Regarding The CARES Act...

Some Facts, Figures & Conclusions 

In the cards… more market consolidation & access regionalization. Today, over 27% of the mainline fleets at the nine airline brands are still listed as “in storage.” But we don’t know what the real utilization is of the airliners that are back in operation. Plan on this: smaller fleets means smaller route reach.

Regardless of whether or how much the CAREs act (or a replacement) involves, this would only buy the airline industry time while air travel recovers. The issue is defining what “recovery” will look like – and it will be very different than what we were anticipating at the beginning of the year, before this pandemic hit us.

If there were no extension (or if it is insufficient) the airline industry will on October 1 face the biggest structural changes since the deregulation act of 1978, except the consequences will be near-immediate, instead of gradual.

Demobilizing An Army Of Professionals. In the absence of more support from Washington, once those 70,000 or so airline people are let go, the rocket is launched, and the air transportation industry will be fundamentally smaller on a very long-term basis.

In short, the fleets and resources that airlines have in place today will be at best the basis of the new system, which will be much smaller than before CCP-Covid on a structural and fundamental basis.

These layoffs will mostly be permanent, not temporary, and that means that bringing people back will be difficult… remember, just about every classification of worker in airline operations has training requirements. It will be like demobilizing an army. Over a short period, pilots would become non-compliant and would need re-certification (at some level) to be brought back. Even the folks working “under the wing” like baggage handlers have security and hazardous materials training requirements.

More Airliners Back Again To The Desert – And Many To The Budweiser Display. Right now, 28% of major airline fleets are still “parked” – and over half of the fleets they lease in from (misnamed) “regional” partners are also sitting in the sun. Plus, there is no data on what the utilization (hours flown per day) is on the airliners that are in the fleets. But it is low.

The Red Ink Even Now Is Potentially Lethal. Point: if the Oct 1 date passes without substantive and near-immediate expectations of federal support, airlines will have no choice but to cut the staff. Slice. Gone.

They are losing millions a day, and this will mean they will then re-structure into smaller and more compact route systems, focused on cutting back on fleet types and re-focusing on the parts of their specific route systems that generate the most revenue for the re-structured system. Consumers: Get to know Skype and Zoom a whole lot more.

The Traffic Blockage Is Outside Airlines’ Control. On the other side of this hoedown is the fact that air traffic volume has not mirrored that of the rebound in the economy.

Reason one: Pandemic Panic… although US airports and airlines are more sterile and subject of more aggressive sanitation that even grocery stores, it is counter intuitive for folks to think that can be the case in an airplane cabin. A couple of CDC studies didn’t help, as they were based on charter flights from infected areas, and from six months ago, when no sanitation efforts were in place at normal scheduled carriers. Yet they were published without full explanation in the last three weeks.

Reason two: business travel is choked. On one hand, the continued uncertainty regarding whether one state or another, or this city or that city, will suddenly implement quarantines or embargos, keeps people from booking.

Heck, at one point to get into Queens you had to practically go through Checkpoint Charlie…

Then there is the fear of Covid… businesses don’t want to lose staff, so they keep them home. Also, sending out an employee on a business trip may be financially dangerous… if he returns with Covid, there’s a good chance his lawyer will be with him.

Reason three: international travel… in the US most people don’t realize the impact of international passengers. In the USA in 2019, approximately 31% of all enplanements were directly or indirectly driven by international traffic. “Direct” is the businessperson flying from Munich to Detroit. “Indirect” are the portions of those passengers who continue to make trips to other points in the US after they arrive, either to a final destination or just trips within the country.

But this segment is stone cold, and will be for the foreseeable future. Do you know anybody that’s planning to take the family to visit the lake country of Italy this summer? Or see Big Ben?

Then there is the China traffic… not inconsequential, and also almost as dead as a dodo. In 2019, there were approximately 8.2 million passengers flying (including both ways and via nonstops and connecting flights) between the USA and China. Of that just over 6 million were tourists – the majority Chinese tourists.

They aren’t coming, anymore, as the CCP has made it clear this is not a place to visit. Going the other way, China is not a welcome place for foreign tourists, anymore, either. Then toss in the slowing Chinese economy (very under reported, by the way), plus the start of foreign exodus from Chinese manufacturing (Samsung example) and as a “normalized level” US-China traffic may not go over 1.5 million.

This is another challenge for US airlines… with big fleets of intercontinental airplanes, many of which may be all dressed up with no place to go.

Bottom line, no support, no airline system as we knew it. If there is a continuation of federal support, the industry can buy time as travel increases and return to somewhere near what it was in 2019. Give that 6-9 months, hopefully. If not, we will suddenly have an airline industry that will be very much smaller and air transportation that will be very different.

Want To Explore The Future? Join Us In Cincinnati At The International Aviation Forecast Summit. All of these dynamics, in the context of whatever the feds decide to do, will be covered from all aviation aspects at the IAFS, Oct 11-13. It’s where the future will be explored, post-CARES or otherwise.

Click here for details and to register.

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FROM ALL OF US AT BOYD GROUP INTERNATIONAL, WE WISH YOU A HEALTHY AND PROSPEROUS WEEK.

REMEMBER, CHANGE EQUALS OPPORTUNITY. GIVE US A CALL AND WE CAN DISCUSS STRATEGIC SOLUTIONS.