On Tuesday, United Airlines president Scott Kirby made a stunning announcement: In recent days, the airline’s net bookings for domestic travel (that is, bookings minus cancellations) are down 70 percent. Net bookings to Europe and Asia are down 100 percent, meaning that as many customers are canceling their trips as are booking new ones. The airline is planning to take in 70 percent less revenue this April than it did last April, and it expects revenue drag to persist through the year even, as the coronavirus situation improves.
Kirby made these remarks to J.P. Morgan’s Industrials Conference for investors, where top executives from competitors including Delta Air Lines and American Airlines also spoke. And as Gary Leff notes, the presentations from the three airlines were remarkably different in tone: American CEO Doug Parker opened his remarks by talking about the coronavirus — announcing less aggressive schedule reductions than his main competitors — and then moved on to an upbeat discussion of longer-term initiatives, like an expansion of the airline’s Dallas–Fort Worth hub. Delta CEO Ed Bastian struck a tone somewhere between his counterparts from United and American, projecting a material drop in traffic. In March, Delta expects its domestic flights to operate 65 to 70 percent full, about a 20 percent decline from a year earlier.
“This clearly is not an economic event,” Bastian said. “This is a fear event, probably more akin to what we saw at 9/11 than necessarily what we saw in 2009. I think you’re seeing a suspension of activities, whether it be corporate activities, group activities, events where people get together in large numbers, all of which impact our demand set.”
In the last two weeks, most U.S. airlines had already given customers more leeway to reschedule and cancel new bookings, as part of an effort to encourage customers to book travel even if they are unsure they will actually want to complete it. But with the CDC encouraging Americans to forego long flights if they are older or have existing health conditions, and with an increasing number of destinations being impacted by the outbreak, airlines have now felt compelled to give customers some flexibility to change bookings that were made before March, regardless of destination. Delta made the move first on Monday, with United and American following close behind. (Southwest, the airline that carries the most domestic U.S. passengers, has highly flexible ticketing policies even in normal circumstances.)
While customers benefit from more flexible ticketing, those who are looking for coronavirus “deals” may find themselves disappointed. One thing about the falloff in travel being a “fear event” is that consumers may actually be less price sensitive than normal: If you’re afraid to get on a plane at all, cutting the ticket price from $200 to $100 is unlikely to move you. Airlines are already worried about their cash position in the face of sharply declining travel and don’t want to hand out discounts that won’t materially increase sales. To the extent there are deals, they are likely to be for travel after the acute phase of the crisis is over. Delta president Glen Hauenstein said “stimulated pricing” may play a useful role to draw customers back when they are ready to fly again, while American CEO Parker said the airline is releasing more discounted fares for summer travel than it ordinarily would at this time of year.
Of course, that assumes the crisis will have moved past its acute phase by summer. That’s certainly possible; former FDA commissioner Scott Gottlieb has been encouraging Americans to prepare for two months of especially acute social distancing measures to fight the virus, and it’s possible disease transmission will abate with warmer and more humid weather, as is the case with some other coronaviruses. But it also may not be the case. All three airlines are making plans to further shrink their schedules, reduce expenses, and lay their hands on cash — including by financing assets not currently leveraged — in the event this situation continues to worsen. Airlines have already been asking employees to take voluntary leaves of absence, and I think we should expect some layoffs or mandatory furloughs if the crisis becomes very deep and prolonged.
U.S. airlines have been through major crises before, and in the last few years they have been unprecedentedly profitable and built up strong cash positions. If there’s a time they can weather a crisis like this financially, it’s now. But it’s going to be a rough year for them, even in the more optimistic scenarios regarding the U.S. outbreak.
