America Airlines – What About The Course Of This Pandemic Gives Us Any Reason To Believe Airline Leaders’ New Optimism?
Are U.S. airline leaders setting themselves – and at least some of the consultants, analysts, frequent fliers and investors who continue to follow that woebegone industry – up for another big disappointment?
There’s growing reason to think perhaps they are.
U.S. carriers – like all other carriers around the globe – are now in the middle of reporting the staggeringly ugly financial results of their worst year ever (and that’s saying something, given airlines’ long history of ugly financial results). But they’re also trying to spin a good forward-looking story about a recovery of travel demand beginning soon, perhaps even before the start of summer in the most optimistic scenario, and certainly before year’s end in even the worst case.
But this would not be the first time since the Covid-19 pandemic’s arrival a year ago that airline leaders’ optimism concerning a recovery has proven to be premature. Like the fabled economist who correctly predicted six of the last three recessions, airline bosses have misread the tea leaves at least three times already since last March; first when they expected demand to bounce right back by Memorial Day last year, later when they seized upon a slight pickup in summer travel and began talking about a fall recovery, and then when the recovery that would be evident by a big jump in holiday travel failed to materialize.
Now, there’s significant and growing reason for hand wringing about the timing, size and completeness of another potential travel demand recovery.
Executives at Delta and United airlines already have reported monstrous 2020 losses of $12.3 billion and $7.1 billion, respectively, and deeply disappointing fourth quarter losses of $755 million and $1.9 billion, again respectively. But they both tried hard earlier this month to sell the notion that a leisure travel-led recovery in demand will begin maybe by late spring, or by late summer or the fall, at least.
Alaska Airlines, which only yesterday reported a $1.3 billion 2020 loss and a worse-than-expected $430 million fourth quarter loss, boldly said it’ll be flying 80% of its full 2019 schedule by this summer because it expects the demand recovery will be that strong. In-coming CEO Ben Minicucci, who will take the reins from the retiring Brad Tilden in March, admitted disappoint that demand fizzled in December as cases of Covid-19 spiked nationwide. But he rolled out the old “cautiously optimistic” phrase regarding what he thinks could be “a step change in demand once the vaccine has been broadly distributed.
“We do expect health patterns to improve in the next two months and that restrictions will begin to relax,” Minicucci said.
American, Southwest and JetBlue, which all are scheduled to report their full year and fourth quarter losses today, are expected to add their voices, at varying degrees of volume, to predictions of better days ahead.
But what if, say, the Biden administration, decides that everyone needs to be tested for Covid-19 before boarding any flight to anywhere within the United States, not just international flights? Among the first executive orders Biden signed upon his inauguration last week was one seeking recommendations from all agencies on what additional health regulations might be imposed on “ domestic travel.” In response, officials at the Centers for Disease Control told reporters on Tuesday that Covid-19 testing before domestic flights is under serious consideration.
That, according to two top executives at the U.S. Travel Association, a Washington trade group that represents not just airlines but the entire national travel and tourism industry, would crush virtually all demand for travel.
Victoria Barnes, Senior Vice President of Government Relations at the USTA, said “The high cost and low reliability” of Covid-19 testing would make requiring before any American boards a flight anywhere “unworkable.”
She also noted that such a requirement would require a 42% increase in the nation’s daily Covid-19 testing capacity should all those who normally travel by air domestically each day be required to take a test before each flight. Of course, the more likely reaction would be a steep drop in the number of people flying, obviating the need for increased testing capacity but costing the travel industry and the larger economy billions of dollars in lost business and the loss of tens of thousands of additional jobs. Roger Dow, the USTA’s president, said Wednesday in his annual “State of Industry” speech that US travel industry’s unemployment rate already is at 51% when measured against pre-pandemic employment totals. That’s twice the rate of the top unemployment rate in U.S. history at the peak of the Great Depression, he noted.
Beyond the matter of potential pre-flight Covid-19 testing, what if the Biden administration chooses to leave in place its ban on allowing travelers from a host of other nations into the U.S.. And what if it decides to implement its new Covid-19 testing requirement for all travelers entering the country while also refusing to override individual states’ own existing traveler quarantine policies? Well, that already has happened, thanks to an executive order signed by the new President. Instead of negating individual states’ quarantine rules for arriving foreigners – and in some cases, Americans arriving from other states – Biden’s executive order did not address such state-imposed policies. Nor is it clear that the President even has authority to override such state policies. Thus, for now, travelers arriving in the U.S. via states like New York and California where quarantine policies already exist must submit to a lengthy quarantine before they can even venture outside their hotels or, if they happen to be U.S. citizens, their homes.
And what if, as has begun to happen over the last two weeks, most of Europe, Australia, South America, the Middle East and parts of western Asia effectively halt all international air travel and even most domestic travel within their own borders in response to a pike in Covid-19 cases and the discovery of new strains of the virus? What happens, then, to any hopes of a recovery in travel demand, either globally or even domestically within the U.S. when huge chunks of the global population are simply unable to access any flights?
German Chancellor Angela Merkel, speaking to a gathering of officials from her own party on Tuesday, said flatly that “no tourist travel should be taking place” and made it clear her administration is exploring possible new restrictions on travel within Germany and by Germans traveling within the European Union Zone.
Dutch carrier KLM has all-but shut down this week because of new government edicts restricting travel during the pandemic.
And the World Travel & Tourism Council – a sort of global version of the USTA – warned Tuesday against the introduction this week by the British government of a proposed regulation requiring people arriving from other nations – both British citizens returning home and foreign visitors – to be quarantined at their own expense in designated “quarantine hotels” for some period of time after their arrival.
WTTC President Gloria Guevara said: “The UK travel and tourism sector is in a fight for survival. It’s that simple. With the sector in such a fragile state, the introduction of hotel quarantines by the UK government could force the complete collapse of travel and tourism. “Travelers and holidaymakers would simply not book business or leisure trips knowing they would have to pay to isolate in a hotel, causing a drastic drop in revenues throughout the sector.”
Such questions and concerns clearly have been playing on the minds of at least some investors who in just the last week have pushed airline stocks down 5% to 15%. The lone exception to that is American Airlines, whose shares were on the same negative trajectory until Wednesday, when the price shot up 14% in price in late morning training. It settled back a bit thereafter, but still finished the official trading day up about 7% at $16.56 a share. No news or announcement triggered that jump. So that left analysts speculating that perhaps those traders who were being run out of their recently enormous short positions in shares of Game Stop and other companies with high levels of short interest were shifting their money into bets on the shares of American. American has been, after all, the most heavily shorted of the airlines throughout the pandemic because analysts expect its financial recovery will be the slowest and weakest thanks to its industry-topping $45 billion debt load and its significant operational challenges.
In any case, it is true that these are mostly just reasons for additional hand wringing about the future of the airline industry. And though uncertainty still abounds, it is a near-certainty that not all the travel demand-crushing actions and policies being considered will go into effect (will they?).
It is important to keep in mind that there have been many major events in the last 35 years that have triggered enormously costly, albeit relatively brief drops in travel demand around the world: Chernobyl, 9-11, the global economic collapse in 2008, two wars in the Middle East, Swine Flu, Bird Flu, SARS, Ebola, dengue fever, and a host of regional cholera outbreaks, just to name a few. There also have been a string of oil price spikes that have made flying suddenly much more expensive and that triggered noteworthy drops in demand. But unlike all those world-shaking events, the Covid-19 pandemic is proving to be far more difficult to gain control over. Only World War II has had a bigger and longer-running negative impact on the global travel and tourism industry, and that was 80 years ago, when the industry was barely out of its infancy.
Arguably even worse is the fact that his pandemic, out of all those big global upsets, has been the most difficult to predict in terms of its longevity, reach and economic impact.
Thus, this pandemic has been, by previously unfathomable margins, far more costly for airlines and other travel and tourism companies than any other global event. U.S. airlines’ combined losses from 2020 are expected to total up somewhere around a record $35 billion once all the numbers are in. And USTA’s Dow yesterday estimated the U.S. travel and tourism industry’s combined losses at more than $500 billion – so far.
Optimism is frequently a great attitude to adopt, but there sometimes can be a fine line between that and being Pollyannish – or worse, manipulatively spreading false hope. We’ll give today’s airline leaders a pass on that second option. There’s no indication that any of them are extolling the sweet, perfumed smell of the nasty horse stalls they’re currently mucking out. And to be fair, they (at their lawyers’ insistence, no doubt) have been careful to couch their public expressions of optimism in cautiously hedged “if/then” terminology and in the context of that which is truly unknowable.
Still, the signals of optimism have been unmistakable. And here’s hoping – mightily – that they’re right, for all our sakes’.
But very little about the Covid-19 pandemic has played out as predicted at the scientific, medical, political or financial level. So, why should anyone be expected to believe yet another round of optimistic economic commentaries from even the smartest, best-informed and most gifted airline chieftains when there’s so much about which so many hands are still being wrung so vigorously?