COVID-19 has brought air traffic worldwide almost to a halt. Industry analysts predict that air travel will again pick up but no one knows when. This pandemic is unlike anything the airline industry has seen before. Some are expecting the recovery will take 3 years, similar to the recovery after the 9/11 attack. Others say 7+ years which was the recovery time after the great recession in 2008-2009.
During Q1 2020, airlines burned through $11 billion per month. They are working to reduce the burn rate to about $7 Billion/month in 2Q 2020. Total debt is projected to increase 45% from YE 2019 to YE 2020. Carriers are doing everything they can to reduce cash burn. U.S. airlines have parked half of their fleet, or roughly 3,200 planes. Airlines have cut capacity, retired older aircraft, canceled airplane orders, deferred aircraft deliveries, and are selling/mortgaging aircraft and other assets. Passenger airplanes are flying cargo either in the belly only or in the belly and main cabin. Executive compensation has been cut and voluntary leave and early retirement programs have been offered to employees. American, United and Delta expect they will be significantly smaller at the end of the year compared to 2019.
People are reluctant to travel until the health crisis is behind us or until an effective vaccine is developed. Once demand is recovered, it will take years for airlines to retire the billions of dollars of debt and associated interest expense, which will limit their ability to rehire and reinvest.1
This is obviously detrimental to the aviation manufacturing sector of our economy. Airlines will not be ordering aircraft until demand rebounds to 2019 levels, and then it’s questionable due to the debt they have accumulated.
ICT reported as much as a 96% decline in air traffic during April compared to the same time last year. April enplanements averaged 125/day compared to 2,272/day in April 2019. Airlines reduced flights to a bare minimum, cutting capacity (number of seats) 52% from January levels. There was an average of 32 weekday flights in January and in May, capacity has been reduced to an average of 14 weekday flights. In 2019, ICT’s load factor averaged 84%; in April it was 13%.
Travel demand has started to increase as the country opens. During the most recent week in May, ICT had an average of 477 daily enplanements, peaking at 668 on May 22. Last May’s daily average was 2,743 enplanements. Airlines are slowly building capacity back into their schedules in July and are basing their decisions on booking data. The stronger demand – the more flights that will be added to our schedule.
The Southwest announcement to serve Denver is certainly good news. Low-fare service to Denver on a daily basis will keep fares competitive to Denver and to many western destinations. It needs to be supported.
The airlines are obligated to maintain a minimum level of service through Sept. 30 in order to take advantage of the funding from the CARES ACT. If passenger traffic does not improve by then, there could be reductions in flights and destinations.
If you’re like me, you might be wishing there was something you could do. One of the most effective ways to help our economy is to fly Wichita. By doing so, we can retain the air service we have. The airlines are highly leveraged and unable to assume any risks. They will add their limited resources only in markets that show demand. At some time in the future, which is likely several years from now, we hope to expand to more destinations. Expanded air service is vital to economic development and can help attract companies to our region which will diversify our industry.
Valerie Wise, Air Service & Marketing Manager
1Airlines for America