As for this country, perhaps with the exception of a few transportation and shipping companies and internet fulfillment centers, there is not an industry that would not be hit hard. Retailers at all levels, but mostly the small “mom &pop” stores, are shutting down. And airlines, as at other times in history, are not exceptions. Some have closed their doors, some declared bankruptcy and hope to keep on operating – perhaps getting some financial support from elsewhere. Some are more fortunate than others, and when this happens, it brings back the sad memory of when the “new” National Airlines based in Las Vegas, NV, was refused any government help after 9/11. It was an ambitious and promising company and I knew its CEO personally.
President Trump is often criticized for starting the counter-offensive against the virus too late. The criticism comes from the Democrats, who look for every little thing he does or doesn’t do for which he could be criticized on the Internet and every Democratic daily. It is easy to be an armchair quarterback after the fact. But in all fairness, no one was right on the ball. Whether it was Governors Cuomo in New York or Newsom in California, all states were way behind the virus incidence. These two are both Democrats and so they do not get the wreath of the media Trump does, but no one should be blamed for the late start in hospitalizing, treating and warning against the virus. China was sitting on the virus news for a long time hoping it might just blow over.
But the travel associated with the Chinese New Year – the travel has the dimensions of Ramadan travels in the Muslim world – guaranteed a spread of the virus like spread of fires in California wilderness. Airlines were hit the first and perhaps the most among all industries.
The first publicized death of an airline employee was in the middle of March, when flight attendant Paul Frishkorn, age 65, from American Airlines passed away from the Covid-19. By April 11, a little more than 600 flight attendants from U.S. airlines tested positive. More were most likely infected, given the scarcity of testing kits everywhere. While it is a relatively low number, considering that U.S. airlines employ about 750,000 people, it began to compete with the infections among New York City police officers. At that time 1,400 were officially diagnosed with the virus.
Fortunately for all of us, the flight attendant unions stepped in this time (Republicans might criticize the unions for “being late,” but just like the politicians, they did not expect the rapid spread, and no one could guess the virility of the virus). Unions were never my favorites because most of the time they did not stand by the employees they represented, but in all objectivity, I applauded them and congratulate them on holding their ground and insisting that airlines provide flight attendants with masks, gloves, and decreasing on-board service to bare necessities to minimize contact with passengers who, in general, have not been properly screened for the virus. Some sick flight attendants used Internet to encourage their colleagues to quit flying, right from their hospital beds, while they were still alive.
Some critics were quick to point fingers at the construction of planes. But an in depth study of the Center for Disease Control, jointly with Boeing, showed that majority of flight attendant infections were contracted through very close contact with passengers who may have been infected, and through colleagues who were infected by activity outside work. That was a huge step for the airline industry. Now it is clear that distancing on the plane, as well as face covering are the keys to lowering in-flight infections. Having said that, the virus may trigger a new way of filtering aircraft air.
Much more to blame for the virus spread was the influx of Chinese during the Chinese New Year, despite Trumps ban on tourism from China to the U.S. The ban was signed on February 2, but not really properly implemented, which makes a lot of people guilty. Almost 8,000 Chinese entered this country from China during that period, mainly due to an exemption granted to citizens of Hong Kong and Macao, a former Portuguese colony now a part of People’s Republic of China. Travel from mainland China to those 2 territories was not curtailed, and so Chinese from Beijing, let’s say, could easily enter the U.S. via Hong Kong and Macao. However, there is no hard evidence that this “sieve” took place. Aside from this population, there were some 16,000 additional non-Chinese travelers from China admitted to the U.S., many of them passing through Los Angeles International Airport without any meaningful screening.
While the White House attempted to suggest some regulations of the airline industry to limit the spread of the infections, there actually has not been any guideline by the Federal Aviation Administration (FAA) to the airlines as to how to handle passenger flow during an epidemic or a pandemic. Every airline was allowed to make their own rules as no organized, unified attempt to create rules or regulations that would protect both the public and airline employees were instituted. The public eventually made a decision for themselves – stop flying. Many flights of most U.S. airlines carried anywhere between 1-6 passengers per flight, obviously a money-draining proposition for the airlines.
In a rare bi-partisan decision, both parties agreed to bail out most airlines. The government voted to earmark $50 billion for the airlines – the first $25 billion was as a “forgivable loan” with a condition: the airlines could not involuntarily lay-off any employees till the end of September. The other $25 billion were earmarked for loans, a good number of them related to quasi government “equity” in the airlines that took advantage of it. The airlines could repay the loans in return for the newly acquired government equity. Another package is in the making as it is obvious the virus will not subside to the levels that would encourage people to fly again anytime soon (though in recent months occupancy has gone up on most routes, but not to the level where airlines would at least break even). Some of the airlines that participate in the bail-out are (in alphabetical order) Alaska Airlines, Allegiant Airlines, American Airlines, Delta Air Lines, Frontier Airlines, Hawaiian Airlines, jetBlue Airways, SkyWest, Southwest Airlines and Spirit.
A glimpse at some of those bail-out “packages” is indicative of the rest.
American Airlines (AA), which burned through up to $70 million/day a month ago, lost $2.2 billion in the first quarter of this year. It got $5.8 billion from the government in the first phase (really, it’s money that our government does not have, and the taxpayers will have to shoulder these bail-outs), with additional $4.75 billion being still available to AA. AA is also trying to reduce its losses on its own: about 100 planes have been grounded, while the remaining planes have occupancy maxing at 39% (still losing millions a day). AA’s revenue for the first quarter of 2020 is about 75% down from the same period last year (from $4 billion down to $1 billion). American was hoping to bring July 2020 occupancy to about 55% full – although the statistics are not out yet, it may have been a very optimistic forecast by AA’s CEO, Doug Parker. So far 39,000 employees took a temporary leave of absence, but in regard to flight attendants, it is almost certain that by the beginning of October anywhere between 7,000 to 8,000 flight attendants and approximately 5,000 management and support personnel will be laid off. The involuntary lay-offs will include $32,000 in a one-time payment (taxable), up to two years of group health insurance and free space available travel. Two bases – St. Louis, Mo. (formerly the main hub for TWA before acquisition by AA) and Raleigh, NC (formerly the biggest base for U.S. Airways before merging with AA) will be shut down. That would have probably happened anyway, even without the virus pandemic.
United Airlines (United/Continental Holdings) is not fairing much better. It lost $1.7 billion in the first quarter of this year as flights occupancy dropped to 10% in May. The airline still burns through $40-45 million every day even in the second quarter, and there is a plan that apart from offering “buyouts with robust benefits” about 36,000 employees may be furloughed at the end of September. There was no breakdown by jobs, but management alone will be cut by 3,400 jobs (about 30% of existing management). Airport employees’, including baggage handlers’ work hours will be cut to 30 hours a week to avoid paying benefits. United got so far a $5 billion loan from the government and may opt for additional $4.5billion.
Delta Air Lines (DL) posted its first quarterly loss in over 5 years last April. It lost $534 million, in comparison with a $730 million profit in the first quarter of last year. It was a shock to the system after ten consecutive annual profits. Delta’s main goal was to drop daily cash burn to $50 million/day by the beginning of July. It burned through $100 million/day in March. Delta received $5.4 billion from the government and is eligible for additional 4.6 billion. It cut expenses by asking employees to take unpaid leave of absence. It was requested by about 35,000 employees. DL was proud to announce that it has had 65,000 passengers/day in June, twice as many as in April. It still operates with heavy losses and renegotiations of terms of Delta’s loans are imperative.
Southwest Airlines (SWA) got $3.2 billion loan so far. All these loans are towards wages of people who have to be retained till October 1. It is not certain if, or how much of additional government bailout might be available, but SWA says it may apply for additional $2.8 billion. SWA has not said how much it burns through in a day. But it disclosed that its flights are only 25-30% full even now, resulting in 80-85% decline in revenue. The first quarter of this year was the first quarter in its existence (after the first quarter when SWA started flying), that the airline lost any money.
Spirit is also relying so far on the government life support and so is jetBlue, which is burning through $10 million/day, after an initial burn of $18 million/day in April. Both the president and CEO agreed to a 50% salary cut. jetBlue also announced, after many squabbles with the City of Long Beach in recent years, that it will take its business to Los Angeles International (mainly because Long Beach City wanted jetBlue to give up unused slots – these and the rest of jetBlue slots will be almost certainly snapped by Southwest and another low-cost airlines).
U.S. airlines agree that they may not reach even just 50% capacity by Christmas, and although bookings are slowly picking up, they will not be anywhere close to last year’s during the holiday season (Thanksgiving and Christmas). Foreign airlines are not doing much better. There is limited information available on some of them.
Avianca (Columbia), the second largest airline in Latin America after COPA, has filed for Chapter 11 bankruptcy in the U.S. Avianca did not do well already before the corona virus problem and had obtained a $5.3 billion restructuring loan, but can’t afford to make payments now. To protect its assets, bankruptcy was the only way to do it. Avianca’s management is hoping that the airline may return to pre-virus profitability within 12–18 months.
Cathay Pacific (Hong Kong) was in a dire need for a bail out after its occupancy dropped 99% in the first quarter of 2020, compared to the same period last year. The Hong Kong government stepped in with a $5 billion funding package in exchange for some equity on the company. Other investors in Cathay are Swire Pacific Ltd., Air China Ltd., and Qatar Airways Ltd.
Lufthansa (Germany), which had absorbed Swiss Air Lines and Brussels Air (initially organized by former staff from bankrupt Belgium SABENA) was able to make a deal with the German government to get $9.81 billion aid. To get the loan, Lufthansa had to cede 24 take-off and landing slots in Munich and Frankfurt, its two largest bases, to their competitors. Lufthansa also agreed to accept two government people to become board members with limited voting rights (only concerning any possible sale of the airline). The airline aims to shed some 100.000 jobs. These arrangements raised Lufthansa’s stock by 15%.
Air France/KLM (France/the Netherlands) made a similar deal with their respective governments. Airlines in the United Kingdom have also applied for government aid.
Virgin Atlantic, 49% owned by Delta Air Lines, which still is, however, connected to Richard Branson’s empire, has applied for a loan as Delta declined to invest more in the airline, while Virgin Australia declared bankruptcy and Virgin America had become a part of Alaska Airlines several years ago when no investors could be found to salvage it. Other Branson’s ventures are not doing too well, either. Virgin Galactic is years behind with its space tourism flights and Virgin Orbit just had an unsuccessful first satellite launch over the Channel Islands near S. California coast. Other U.K. airlines are also struggling.
Flybe, a low-cost airline which has been losing money already before the virus, has declared bankruptcy. EasyJet stopped flying temporarily and cut its staff by 30%. It resumed flights on June 15 at 30% capacity. Ryan Air has 40% occupancy and projects 60-70% occupancy in September. Collectivelly, British Airways, easyJet and Ryan Air plan to shed thousands of jobs. European bookings were about 80% lower in the second quarter in comparison with the same period last year.
The hassles well-heeled passengers encountered at airports during the corona virus time have led to a cyclic boost in corporate aviation, very much like after 9/11 and SARS. However, this modest jump hardly translated into greater profits, because it still is not like during the hay day of corporate aviation.
Netjets, owned by Berkshire-Hathaway group headed by financial wizard Warren Buffet cut orders from 60 new jets to 25 and announced it would cut jobs in U.S. and Europe. XO Jets and Sentient also experienced modest increase in the use of their corporate jets.
Middle East has been hit by the corona virus just as badly as the rest of the world. Emirates, based at Dubai, United Arab Emirates, slashed wages by 25-50% and asked employees to take leave of absence without pay. After these steps it expects to recover within 18 months. It might be an optimistic outlook, though the airline offers as of the end of July medical and hospitalization insurance at no cost to their passengers if they get infected on Emirates’ flights. It might just be an advertising gimmick, who knows? Emirates’ losses combined with losses by Etihad, which is based in neighboring Abu Dhabi, have not been announced, but the airlines said their loads have gone down by 23.8 million passengers in the first quarter due to the virus. Fortunately for them, they are supported by oil-rich governments.
In summary, statistics for the second quarter will be even more dismal because the full brunt of the pandemic did not take place till the beginning of March. It is estimated that approximately 32 million jobs related to aviation will be lost globally with airlines losing over $84 billion compared to 2019. Over 14,000 aircraft are mothballed – more than half of the global fleet. Return to pre-virus period is not expected till at least two years from now.
If you are young and have a job at this time, still looking up every time you hear a plane flying by, you may think it is not that bad. But just extrapolating the above numbers in "real people numbers," you will get a different impression. Let me show you what I mean. I mentioned that more than 14,000 planes are parked around the world. That translates into more than 20,000 pilots (globally) will be furloughed. On top of that, more than 100,000 flight attendants will lose their jobs, not counting the airport and maintenance personnel, and clerical staff, which I would not even try to guess.
If things get better in two years, then a lot of airlines will first offer position to former employees that are being furloughed now, at least in the U.S. Unions usually insist on it. Only after that obligation is fulfilled new people will be hired. It may be a long haul.