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U.S. airlines face grim winter, with or without a bailout

U.S. airlines face a winter test of their finances and question marks over the reach of their domestic flight networks after failing, for now, to win fresh federal aid.

Reuters | Washington DC | Updated: 02-10-2020 03:05 IST | Created: 02-10-2020 03:02 IST
U.S. airlines face grim winter, with or without a bailout
Representative image Image Credit: Flickr

U.S. airlines face a winter test of their finances and question marks over the reach of their domestic flight networks after failing, for now, to win fresh federal aid. American Airlines and United Airlines began laying off 32,000 workers after a deadline passed with no new help from Washington but told staff they would reverse this if lawmakers reach a deal on COVID-19 relief.

Late Thursday, the U.S. Senate adjourned until Monday evening, suggesting no action on any airline assistance was near. U.S. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin spoke for 50 minutes Thursday afternoon but "distance on key areas remain," a spokesman for Pelosi said.

White House spokeswoman Kayleigh McEnany on Thursday urged Congress to quickly pass standalone legislation to aid airlines. U.S. airlines are collectively burning about $5 billion of cash a month as passenger traffic has stalled at around 30% of 2019 levels. After tapping capital markets, they say they have enough liquidity to last them at least 12 months at that rate.

They have argued for another $25 billion in federal payroll aid to maintain their workforce and meet demand as the economy rebounds. Without the money, flight networks could further shrink, hampering their revenue power, and shortening their liquidity runway. Between voluntary and involuntary furloughs, major U.S. airlines' workforce will shrink by at least 25% in October.

"Airlines quite correctly have been bulking up on cash ... but to be 25% smaller, best case, how are you going to handle the debt service?" asked airline consultant Mike Boyd. Cities will lose a number of daily flights and non-stop options, Cowen analyst Helane Becker said. "Service to small communities will decline pretty dramatically," she added.

That threat has resonated with some lawmakers even as the bailout request partly fell victim to broader political turmoil in a bitterly divided Washington. Some airline officials think if Congress cannot reach agreement now on a broad coronavirus relief package, it may include funding for airlines when it takes up the issue again in the coming months.

But an uncertain recovery has not helped the airlines' case. Industry experts expect a slight improvement in domestic demand over the winter holidays from current levels, but it will remain far below last year's volumes. Meanwhile, higher-margin business and international travel remain severely depressed.

Daily passengers at U.S. airports have swung from record highs in 2019 to dramatic lows in 2020, according to Transportation Security Administration (TSA) data. "Right now airline traffic is equal to where it was in the 1970s," said Becker. "And the industry has a balance sheet that is 2019."

Chief executives acknowledge that pre-pandemic air travel demand is unlikely to return for years, and still unknown is how the pandemic, which has forced drastic changes in habits, will impact travel behavior. American Airlines, which said in August it planned to end service to 15 smaller airports without additional government assistance, said Thursday it is set to end service to 11 cities on Oct. 7.

The airline remains in talks with local officials about continuing service to Stillwater, Oklahoma, and Roswell, New Mexico. In an order issued last week, the U.S. Transportation Department said American could not immediately halt service to Joplin, Missouri, and Sioux City, Iowa.



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