A cloudy, but improving, outlook for US airlines
New York (AFP) –
US airlines are set to receive another round of support from Washington as the industry continues to await the first tangible signs of real recovery from the coronavirus downturn.
President Joe Biden's new $1.9 trillion economic relief package includes $14 billion to keep thousands of flight attendants, pilots and other staff on payroll through the end of September.
The hope and expectation is that the funding -- Congress' third round of payroll support since the coronavirus devastated the US travel industry -- will be the last needed before carriers can return to profitability.
The improving pace of vaccinations in the United States has raised hopes a travel recovery may finally be on the horizon, with airlines planning to add flights this summer to meet the expected pent-up demand.
But industry leaders remain cautious after earlier hopes for a recovery dissipated as the coronavirus crisis lurched on. Major airlines lost $35 billion in 2020 and they continue to burn through $150 million a day.
"You can plan with this virus but you can't forecast very well," Nicholas Calio, president of Airlines for America, told a congressional hearing earlier this month.
- Raising, and burning, cash -
US traffic counts are still less than 50 percent of their pre-coronavirus levels most days, an improvement from the slowest period of Covid-19 lockdowns, but still an unsustainable situation.
Airlines have retired older aircraft, shuttered airport lounges and deferred plane deliveries to reduce costs during the downturn.
Tens of thousands of workers have also left the industry through early retirement and other voluntary initiatives, but Congress has stepped in to prevent mass involuntary layoffs.
On Monday, American Airlines became the latest big carrier to use its frequent flyer program as a guarantee in financing, raising $7.5 billion in additional debt.
US carriers at the end of 2020 had $164 billion in debt, up more than 56 percent from 2019, according to Airlines for America. The industry in 2021 is expected to pay $5.2 billion in interest payments, compared with $1.9 billion in 2019.
In a presentation accompanying its debt offering, American predicted a "non-linear recovery with an accelerating pace once we see widespread vaccination and government restrictions ease."
"The airlines all set the bar really low" for the first quarter, said Peter McNally, an analyst at Third Bridge, who said investors see a demand pickup as inevitable.
"People keep giving them money until the recovery happens," he said.
Google Trends data show searches for airlines like Southwest and JetBlue have risen 50 percent or more since the week of Christmas last year, DataTrek Research said in a note.
"Americans are already becoming more interested in flying again ahead of spring break," DataTrek's Jessica Rabe said in the note. "Leisure activity tends to come back quicker and stronger after a recession than business travel, and improving stimulus checks should help."
- Comeback for MAX? -
A recovery in international travel depends on global containment of the virus. Business travel -- a crucial source of profitability -- is also seen coming back later when "herd immunity" is reached and government restrictions ease.
But while a full recovery is not expected until 2023 or later, industry experts see a bounce in domestic travel relatively soon, putting more of a premium on single-aisle planes, including Boeing's 737 MAX.
In anticipation of an improvement in demand, United Airlines this month announced plans to purchase 25 more Boeing 737 MAX aircraft for delivery in 2023.
The order "helps position us to meet the demand we expect to see in 2022 and 2023," said United Chief Operating Officer Andrew Nocella, calling the plan "a down payment on our future success."
The MAX was grounded for 20 months following two fatal crashes and cleared to resume service in late 2020 only after extensive regulatory review and upgrades.
The shifting market means the MAX is "starting to be used again," said McNally. "In general terms, it is the kind of plane that is going to be used today."
© 2021 AFP