American Airlines and Delta are the latest to say they’re cutting schedules as a result of plummeting demand for flights.
AA is cutting international capacity by 10% for the summer peak. Delta says it’ll slash 20% to 25% of overseas flights, and 10% to 15% of domestic flights.
Last week, United and JetBlue announced similar cutbacks and the CEO of Southwest, Gary Kelly, said he’ll take a 10% pay cut.
Because of COVID-19 people don’t want to, or can’t, travel as much as usual. Together with the 737 MAX groundings, it’s been a tough year for airlines.
Today is the one year anniversary of the crash of Ethiopian Airlines flight 302. It was the second Boeing 737 MAX to crash, and prompted a global grounding of the plane, leaving some airlines without enough capacity last summer.
Now, because of COVID-19, they’re facing the opposite problem.
“Airlines have seen demand fall by half or more. On some routes, demand has simply disappeared completely,” said Perry Flint with the airline industry group IATA. Its figures show, depending on how COVID-19 plays out, the revenue loss for the global industry could go as high as $113 billion. “In response to that, they’re doing what they can to reduce costs,” Flint said.
That includes deferring capital expenses, freezing hiring, offering unpaid leave, and cutting flights. Deciding which flights to cut comes down to economics, explained Samuel Engel, who leads the aviation group at the consulting firm ICF. “Fundamentally, it has to do with the revenue that comes in from those passengers.”
Corporate tickets, in business class, have higher profit margins than tourist economy fares. But as companies tell staff to limit travel, those dollars are drying up. Airlines will focus on cutting routes that affect the fewest people, like between two cities where there are multiple flights a day. One could be cancelled, and the passengers re-booked onto empty seats on the others.
It’s not always that simple, though.
“It’s not just the passengers who are flying between London and New York, it’s also the passengers who are connecting from that flight onto other flights,” Engel said.
Airline schedules are a byzantine network of interconnected flights, each feeding the next with passengers, baggage, and cargo. Cancel one, and it’ll have onward impacts, which airlines have to consider when choosing what to cut.
“The network devolves in the same way it evolves,” said Robert Mann, an airline industry analyst. “As you pare away the international capacity you have to pare away domestic capacity at some direct correlation.”
Both domestic and international carriers are waiving change fees for people who book flights, and later need to shift them.
“That is a very good lever to pull, frankly,” said Jonathan Root, who monitors airlines for Moody’s. “In my opinion it removes some of the risk of booking a ticket.”
That could keep ticket sales up, and bring in much needed cash.
COVID-19 Economy FAQs
What are the details of President Joe Biden’s coronavirus relief plan?
The $1.9 trillion plan would aim to speed up the vaccine rollout and provide financial help to individuals, states and local governments and businesses. Called the “American Rescue Plan,” the legislative proposal would meet Biden’s goal of administering 100 million vaccines by the 100th day of his administration, while advancing his objective of reopening most schools by the spring. It would also include $1,400 checks for most Americans. Get the rest of the specifics here.
What kind of help can small businesses get right now?
A new round of Paycheck Protection Program loans recently became available for pandemic-ravaged businesses. These loans don’t have to be paid back if rules are met. Right now, loans are open for first-time applicants. And the application has to go through community banking organizations — no big banks, for now, at least. This rollout is designed to help business owners who couldn’t get a PPP loan before.
What does the hiring situation in the U.S. look like as we enter the new year?
New data on job openings and postings provide a glimpse of what to expect in the job market in the coming weeks and months. This time of year typically sees a spike in hiring and job-search activity, says Jill Chapman with Insperity, a recruiting services firm. But that kind of optimistic planning for the future isn’t really the vibe these days. Job postings have been lagging on the job search site Indeed. Listings were down about 11% in December compared to a year earlier.
As a nonprofit news organization, our future depends on listeners like you who believe in the power of public service journalism.
Your investment in Marketplace helps us remain paywall-free and ensures everyone has access to trustworthy, unbiased news and information, regardless of their ability to pay.
Donate today — in any amount — to become a Marketplace Investor. Now more than ever, your commitment makes a difference.