The U.S. airline industry's recovery will be one of slow growth and extreme caution, according to the snapshot provided by airline executives in recent earnings calls.
For now, the airlines are in survival mode, operating minimal service with near-zero demand and, as such, are hemorrhaging money. American Airlines, for example, said it was burning through about $70 million per day, which it hopes to cull to $50 million per day in June. For United Airlines, that number stands at about $50 million per day, and Southwest Airlines is losing about $30 million to $35 million per day in May. All U.S. airlines reported losses for the quarter—which actually started out strong for the industry before the Covid-19 cancellations began to hit—and those inevitably will deepen in the second quarter.
The U.S. government's Coronavirus Aid, Relief and Economic Security Act will be a lifeline to carriers over the next few months, providing billions of dollars to help them maintain payrolls through the end of September. That money comes with both near- and long-term stipulations, including requiring airlines to maintain minimal connectivity and not involuntarily furlough anyone through the end of September as well as longer-lasting rules regarding stock buybacks and executive compensation.
Along with the money airlines have been able to secure independently, the major U.S. carriers said they are in a position to maintain liquidity throughout those months.
Beyond September, the outlook is fuzzier. Forecasts call for some level of recovery by then, though airline executives agreed it would be slow. For corporate travel, FairFly VP of marketing Chris Ulph said it likely would rebound in three phases, with business-critical travel—C-suite executives meeting with investors or fulfilling legal obligations, for example—back first. Next up would be sales and other travel directly connected to revenue, and Ulph said he didn't expect several months of such functions operating on virtual platforms would lessen long-term demand.
"At the start, some might be reticent, but [businesses] will be seeking to gain a competitive advantage," Ulph said. "Those that have braved the return will gain that advantage."
The timeline of that, however, is harder to predict. Delta CEO Ed Bastian said he expected it would take three years before the industry sees a "sustainable recovery," and some analysts have said five years is more likely.
"These are truly unprecedented times, and the path to recovery is uncertain and will likely be choppy," Bastian said. "While we all wish we could predict the pace of the recovery, the truth is our recovery will be dictated by our customers feeling safe both physically and financially to begin to travel at scale."
As such, all major U.S. carriers said they would resize as smaller airlines at least for the initial stages of recovery. American, for example, is retiring entire fleets of five aircraft types and some regional aircraft, which chairman and CEO Doug Parker said will cut American's 2021 fleet count by about 100 aircraft compared with previous plans. Retirements include nine Airbus A330-300 aircraft, 34 Boeing 757-200 aircraft, 17 Boeing 767-300ER aircraft, 20 Embraer E190 aircraft and 19 Bombardier CRJ200 aircraft.
United president Scott Kirby, who succeeds CEO Oscar Munoz this month, said the carrier has a plan in place for the direst of scenarios, in which there is no demand growth throughout the rest of this year. That plan will reduce United's cash burn to $20 million per day if there is no demand recovery beyond Sept. 30, and those cuts will have to come largely from United's payroll, he said.
"All non-employee expenses have been cut beyond to the bone," Kirby said. "It will be agony to make those decisions and incredibly painful for our people, but we have to make sure we have a strong future here at United."
Southwest Airlines chairman and CEO Gary Kelly also said the carrier has a working plan to "radically restructure," though he did not think it would be necessary.
It's hard to predict what these temporarily leaner airlines will mean in terms of fares for corporate buyers. On one hand, airlines will be trying to win back demand, so it could be possible to see "dramatically low" average prices, Advito VP and global air practice leader Olivier Benoit said. At the same time, airlines said they will be cautious in matching capacity to demand, so they might try to avoid price wars, he said.
"It's smaller world, so different airlines may adopt different strategies to resume flights," Benoit said.
Airlines also will be figuring out new safety protocols, both to meet any new regulations and to assuage travelers fearful of returning to the skies. All major U.S. airlines already have announced mask requirements for passengers, but other current measures—blocking out middle seats to ensure social distancing, for example—might not be sustainable. "Airlines couldn't be profitable at a 67 percent load factor without raising fares to equally unsustainable levels," Cowen analyst Helane Becker said in a research note.
Some buyers in BTN's ongoing Covid-19 discussion groups said they would be less price-focused on air travel as they started traveling again and would look more to carriers that could provide safety assurances and direct service to minimize airport time and flexibility, as travel plans will need to be fluid with potential flare-ups and quarantine requirements likely to come and go over the next year or longer.
Bastian said he thinks "that the customer of tomorrow will place a higher premium on the quality of service than ever before."
As companies will be facing their own financial difficulties coming out of the crisis, Kelly said companies that do focus on savings could lead Southwest eventually to pick up marketshare in the long term, using past recessions as a model. "The recovery [in past downturns] of business travel overall was many years, so Southwest benefited in those recovery scenarios," he said. "Because of our low cost and low fares, we gained share."