, I could see why they want to be more aggressive, but it’s really only a short term play with an unknown payoff.
I guess to say it another way, maybe Delta doesn’t have to take on this much risk and can slowly ramp up schedules.
CF- I agree with you. Which is why I believe they are adding more capacity (mainline aircraft) back into network. I forgot when they do a review of narrow body to regional capacity maybe its quarterly ( not sure when) but in the meantime they still have access to the lift while its recalculated. Which is good in the shortterm but not longterm obviously. Also plane’s are parked now and not stored so not sure how it would work in calculating that 40%. Also, I really like your website and the articles you put out…fascinating stuff for us aviation lovers.
I am flying out of a major airport today and I can assure you that the amount of capacity has little correlation to the amount of passengers that each airline is carrying. There are flights on a airlines that have added lots of capacity that have a dozen or fewer passengers per flight and there are flights on airlines that are supposed capacity constrained that have 100+ passengers based on the number of passengers in the gate areas. There are still a disproportionate number of crews on flights while the vast majority of passengers appear to be younger to middle age adults, usually traveling single. I have seen very few families and few older adults.
Airlines might be seeing more demand coming in a few weeks or months but it is beyond sad to see airports as vacant as they are in the 2nd week of June.
I flew out of LEX this morning. I was surprised by the number of families with kids in the gate area for an Allegiant flight to VPS. Allegiant was running 4 flights out of LEX today (VPS, PIE, SFB, and PGD). I was flying Delta, which had 3 flights today — 2 to Atlanta and 1 to Detroit — all on CRJ-200’s that had half the seats blocked. As I recall, there are usually 7-8 daily ATL flights and 4 daily DTW flights (plus DCA and MSP) on limited mainline + mostly CR9/CR7 — haven’t seen the CR2’s in a long time.
I think Delta is playing this right. AA seems too optimistic that people are willing to fly without any safeguards. While I understand that you can’t give everyone 6′ of space on a plane, I would be livid if someone is occupying the seat next to me since we know that the greater the distance between people, the less likely anyone would be infected. So, IMO, Delta came up with a reasonable compromise in capping the capacity on their aircraft.
If an infection breaks out and can be traced to being a passenger on their airline, it’s going to be bad.
Thanks, CF. Great work and perspective.
Would love to see this analysis with LUV being the 4th player.
AA may have to gamble to get cash in the door, but LUV seems to be positioning to be the really strong aggressor.
With LUV closing today on their $1.8 billion cash raise through secured debt, and presuming they take the optional $2.8 billion US Govt loan in September because it is such cheap money, it looks like Southwest will be able to withstand net-revenue’s of zero for the rest of the year and they’ll still exit 2020 with about $4.0 billion in cash.
With zero net-revenue being highly unlikely, I suspect an analysis would show LUV as the most aggressive with less risk because their costs already beat AA, DL and UA even before corvid-19.
Thanks again CF.
You have left out one important equation, I work at UAL and ALL of the 787s are being flown, I have no idea on the 777s. The 787 fly every day full of cargo, I have flown several of the flights and we can not get enough of the cargo on the plane (bulks out). Also, I was told it is very profitable right now in the cargo part, more so than flying people. Even Scott Kirby stated that recently at a conference. It is eye-opening landing in NRT and seeing 6 of the 787s lined up with no people in the terminal but lots of boxes going on and off the plane.
Kirk – I didn’t leave that out. It’s an entirely separate issue. I’m looking at passenger demand from a network perspective. Cargo can fill some holes temporarily, but it’s nothing more than that.
I think I’ve brought up the point about how the passenger airlines might be taking cargo demand into account in network scheduling a lot more than they usually do. If cargo is making more money than flying people, it’s not unreasonable to put flights into the network based on cargo demand. Sure they can do cargo-only flying as well, but allowing passengers to come along for the ride (and it seems like there are still some there) also means that the flights help fulfill the service obligations they took on when they accepted government money.
David M – Maybe so, but that’s outside of this exercise. Those cargo flights are operated more like charters from a booking standpoint, so they don’t show up in the data. There’s certainly plenty of slack in the system, so they can use leftover airplanes to fly as much cargo as they want.
Air freight rates are still very high (still at several times normal, pre-COVID / pre-force majeure negotiated rates, at least from what I’m seeing as a shipper). However, rates are very slowly starting to come down, especially for lanes touching countries that were hit by COVID-19 early, such as China.
One thing I’ve said ever since March still holds true: If you have a cargo plane that can fly ~2,000-3,000+ nm, and you aren’t making more money in the past few months than you EVER have, you’re going something wrong.
Something like half of international air cargo normally travels in the bellies of pax planes, especially air cargo that isn’t considered “dangerous goods”, so much of that cargo is (or was but no longer is, in some cases) moving on cargo-only planes. Trans-Atlantic and trans-Pacific passenger flights are beginning to be slowly reinstated, and that is putting downward pressure on rates, but until the demand for international travel returns (especially the higher priced international business / premium travel), international air cargo rates will likely remain relatively high.
Not quite, tvmmcabe. The $1.8 billion Southwest picked-up last week is UNSECURED money. One possible use of that money would be to refinance secured debt it took on in March, thereby unencumbering the aircraft it used for collateral. So, basically, while the other carriers are still scrambling for money, Southwest has already moved into refinance mode. Just another example of Southwest playing financial chess while many others are playing checkers. But then again, they can do that when they still have an investment-grade credit rating and all the others are junk.
Jim M – I work for an industrial equipment manufacturer in Wisconsin. I have traveled to customer locations and so have my colleagues. Keep in mind that most large manufacturing plants continued to operate during the pandemic since they were deemed essential businesses. While operating, their equipment needed service, broke down and wore out. Many of these companies have ordered new equipment, retrofits, repairs and upgrades to their existing equipment. These companies want engineers, technicians, installers and even sales people to come to their facilities. Of course, where teleconferencing is possible, that substitutes for travel. Our customers are largely in rural areas where we fly into airports such as TUL, GRB, SDF or JAN and drive 50-100 miles to the plant next to the interstate highway. Conversely, very few of our customers are located in large urban areas in the northeast or the west coast. Most of us have calculated the risk of contracting COVID-19 during travel and have taken adequate precautions to protect ourselves.
If I am not mistaken, 3 of United’s largest hubs are ORD, DEN & IAH – all centrally located in the country, and all out of your red hotspot zones. Has United shifted more of their flying over these central hubs in June / July? Are they reducing flying out of SFO, EWR, IAD & LAX? How much more hub flying does Delta and American have in their central US hubs vs. United?
Greg in PDX – You know, it’s very strange. I may save this for another post, but United appears to be pulling down capacity pretty much across the board. Meanwhile American and Delta are flexing muscles in some hubs and pulling back in others. I’m honestly not sure what United is thinking right now.
“This large deficit compared to last year is about people not wanting to cross borders due to complete confusion and fear around entry requirements, quarantines, etc.”
It’s not just (or mostly) confusion and fear; it’s actual (appropriate) rules. I live in BC, Canada. Though as a US citizen/Canadian permanent resident I can enter and leave both countries even with the restrictions on non-essential travel, when I return to Canada I am (appropriately) subject to a mandatory, police-enforced home quarantine for 14 days, not allowed to leave the property even to get groceries. I’m also not allowed to go to work for 14 days after being abroad (no big deal for me since I now work from home anyway, but obviously a big deal for those who can’t work from home). That puts a very real damper on demand, not just “confusion”. And of course people who aren’t dual citizens/permanent residents face actual entry restrictions or prohibitions in one direction or the other; my American in-laws can’t make the two hour drive to visit us, for example, because they’re not Canadian.
And this is in BC, where the government has kept the pandemic under control better than pretty much any other decent-sized jurisdiction in North America without ever having any stay-at-home orders, just well-crafted business closure and/or physical distancing orders and prohibitions on large gatherings, so a stay-at-home quarantine is quite different from what I’m otherwise subject to at home.
Wasn’t your BC Provincial Health Authority head a former military doctor or something ?
I think I read an article about her somewhere …
Yes, in the Royal Canadian Navy. And an epidemiologist who was involved in fighting polio in Pakistan, Ebola in Uganda, and the 2003 SARS outbreak in Toronto. She (Dr. Henry) was recently profiled in a New York Times article, among other venues.
Wither Houston? If American has an “advantage” with DFW, why did you leave out United’s IAH hub in your analysis?
txhenry – Houston wasn’t left out. What I showed was that United very clearly has a higher percentage of flying in those hotspot zones. I didn’t say anything about Houston. But if you want to talk about Houston, it’s nothing compared to DFW. If we’re talking domestic, all of 2019 had United averaging 412 daily departures with 43,040 seats (according to Diio by Cirium). Meanwhile, at DFW, American has 732 daily departures with 89,780 seats. So DFW is more than double the size of Houston if you’re looking at seats. Then American also has the big southern hub in Charlotte.
Thanks for those stats Cranky. Sadly, IAH lost a lot in the UAL-CO merger because of the new DEN and ORD options for flowing passengers across the country. United’s DEN hub pulls a lot of passengers that would otherwise flow through IAH. The short math is AA DFW = UA IAH + UA DEN. DFW now has an advantage in Asia service as well because UA would prefer to flow that traffic thru SFO. AA’s weakness in the west really works to the benefit of DFW as a metro in terms of additional service.
CF, if I’m understanding this correctly and doing my math correctly. Since Delta’s ASM is 37.2% before the cap and the cap is actually 60%, Delta is down to 22.3% of their ASM in reality meaning they are taking the biggest cuts.
Daniel – Well, it’s not a clear 60% since it varies by cabin, but yes, that would be a way to look at this. Then again, other airlines have caps as well but they just aren’t talking about them publicly. So the best we can do is look at what’s being filed, knowing that it’s actually less than that.
The most important thing that is missing from this whole conversation is revenue. You can fly an increased schedule, but if you’re giving the seats away you’re quite possibly losing more money than if you didn’t fly the extra sections. One will only know the true extent of what we’re witnessing right now when the airlines release their 2nd and 3rd quarter results. I bet that you’ll be shocked to find that while American is gaining market share they are also leading in losses.
Nick C – The thing to remember is that salaries are paid for through Sep 30 and nobody can be laid off. So if you’re taking that out of the equation, you need very little revenue to justify running a flight.
The cost associated with running an airplane one hour vastly exceeds the salary of the entire crew. Cares act money for salaries is helpful in day to day operations, but only a small piece of the “expense” equation.
Airline’s are extremely costly to run.
Nick C – The variable cost of flying an airplane is mostly people and fuel. With people out of the equation and fuel cheap, it is actually incredibly inexpensive to fly an airplane right now compared to what you’d normally look at.
From this FAA document you can make your own conclusions…
From later in the document, crew costs are $724/block hour for narrow body less than 160 seats and total cost is $4390/block hour…. That equates to only 16.4% of hourly cost… Lots of other fixed costs there to fly a jet.Data is slightly old, but relevant to what you are saying.
Nick C – I assume you’re looking at Table 4-6. Note that the the number you give includes fixed costs. Total variable costs are $3,833 per block hour. As I said, the two biggest costs are fuel and crew at $2,394 for fuel and $724 for crew. Maintenance is $715, though I find it hard to call that a direct operating cost since it’s not that simple. But back to fuel, in 2013 (when this was from), American had an average cost per gallon of $3.09. Today it’s well under $1. So if you eliminate crew and you slash fuel by a third, you’re now at only about $1,500 a block hour and that’s if the maintenance costs are truly variable.
I’m guessing you could have split NY State as well as PA in your analysis.
Folks in Syracuse, Rochester, Buffalo are much less impacted by Covid than the NY City area. I can’t wait to get back on a plane….
walkermert – Yeah, I’m sure I could have, but honestly, it’s not that much traffic in the scheme of things. I broke Pennsylvania out mostly for Pittsburgh which I assumed behaves more like the Midwest. PIT has more than Buffalo, Rochester, and Syracuse combined.
Thanks for the explanation. Also, Buffalo would normally be higher, but they’ve lost the cross-border traffic due to Covid.
I am an Exec Plat on AA, and as my work is essential I have been traveling throughout this crisis, and I go all over the country. On a flight from RDU to DFW right now…a 738 that is about 80% full on a Tuesday morning.
What I am seeing is that there is not nearly as much business travel as normal. Meetings, sales, and other in-person business is limited, though it’s slowly increasing. At first I never saw the first class cabins full, which means elites are not traveling, but they are usually pretty full now. Much of what is driving the increase is leisure flying, and a lot of that is people tired of being cooped up.
With the way the country is reopening, I think AA is right on point as far as their capacity increase. Despite many detractors here, they were proven right for their June schedule. I think DL and UA have hamstrung themselves, both with the load caps and their lack of capacity. WN and AA will gladly pick up that market share. July travel is going to pick up quite a bit too.
I know many of you come from the coasts where the COVID fears are much greater. I live in the Dallas area, and many people are going about their daily business. Some are not, especially those in susceptible groups, but many are. Social distancing is still used, as capacity is reduced in restaurants, stores, gyms, etc., but life is closer to normal, and people are doing their thing. This will spread throughout the country; as places reopen people react similarly. This is the case whether it is a red state or a blue state.
I believe we are going to reach a balanced approach to the virus. Since we are likely still at least six months or more away from a vaccine, people are not going to stay home. And constant fearmongering (stay home or people will die) is not going to stop this. Companies should plan accordingly.
I think the balanced approach is a necessity. Quarantine fatigue is very real, and people will only tolerate being told to stay home (rightly or not) for so long.
With regards to WN, don’t forget that they are capping themselves at ~60% load through the end of July. They have very publicly committed to keeping pax numbers low enough to middle seats to be open, and are also blocking (via signs/ribbons) a section or two of 3 seats for FAs, so that the FAs don’t have to sit as close to each other in the jump seats for takeoff and landing.
Interesting article, thank you….I am an AA employee at DFW….I see a lot of jets, both mainline and regional, pushing off the gate at the 85% LF cap that AA is using. One thing AA is doing to mitigate last minute bookings is using the flexibility of the Airbus fleet to upgage. Often, the schedule has a mix of 319/320/321 aircraft and as the loads approach the 85% cap, the 319s are pulled for a 321 which adds another 60 seats (51 usable). I am seeing this upgage happening up to the night before the flight. That is one “nice” thing that can happen when you have a lot of excess capacity.
it is worth a reminder once again that airlines make money carrying revenue, not passengers. Yes, passengers should be bringing revenue – but it is far from clear right now that it is really worth hauling passengers around, esp. on a connecting basis, right now.
Delta and United might well know this reality and are simply not going to throw a bunch of capacity into a system that is nowhere close to breakeven, not for American, Southwest or anyone else. The fact that Delta is cutting – at least for now – a bunch of small cities – says that every airline recognizes that medium to long-haul traffic is the only thing that is worth going after right now.
Let’s keep in mind that we are nearly to the middle of June but not a single airline has provided any evidence they will be anything better than 80% LESS revenue from a year ago. At some point, it is cheaper to operate the most bare minimum schedule than to try to operate flights where there is little demand.
And the notion that airlines that don’t fly more now will lose market share is flawed. When the entire market is low double digit percentages of what existed a year ago, there is no meaningful share shift that can take place. If demand materializes, it is a given that capacity will come back at all carriers.
Finally, in a related topic, Gol is due to repay a $300 million loan to Delta in a couple months that was a remnant of their previous relationship. It is secured by half of Gol’s loyalty program. Gol can’t repay the loan and Delta is apparently working with them. Likewise, Delta is apparently negotiating with Virgin Atlantic to extend repayment of some obligations that VS owes DL. There are far bigger strategic issues that are swirling in the industry right now than whether carrier X carries more passengers (at a loss) than carrier Y (also at a loss). While the gut reaction is to do something, until there is a virus cure or treatment and people legitimately believe it is worth traveling again en masse, it just might make more sense to lay low now and plan for a future where one is stronger than they were when this whole thing started. How that looks is far from clear to any of us but there is no doubt that the airline world we once knew will be dramatically altered when the dust finally settles.
I can tell you from personal experience, Tim, that fares are definitely rising. The airlines have mostly abandoned the dirt cheap fares except in a few markets.
We are in an environment where fuel is cheap and Uncle Sam is paying the employees’ salaries. At this level it doesn’t take nearly as much revenue to pay the bills, so adding capacity makes sense.
Now…when the PPP is done, and fuel starts going back up? Then you may see more cuts again.
I generally agree with you but even the payroll portion of the Cares Act provided grants to cover PART of employee salaries; the other part (about 30%) is via loans which have to be repaid.
And part of the whole reason for capacity constraint is to get fares back up to levels that can support air service.
I hope you realize that airlines exchange traffic data on a regular basis so execs of each airline do know how well the industry and even specific carriers are doing in specific cities.
If there was truly a significant demand return, there would be more capacity being added by all carriers. There isn’t a carrier that is shrinking just because they are choosing to turn away legitimately profitable demand.
In about a month, we will begin to see financial results for the 2nd quarter along w/ guidance for the 3rd quarter; I am going to go out on a not very long limb and say that a lot of people will be surprised that the financial recovery that some think is happening is a whole lot weaker than some imagine.
AAL provided an investor update this morning which shows that they will be at the same 90% reduction in revenue for the 2nd quarter to which DAL also guided. AAL also now says they intend to get to zero cash burn by the end of the year, also what DAL says.
AAL says it had a 15% load factor in April, 47% in May, and 62% for the first week of June.
Despite the increased capacity that AAL operated even in May, its revenue trajectory appears to be the same as DAL which is being much more conservative in capacity.
AAL also revealed its available and unencumbered collateral showing that they have essentially no available collateral other than international routes, slots and gates – which have little value unless the company operates routes in those regions.
AAL says it will pledge the domestic portion of its AAdvantage loyalty program in order to get a $4.5 billion CARES Act loan if the Treasury approves their request. Although they say that the AAdvantage program is valued much more than that, it is impossible to share the value of something such as a loyalty program among multiple lenders so effectively the loyalty program is AAL’s last available collateral.
TSA enplanements crossed 500,000 today. A month ago, I thought we’d see that by the end of June — and I’m sure everyone thought I was a wild-eyed optimist. As I said yesterday, Parker appears to have made the best strategic move in the airline industry in years. Of course, the advantage won’t last that long: I’m sure everyone is now pulling more of their planes out of the desert. We should now have a contest for the date we see 1 million enplanements. I’ll go with July 12.
and yet American’s guidance is for the same reduction in revenue as Delta. American is just working harder to generate the same amount of revenue -but that is exactly what distinguished American and Delta before the virus crisis.
Based on the daily TSA enplanement numbers, I’m very bullish about the airline traffic recovery. But Mike Boyd is more bullish than I am. What do YOU think Cranky? Seems like this is a good topic for a new thread.
I don’t understand how anyone can declare victory or know anything about future traffic at this point. Yes, things are loosening up, and yes it looks like American’s gamble in June is working for now. But we are now seeing big spikes in COVID cases in several states. Houston is considering adding restrictions back again. We have no idea what’s going to happen and this may turn back around at any time. I do think Mike Boyd is way off base, but I couldn’t tell you what things will look like in July, let alone the end of the year.
I’m with Cranky on this.
It is way too premature to say that a solid recovery has taken place. Let’s keep in mind that we are in the middle of June – which should be very close to peak summer travel. AA said its load factor for the first week of June was at 62%. AA is a global airline like DL and UA and yet all of them have shuttered 80% plus of their international systems. The very brief summer travel season ends on Labor Day when business travel is supposed to take over – and yet there is very little indication that business is traveling now or will in Sept.
Boyd used a vastly more aggressive traffic rebound goal for the end of 2020 than any airline or market analysis and is trying to justify his forecast – but will clearly miss by a country mile.
Yes, a slow recovery off of a decimated demand base is happening and no, people are not rooting for defeat but there are a whole lot of people that are realistic.
And then you factor in that, even with government grants, all of the big 4 have taken on or will have to take on $10 billion plus in new debt in order to get to the end of the year when zero cash burn is a goal – and the financial recovery will take way longer than Boyd or others are willing to admit.
as for reopening and increased virus cases, the measurement should be how many people are dying ABOVE normally expected death rates. This corona virus is the most tracked virus in the history of humanity and yet people have died from respiratory diseases since the beginning of humanity. Evidence says that the death rate is not growing disproportionately with the growing number of viruses which reinforces that the majority of Americans were never at mortal threat from this virus. The huge numbers of deaths came largely from the lack of protection of vulnerable populations in health care facilities. There are now nurse whisteblowers that are saying that several NYC hospitals were moving non-covid patients onto covid floors only for those people to succumb to covid within weeks. Given that the same thing is confirmed to have happened in senior facilities, the death rate for healthy adults in the general population is much, much lower than anyone has reported.
Still, the population has been scared and travel will not return until the true death and severe case rates is exposed or there are viable treatments or vaccines. Neither of those appear likely in the near term.
Remember, AA is scheduling int longhaul based upon cargo needs at this time. So even if planes are flying near empty, they will just load up the belly with more or heavier freight. I would presume they are also using the baggage areas as cargo too.