Airline Industry - Comprehensive Report

The purpose of this report is to step through how the airline industry was affected by the COVID-19 pandemic, outline its struggles, and go over how they were able to recover. The Airline Industry was arguably hit harder by the pandemic than any other industry, so the steps they had to take to stay afloat this year have been drastic.

Pre-Corona

The big three airlines, American, Delta, and United Airlines were all doing better than they ever had at the end of 2019. All three of them reported record high revenues for the year and were optimistic about the future. They had all seemed to find their competitive niche within the hyper-competitive airline industry and had made large PPE purchases in 2019.

travel Bans

The first sign of future complications within the industry happened when the US government banned travel to China, the country of origin for COVID-19. This happened on Feb. 2nd, two months after the first case in China and two weeks before the first reported case of COVID-19 in the United states.

It wasn’t until March 11th when President Trump announced on a televised address that the US was suspending all travel from Europe that the first major dip in airline passenger traffic happened.

I had a personal experience in college class pertaining to the industry. One of our classes had a representative from Delta as a guest speaker. This happened one week after the China travel ban. When we asked her how Delta was affected by the travel ban, she stated that flights to and from China were less than 2% of Delta’s flights and that they weren’t worried about the future of the pandemic. They also stated that they currently didn’t have any plans in place in case the pandemic got worse. They cited past outbreaks like SARS and Ebola stating that it should be easy to manage like those past outbreaks. This really goes to show how blindsided almost every company was by the COVID-19 pandemic.

State of Emergency Declaration

In the remainder of the month of March, TSA passenger traffic dropped nearly 92%. April 14th marked the day with the lowest amount of traffic at only 87,534 passengers nationally. For the comparable day* in 2019, passenger traffic was over 2.2 Million nationally – a 96% decrease.

Cares Act for the Airlines

The CARES act provided $25B in payroll relief for airlines on March 27th. Its usage came with heavy stipulations, however every airline opted into it for some amount.

Notable stipulations for opting into the CARES act include:

Participating business are prohibited from share buybacks, paying dividends, or making capital contributions from the date of the loan until 12 months are the direct loan is repaid in full
Participating businesses must maintain employment levels at the level in place as of March 24, 2020 and are prohibited from reducing their employment levels more than that date until September 30th.
Participating businesses can not furlough any employees, unless it is voluntary, until September 30th.
Restrictions put in place on executive pay, including raising pay and some benefits.
Participating airlines cannot cease operations until the CARES act expires

COVID-19 Induced Protocol Changes

One of the most common changes among the airline industry as the COVID-19 spread was waiving fees for travel changes. The big 3 airlines announced early in March that change fees would be waived until late 2020. By the end of August, all three of the largest airlines had enacted a policy that permanently waived all change fees. Similarly, cleaning and disinfecting policies have been implemented for all of the big 3, all of them cleaning their planes before every flight.

For mask policies, it took a bit of time before every airline was on the same page. By the end of April, all companies required employees to wear masks, but JetBlue was the only airline that extended that requirement to passengers. Delta and United announced that starting May 4th passengers were required to wear masks. American followed suit a week later on May 11th. Delta has, since Sept. 3 banned 270 passengers for refusing to wear masks. They have seemingly enforced the policy much more than their competitors, as they have not released their numbers on passenger bans.

Airlines are a bit more split on seating restrictions. While almost every airline at some point had the middle seat closed off to enforce social distancing, only about half have kept this policy in place. Of the big 3, Delta is the only airline still limiting the amount of passengers on their planes, United and American will fill to capacity if able.

Current State of the industry

As of Sept. 16th, daily passenger traffic averages about 700k daily. While this is a significant increase over the lowest point of 87k in one day, it is still 69% lower than 2019’s daily average. The industry is certainly showing signs of recovering, but it may take a while before we see pre COVID-19 levels of travel. According to their Q2 Earnings call, all of the big 3 airlines have massively decreased revenues as one would expect. However, they have all poised themselves to survive for at least a year of severely decreased travel through various methods of improving liquidity and delaying their liability payments.

While leisure travel is recovering somewhat quickly, it will take a lot longer for business travel to resume, as of now most companies have changed to virtual meetings. For some companies, business travel isn’t a significant portion of their travelers, but for the big 3 it accounts for up to 50% of their passengers. Moving forward, the biggest obstacle these airlines will face is trying to find ways to encourage business travel again.