Airlines feel deepening impact as coronavirus upends travel

Business leaders are seeking to allay concerns about the virus and its toll on the aviation industry.
Business leaders are seeking to allay concerns about the virus and its toll on the aviation industry.PHOTO: NYTIMES

NEW YORK (NYTIMES) - Since the financial crisis a decade ago, airlines in the United States have consolidated and tightened operations, taken advantage of changing travel habits, and created new offerings for passengers, engineering an extended stretch of profitability.

Now, the coronavirus threatens to put all of that to the test.

The latest example of the outbreak's toll on the industry came on Wednesday (March 4), when United Airlines became the first US carrier to announce a widespread cut to domestic service, signalling that fear over the virus was starting to erode ticket sales far from the hot spots of the epidemic.

In a letter to employees, the airline's top two leaders announced plans to cut international service in April by about 20 per cent and domestic service by about 10 per cent, with similar cuts possible in May. They also announced a hiring freeze through June and said workers in the US could apply for voluntary unpaid leave.

"We sincerely hope that these latest measures are enough, but the dynamic nature of this outbreak requires us to be nimble and flexible moving forward," Mr Oscar Munoz, United's chief executive, and Mr J. Scott Kirby, who will take over that job in May, said in the letter.

Transpacific flights, for which demand had fallen starkly as the virus seized Asia, will be halved in April, while transatlantic service will be cut by about 10 per cent. Latin American service will be reduced by 5 per cent.

In a statement in response to the United announcement, Ms Sara Nelson, president of the Association of Flight Attendants, said the airline was taking "a responsible approach" in responding to the coronavirus outbreak.

Taking a toll

Business leaders and the administration are seeking to allay concerns about the virus and its toll on the industry.

Mr Thomas Donohue, chief executive of the US Chamber of Commerce, said at a news conference on Wednesday that the airline industry did not need "bailouts", though he said that if regional airlines encountered difficulties, "we'll figure out a way to bring assets together to keep them flying".

"Bottom line is we're going to run just like business as usual, with a little higher heartbeat, and get it done," he said.

 
 
 

Later, at a White House meeting with airline executives, US President Donald Trump dismissed a reporter's question about whether the federal government would provide financial assistance to the industry.

"Don't ask that question, please," he joked. "Because they haven't asked it. So I don't want you to give them any ideas."

Mr Trump and Vice-President Mike Pence, who also attended the meeting, sought to allay public fear over the outbreak.

"It's safe to fly," Mr Trump said. "And large portions of the world are very safe to fly. So we don't want to say anything other than that."

As the virus has spread, the administration has been in close contact with representatives of the travel and tourism industry, according to Mr Scott Solombrino, executive director of the Global Business Travel Association, an industry group for corporate travel managers.

Officials at various agencies addressed concerns and provided updates to industry officials on a Monday call, for example.

At the same time, the US Centres for Disease Control and Prevention is seeking the authority to compel airlines to share data on passengers and crews arriving from abroad who may be at risk of exposure to the communicable disease.

The airline industry has argued that such a requirement would be too onerous and instead recommended that the data be assembled from various agencies that collect passenger information.

Services suspended

After the financial crisis, the aviation industry underwent a period of consolidation, during which airlines focused on increasing capacity and efficiency.

 
 
 

In recent years, they squeezed profits from new, premium offerings and by harnessing a shift, driven by millennials, towards valuing experiences more highly than goods.

As a result, airlines ended 2019 on a positive note, but reports of the coronavirus outbreak began surfacing at the start of January.

Before the month was out, it had spread far enough that all three airlines had announced plans to suspend service to China, the centre of the epidemic, because of plummeting demand.

Since then, shares of United and American Airlines have lost about a third of their value. Delta is down somewhat less, about 18 per cent.

United said last week that the effect of the coronavirus on its first-quarter earnings would be offset by lower fuel costs. But it withdrew its financial guidance for the rest of the year.

JetBlue also separately said on Wednesday that it would reduce service temporarily by about 5 per cent and would take several steps to shore up cash, including reducing hiring, offering voluntary leave and limiting spending.

Since January, airlines have reduced or cancelled service to Hong Kong, South Korea, Japan, Italy and other destinations, as demand for travel abroad slid.

And while international routes make up only a small share of major airlines' service, they are significantly more profitable than flights within the United States.

"If you fill the first- and the business-class cabin of transpacific or transatlantic service, you can pretty much cover all of your operating costs just from those two cabins," said Mr John Grant, a senior analyst at aviation data provider OAG.

To do the same domestically, an airline would have to sell about 80 per cent of the seats on a flight, he said.

For some, the airline's international loss is a domestic passenger's gain as carriers reallocate some of the larger planes with better seats for domestic service, according to an OAG analysis.

"If you get a good seat, you might be lying flat for an hour and a half," Mr Grant said.

Domestic demand hit, too

But there are growing signs that domestic demand is starting to suffer, too, as concern spreads among the public, corporate events are cancelled and large businesses ask employees to refrain from flying.

 

On Tuesday, Ford Motor, which employs nearly 200,000 people, told workers to stop all international and US domestic air travel and to use video conferences as much as possible for critical meetings.

General Motors, which employs about 164,000 people, has stopped all worker travel to China, Japan, South Korea and Italy, and restricted international travel to other locations only for essential matters.

How long such bans will last is unclear, according to a poll conducted last week by the Global Business Travel Association.

Among corporate travel managers who had cancelled or suspended employee trips, only 31 per cent expected to lift such restrictions within three months. More than half, 54 per cent, said they did not know when the travel would resume.

To address similar uncertainty among the broader public, United, Delta and American have all said in recent days that they would waive change fees for flights booked in the coming weeks.

But what travellers may really need is the assurance that it is safe to fly, Mr Nicholas Calio, chief executive of trade association Airlines for America, said at the White House meeting on Wednesday.

"Right now, the fear is almost worse than the virus," he said.