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Airlines Laid Low By Coronavirus: When Will Growth Return?

The global airline industry is currently in a “re-set moment”, per the airline data firm OAG. Over the past 25 years, the industry faced two major “shocks”, the 9/11 terror attacks and the 2008 global financial crisis. Both these setbacks took away about 2-3 years of growth from the industry “as the industry was re-set to a new normal, with growth levels that were sustainable in the new economic and geo-political climate”. With the coronavirus pandemic too,several years of growth may be lost until the flagging volume of flyers is restored to the level that was expected for 2020. Sadly, chances are slim for the revival of fortunes before 2022 or 2023, per the OAG.

International Capacity Collapses Dramatically

With nationwide lockdowns and large-scale travel restrictions, international capacity dropped to as low as 23% in the first week of April compared with the year-ago level. Total airline capacity declined 9.4% year over year in the first quarter of 2020.
 
Tumbling air-travel demand and government measures to contain the pandemic have forced airlines to cut capacity drastically. For instance, Southwest Airlines LUV announced plans to cut capacity by more than 40% effective May 3 through Jun 5. With this trimmed schedule, the airline will fly 2,000 flights per day, down by 1,700 from its normal level.

Additionally, American Airlines AAL plans to lower its April capacity by 70-75%. Its May schedule will be slashed by 80%. The carrier is reducing international flights by nearly 90% on a combined basis for the months of April and May. Meanwhile, United Airlines UAL decreased its April capacity by more than 60% and plans to slash further in May and June. Moreover, Delta Air Lines DAL has grounded roughly 600 aircraft with a 70% reduction in system wide capacity due to plummeting demand.

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Cargo Takes a Hit

While the coronavirus outbreak disrupted global supply chains and affected cargo demand, significant reduction in the number of passenger jets caused an even larger decline in cargo capacity.

According to International Air Transport Association (IATA) data, global air cargo demand dipped 1.4% in February compared with February 2019-level. Cargo capacity further slipped 4.4% in the month with a large number of flight cancellations in the wake of the coronavirus outbreak. This is because approximately half of the world’s air cargo is transported in the bellies of passenger aircraft.

With air-travel demand taking a backseat, several carriers are converting passenger planes to carry only cargo. This should help in somewhat offsetting this capacity crunch and facilitating delivery of lifesaving drugs and medical equipment amid this deep crisis. Airlines can also recoup a bit of the eroded revenues this way.

Wrapping Up

It is apparent that the airlines are facing the worst crisis, deeper than what ensued in the weeks after the 9/11 terror strikes and during the 2008 global financial crisis. The IATA anticipates a $252-billion hit to airline revenues in 2020.
 
Although the federal rescue package should provide some respite to airlines, it is likely to  offer a temporary relief. The aid primarily helps airlines manage payroll expenses better and prevents lay-offs before Sep 30, 2020. Notably, United Airlines has warned of a smaller workforce after the six-month period “if the recovery is as slow” as it fears.

The fate of the airline industry is quite uncertain, given that the health hazard is continuing unabated.

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Southwest Airlines Co. (LUV) : Free Stock Analysis Report
 
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American Airlines Group Inc. (AAL) : Free Stock Analysis Report
 
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