Bracing for the continued effect of a long, dark COVID-19 impact on the airline industry could spell the difference in outcomes ranging from merely surviving to collapse. The next 12 months in particular will be extremely critical for the airlines’ fight to handle the virus that brought the industry to its knees.
The anticipated upswing in flying for the summer season, in spite of the virus still hitting hard, did not materialize as expected.
If we feel that things have been bad up to now, the upcoming 2020-2021 winter season will present airlines with the most critical challenges the entire airline industry has ever faced.
Many airlines have taken on huge government-backed loans to ride the waves of the pandemic. However, these loans have to be paid back. That’s an obstacle that could prevent the rapid regrowth of airlines for years after the pandemic is behind us.
Another challenge ahead is to rebuild customer confidence in flying. Many will still question how safe they are from catching COVID-19 when traveling in general, in spite of assurances of safe HEPA-filtered cabin air and cleanliness on board.
As the corona-recovery begins another issue has the potential to affect passenger confidence. The Boeing 737-MAX should be flying again in 2021, but how successful will the airlines be in convincing the plane is now safe to fly?
Many aviation analysts point to a period of 3-4 years before traffic will return to 2019-levels. Still, people are desperate to fly now, but the reality of the pandemic prevents us from conducting business (or life) as usual.
The pandemic has made an emotional rollercoaster out of the worldwide airline industry. Traffic numbers go slightly up and down like a yo-yo. Some airlines attempt to increase flying, testing the market. But so far this has led to disappointing results.
As a result, public “kneejerk” reactions of temporary optimism occur. Optimism happens every time there is the slightest optimistic indicator in the state of the airlines or airplanes.
- If the TSA passenger numbers increase slightly (temporarily) the media jump on the news like it’s the holy grail we’ve been waiting for.
- If the airline stocks go up one day the reaction is the same, to be met with repeated disappointments days after.
- Boarding a flight again at this time feels great for many of us, often triggering a happy feeling of wellbeing. Unfortunately, the reality of these feelings of “normalcy” is a temporary enthusiasm for what we can only return to after the crisis is over.
Will a COVID-19 vaccine positively change airline industry outcomes in short order?
First off, a vaccine is not likely to act as a quick fix, making flights magically appear again overnight. However, things will start to improve again once an effective vaccine-program is implemented. Also, vaccinating millions of people will take a very long time! A vaccine should only be considered an indicator of a positive early beginning of recovery for the airlines.
But, are the airlines financially equipped to survive this long-drawn-out recovery period? How about the critical next 12 months?
Extension of government aid
Democrats and Republicans (as always) are currently sparring over the terms of a possible extension of the airline portion of the CARES-Act.
But, even if the virus disappeared today enough damage has already been done to affect the growth of air travel for years to come.
The truth about government aid is, it only buys airlines time in hopes that the virus-situation will subside enough to keep them flying.
However, a CARES-Act extension is the best hope for an expected slow recovery for the airline industry, preserving the U.S. national infrastructure as well as countless airline jobs in the process.
Presidential Executive Order
President Trump has said that he intends to issue an Executive Order to prevent the mass-furloughs starting October 1st. But, can a Presidential Executive Order be implemented by bypassing Congress?
The answer to that remains to be seen, as the issue is widely discussed in Washington D.C.
What if there is no extension of government aid?
What will happen if the government does not step in to help the airlines beyond the help it has already provided?
Barring renewed government aid, here are the most likely outcomes of what we can expect to happen to the U.S. airline industry:
Furloughs and Layoffs
October 1st would only mark the beginning of a long and increasing number of airline employee furloughs and layoffs.
An estimated 70,000 U.S. airline jobs are on the chopping block at this time!
The employee cutback situation is a complicated one. Airlines instigated early retirement and incentive package enticements early in the summer. In spite of a slew of programs designed to reduce the anticipated furloughs, cutbacks are coming, big time!
You can expect a severe downsizing of airlines, from major airlines to regional airlines. Cutbacks will be crucial for the airlines to maintain as low an operating cost as possible.
Some analysts estimate that business travel could be down by 25% for many years. Business travel is the bread and butter of airline profits. Most corporations have adopted alternative ways to conduct business, such as using Zoom.
Alternative equity creations, such as settling the debt in exchange for shares and share dilutions in general will be happening.
The practice of airlines selling airplanes they own to airplane leasing companies (especially Chinese companies) will increase. After such a sale the airline simply leases the plane back to themselves, now with new owners.
That, in turn, decreases the worth of the airline in the long run.
The possibility of airline bankruptcies are going to increase.
Consolidations and mergers
Airline mergers are a definite possibility, perhaps in a scale never before seen, if the pandemic continues long.
Collapse and liquidation
The airlines in the greatest danger are those currently closest to running out of cash within 12 months. In the worst case, we will see more airline collapses and liquidations within the next few months.
Will depend on passenger Confidence and affordability regardless of a vaccine.
COVID-19 airline industry outcomes
The 12-month outcome of the airline industry as a result of the COVID-19 pandemic rests on which of the two scenarios occur that have been discussed here:
- The U.S. Government steps in again to secure the very important infrastructure of our nation’s airline system.
- There is no more government aid, leaving the airlines on their own to do whatever it takes to survive and continue its existence.
Featured Image: Los Angeles (LAX) International Airport at sunset. CaptainJetson.com.