Losses are mounting for the U.S. airline industry as the coronavirus pandemic continues to wreak havoc on the economy and hope dims for an immediate government aid package.
Karl Moore, associate professor at Desautels Faculty of Management at McGill University, says, “We're looking at flights being down in the area of 90% less in March and April than they were the year before. So, it's a time of enormous crisis. And there are hundreds of thousands of people who work in the airline industry.”
For now, combined third-quarter losses for American, United, Delta, Southwest and Alaska Air have exceeded $11.5 billion. The industry’s downturn dwarfs previous crises such as SARS and the September 11 terrorist attacks of 2001, Moore says.
WATCH: US Airlines Await Critical Aid Deal
Earlier this year, U.S. airline companies received billions from Congress through the CARES Act in the form of cash and loans that helped keep them afloat. The hope was that the virus would have subsided by now. It hasn’t.
“What we've seen is domestic travel in the U.S. has gone up some, but international travel is down horrifically, and even domestic travel is not anywhere near what it was last year. So, we have the ongoing crisis. We have maybe a second wave — certainly a lot more people getting sick than we had hoped at this time of year. So, it's a thing where the industry's troubles have not yet gone beyond six or seven months and it will go on for some months and perhaps a couple of years to come,” says Moore.
Nearly 5 million air transport jobs globally are at risk, according to estimates by the Air Transport Action Group.
Mask wearing is mandatory
To bring passengers back, airlines have made mask wearing mandatory. They’ve also stepped up their cleaning of plane cabins. Some leave middle seats open to put more space between passengers.
Negotiations between Congress and the White House on a new aid package continue with few signs that an agreement will be reached soon.
This has led airlines to cut jobs, offer early retirement and take other cost-cutting measures.
But some experts note that with airlines raking in profits over the past decade, they could have made better decisions.
Even though they could not foresee the pandemic and the fallout from COVID-19, Israel Shaked, a finance and economics professor at Boston University Questrom School of Business, says airlines’ own choices left them with little cash.
Shaked is also the managing director of the Michel Shaked group, a consulting firm based in Boston. In a recent article, he argues that decisions made in the past few years by the airlines were short-sighted and that they could have saved for a so-called rainy day.
“If you take a look at 2019, for example, this industry paid itself, and I am only talking about American, United, Southwest, Alaska, JetBlue … and Delta. … They paid out dividends of $1.7 billion and the stock repurchase of $7.4 billion. If you combine these two, you're talking about almost like a 7, 8, 9 billion dollars in one year going out of the company … and it was similar the year before.”
Minimum of 80% capacity needed
He points out that airlines need minimum 80% capacity utilization to survive because they have huge fixed costs.
He says he supports government aid in the short term, but authorities need to put some limits in what the airlines can do with that money.
This month the number of people screened at U.S. airports is down 65%, compared with last October, but that's better than the 68% decline in September, the 71% drop in August and the 96% plunge in mid-April.