Coronavirus is hitting the travel industry hard
New York (CNN Business)Domestic air travel in the United States has virtually come to a halt, but thousands of planes are still flying. How long does it makes sense to keep doing that?
Figures from the Transportation Security Administration show that only 331,000 people passed through TSA checkpoints Monday, a drop of more than 2 million passengers, or 86%, compared to the same Monday a year ago.
That’s not surprising with 16 states, comprising 43% of US population, issuing orders that people should stay home whenever possible. Health professionals are saying that people should not gather in groups of 10 people or more or engage in any non-essential travel.
The Trump administration clearly does not want to order such a shutdown, especially as it negotiates a possible bailout of the airline industry.
“Although we’ve told people nonessential travel they shouldn’t do, but [for] essential travel, we want to have airlines that operate, maybe on a more limited basis,” said Treasury Secretary Steve Mnuchin when speaking to reporters on Capitol Hill a week ago.
Grounding all flights could actually be an economic benefit for airlines, which are undoubtedly losing money on every single flight. They are flying planes with only 20% to 30% of seats filled, far below the level needed to break even. That’s true even as they slash their schedule by 50% or more in an effort to conserve cash.
And the few seats they’re selling are for a fraction of normal fares.
A flight on United Airlines (UAL) from its Newark, NJ, hub to Atlanta on Tuesday is available for $48.40. A Delta (DAL) flight from Atlanta to Chicago is going for $44.40. A Southwest (LUV) flight from Baltimore-Washington to Los Angeles was available Tuesday morning for only $129. And an American (AAL) flight from Miami to Phoenix goes for $128.
And that’s what the passengers are paying, not what the airlines are getting, due to the fees and taxes the passengers must pay. For example, Delta is getting only $27.91 on a $44.40 Atlanta to Chicago fare.
“What the industry should do is shut down,” said Helane Becker, airline analyst with Cowen. “Flying with 20% to 30% of seats filled with fares they’re getting, they’re just burning through cash. Pragmatically, they can’t continue the way they are when people aren’t traveling.”
But the airline industry appears committed to continuing to fly as long as it can.
“We need to keep people and commerce moving. The best way to do that is on an airplane,” Nick Calio, CEO of the trade group Airlines for America, told CNN.
And the industry said that no matter the cost of operating, there is also a cost that goes beyond economics in implementing a complete shutdown.
“It [a shutdown] might well have a lasting damage on the public’s confidence in flying,” he said.
Despite the shutdown rumors, the industry doesn’t believe it will happen.
“It’s never say never, but we haven’t received any information that would suggest there have been any serious discussions about grounding domestic flights,” Calio said. “However, it’s almost happening de facto because nobody’s flying right now.”
So far airlines have not cut their schedules nearly as deeply as the drop in demand would suggest. Airlines removed about 9,000 flights from their original US schedules for March 23, according to tracking service Cirium, about 32% of the flights originally scheduled for that day. Deeper cuts have been announced for April and May, but it’s still nowhere near the 86% drop in passengers now being reported.
Canceling flights reduces the amount spent on fuel, spent on landing fees and on maintenance costs as they park unneeded jets. It could save on labor costs if airlines go ahead with staff furloughs and pay cuts that are being weighed.
But union contracts might require the airlines to pay much of their staff for the next month that they are already scheduled to work. And wages are the largest cost for airlines.
“Your costs don’t fall to nothing if you shut down the system,” said airline consultant Mike Boyd. “There’s the debt service on the planes. You’re still paying people under all kinds of union agreements.”
Many airline employees would appreciate not flying, given the health crisis. Tens of thousands US employees in the industry have agreed to take unpaid leave. Others said they will work as long as their jobs are there, but that they’d rather see a shutdown.
“All these flight attendants are scared for themselves and their loved ones,” one flight attendant told CNN. “We’re also scared to be transmitting this to other people which will result in someone dying. Maybe even one of our loved ones. At the same time we have to work because we see our industry crashing and we have bills to pay.”
There would be health risks even if the system was shut down, though. Many of the 300,000 passengers who still fly every day could opt to drive to their destinations, which in itself might result in an increase car accidents, injuries and even traffic deaths, said Boyd.
— CNN’s Greg Wallace and Paul Murphy contributed to this report
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