Once Crippled by the Pandemic, Airlines See a Fast Recovery Coming

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As demand for tickets recovers, airlines are calling back workers, adding flights and planning for a summer they say could be normal.

As the pandemic decimated travel a year ago, a top industry executive predicted that a major U.S. airline would go bankrupt and the carriers themselves warned of painful cuts to come.

Now, with demand for tickets rebounding, airlines are predicting the summer will be almost normal, and some companies even say they could turn a profit.

It amounts to a stunning turnaround for an industry that many people had written off and that had to go hat in hand to Washington for three bailouts, which provided tens of billions of dollars that helped to prevent painful layoffs.

With passenger traffic still down more than 40 percent compared with 2019, airline executives are so confident that demand is coming back that they plan to call back thousands of employees and hire hundreds of pilots.

Southwest Airlines, which carried more passengers than any other U.S. airline in 2019, even managed to turn a small profit in the first three months of this year, the first major U.S. airline to do so since the pandemic began.

“I’m relieved, I’m optimistic, I’m enthused, I’m grateful and I’m especially thankful to our tens of thousands of employees,” Gary C. Kelly, Southwest’s chief executive, told investors and analysts on Thursday. “We’ve got a long way to go but I’m very, very confident.”

Other major U.S. airlines did not do quite as well in the first quarter — American Airlines, Delta Air Lines and United Airlines lost more than $1 billion each — but their executives said they expected the rest of the year to be much better.

American and United said this month that they would start hiring pilots for the first time since the pandemic began, with each expecting to bring on about 300 by the end of the year. Southwest also said that by June, it will have recalled the 2,700 flight attendants who were still on voluntary leave.

The nation’s 11 largest airlines are planning to offer nearly as many seats this July as they did in July 2019, according to Cirium, an aviation data firm, though schedules could still change.

“There is no doubt the pace of the recovery is accelerating,” American’s chief executive, Doug Parker, said.

After a series of stops and starts over the past year, travel started to recover meaningfully in early March, driven by leisure travel within the United States or just outside its borders, to places like Mexico, the Caribbean and Latin America. It has subsided somewhat in recent weeks, but sales are up and customers are making plans further out into the spring and summer, airlines say.

The pandemic isn’t over, of course, and demand for flights could still falter if the pace of vaccinations drops or new variants of the coronavirus emerge and undermine the effectiveness of vaccines. And while the Centers for Disease Control and Prevention says that travel poses little risk to those who have been vaccinated, it still encourages people to take precautions and discourages travel by individuals who have not been inoculated.

Industry executives also expect to wait awhile for the most lucrative parts of their business — trips to distant parts of the world and corporate travel — to come back. (The two together account for about two-thirds of United’s business, for example.)

Many countries have not yet lifted travel restrictions and some are even imposing new ones. On Thursday, for example, the United Arab Emirates suspended all flights from India because of a sharp rise in coronavirus cases in that country. The State Department escalated travel warnings for dozens of countries this week.

There is some hope, even in international travel. United said this week that it planned to add summer flights to Croatia, Greece and Iceland, and an executive told investors last week that the airline hoped to operate a busy schedule between the United States and Britain once restrictions were lifted.

While few customers are booking long international trips, many may still be eager to leave the United States for closer destinations. American is planning to fly about 60 percent fewer seats on longer overseas trips in July, compared with the same month in 2019, but it’s planning to offer about 20 percent more seats on shorter trips to nearby countries.

“No matter what the headlines have been, no matter how the market’s turned, we always tend to find bookings rebounding fastest, soonest and greatest in those markets,” said Vasu Raja, American’s chief revenue officer.

United said it expected to be able to make money even with corporate and long-haul international travel down 35 percent. (Both are currently down about 80 percent.) The airline’s chief executive, Scott Kirby, said he was confident United would beat its 2019 profits in 2023.

While airlines in the United States have grown optimistic about the future, companies elsewhere in the world are still struggling. Demand and supply are expected to recover more in North America this year than in any other region of the world, according to the International Air Transport Association. Demand for flights offered by North American airlines is projected to be down about 42 percent for this year, while airlines in regions like the Middle East and Europe, where most flights cross borders, can expect demand to be down more than 66 percent, the association said.

But the experience of flying in the United States in the coming months will be considerably different than in 2019. Airlines are likely to keep many of their pandemic policies in place, including requiring passengers to wear masks. Some people on domestic flights may find themselves on the larger jets previously used only for long international trips.

Flight paths may look different, too. Throughout the pandemic, passengers have tended to favor outdoor destinations — beaches, mountains, ski slopes — in states that haven’t imposed stringent lockdown rules. Few have traveled to the parts of the Northeast, California and big cities that have remained largely shut down, but that could change as those areas open up. New York City recently dropped a quarantine requirement for international travelers and said this week that it planned to spend $30 million in a global marketing campaign to lure tourists back.

While a few small airlines did shut down during the pandemic, large companies were able to get by. Congress provided the industry with more than $50 billion in aid to help keep pilots, flight attendants, baggage handlers and other workers employed. The government also provided $25 billion in loans. All of that aid came with strings attached, including a ban on stock buybacks, a restriction on dividends and limits on executive pay.

Airlines also got rid of planes years ahead of schedule, used some aircraft to ferry cargo and asked tens of thousands of employees to retire early or volunteer for paid and unpaid leave. They also raised billions of dollars by selling shares and bonds.

According to the industry trade group Airlines for America, the nation’s largest carriers — the big four along with Alaska Airlines, Allegiant, Hawaiian Airlines, JetBlue and Spirit — ended last year with $163 billion in debt, up from $105 billion in 2019. Those liabilities could weigh on airlines over time, especially if sales begin to sag.

Some airlines have outlined plans to cut debt quickly. Delta’s chief executive, Ed Bastian, said last week that the company planned to cut its financial obligations by nearly $10 billion by the end of June and sees a “path to returning to profitability” by the end of September.

 

Source: Civil Aviation Authority – Qatar