COVID-19

How possible is a major airline failure due to COVID-19?

Andy Uhler May 12, 2020
Heard on: Marketplace
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United Airlines planes sit parked on a runway in Denver in April.
COVID-19

How possible is a major airline failure due to COVID-19?

Andy Uhler May 12, 2020
United Airlines planes sit parked on a runway in Denver in April.
HTML EMBED:
COPY

Boeing CEO Dave Calhoun told NBC’s “Today” show that he believes it’s “likely” that a major U.S. carrier will go out of business this year. After making that prediction (and adding he didn’t want to “get too predictive on the subject”), Boeing’s spokespeople downplayed the statement, insisting Calhoun was simply speaking to general uncertainty in the sector. But those are big words coming from a guy whose company sells planes to airlines. Given current market conditions, is there a chance that might happen?

According to the trade group Airlines for America, passenger traffic at airports is down more than 90%.

“Airlines are the caboose on the economic train. The economic train stopped, they got stopped,” said Michael Boyd, president of Boyd Group International, an aviation consulting firm headquartered in Evergreen, Colorado. “How they come back and where they come back will depend on how the economy comes back, and the shape the economy comes back in.”

Southwest Airlines said that it is expecting to lose $30 million to $35 million per day right now. American said it’s trying to cut its losses to $50 million a day by next month.

Rob Mark, a commercial pilot and aviation industry blogger, said most airlines are worried about having enough cash on hand to make good on lease payments at airports.

“Some airlines are stronger than others. And although we thought we would have no more mergers after the last round, I think we’re going to find that somebody is going to fail,” Mark said.

And if there is consolidation, Mark said it will eventually mean more expensive airfares. Gary Leff of the travel blog View From the Wing, said that could be compounded by pressure to accommodate more room between passengers on flights because of COVID-19.

“Dividing that space among fewer passengers is going to mean both actually fewer flights and an average higher average fare,” Leff said.

Last month, some airlines started getting federal grants and loans as part of the Coronavirus Aid, Relief and Economic Security Act. Those were meant to allow them to pay employees through the end of September. A clearer sense of where the industry is headed should emerge once that funding runs out.

COVID-19 Economy FAQs

Are people still waiting for unemployment payments?

Yes. There is no way to know exactly how many people have been waiting for months and are still not getting unemployment, because states do not have a good system in place for tracking that kind of data, according to Andrew Stettner of The Century Foundation. But by his own calculations, only about 60% of people who have applied for benefits are currently receiving them. That means there are millions still waiting. Read more here on what they are doing about it.

Are we going to see another wave of grocery store shortages?

Well, public health officials are warning that we could see a second wave of the virus before the end of the year. And this time retailers want to be prepared if there’s high demand for certain products. But they can’t rely totally on predictive modeling. People’s shopping habits have ebbed and flowed depending on the state of COVID-19 cases or lockdowns. So, grocers are going to have to trust their guts.

What’s going to happen to retailers, especially with the holiday shopping season approaching?

A report out Tuesday from the accounting consultancy BDO USA said 29 big retailers filed for bankruptcy protection through August. And if bankruptcies continue at that pace, the number could rival the bankruptcies of 2010, after the Great Recession. For retailers, the last three months of this year will be even more critical than usual for their survival as they look for some hope around the holidays.

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