Airline CEOs met Wednesday with President Donald Trump and Vice President Mike Pence as they try to prevent a nosedive in traffic. "Right now, the fear is almost worse than the virus," said Nicholas Calio, who heads the industry group Airlines for America, according to a transcript of the meeting.
Most of the downturn so far is being felt on international routes and traffic “has collapsed” on key Asian routes, according to the International Air Transport Association, after the virus spread outside China, Airlines are reporting 50% no-shows in some markets, with double-digit percentage declines in demand globally, the industry group said Wednesday.
“Future bookings are softening and carriers are reacting with measures such as crew being given unpaid leave, freezing of pay increases, and plans for aircraft to be grounded,” IATA added.
The U.S. Travel Association forecast Tuesday that international travel to the U.S. will fall 6% over the next three months. Confirmed cases of the disease known as COVID-19 are much lower in the U.S. than Asia or Europe, but they are also rising.
Chicago-based United Airlines, which has a major presence in Asia, on Wednesday announced plans to cut international flights by 20% and domestic flights by 10%. United is also inviting employees to take voluntary unpaid leaves or a reduced schedule, freezing hiring, postponing raises for managers and allowing pilots to take a month off with reduced pay.
The coronavirus fallout represents a sudden reckoning for the American airline industry after years of economic growth spurred rising traffic and profits. It’s been about a decade since Delta lost money and the airline has since grown into the most profitable in the industry.
In a bid to allay consumer concerns, Delta on Wednesday said it is waiving change fees for all domestic and international flights booked in March, and all international flights booked by March 1 for travel in the month of March.
U.S. airlines have already suspended flights to China and reduced flights to Korea and Italy. On Wednesday, Delta announced it will also cut back on flights to Japan. Starting Saturday, Delta will operate its Atlanta-Tokyo flight only five days a week instead of daily and reduce flights on some routes from other cities to Japan.
Delta could retire MD-88 and MD-90 planes and possibly some older Boeing 757s or 767s earlier than planned to shrink its fleet, according to a research note from Raymond James, which hosted an investor conference where Delta Chief Financial Officer Paul Jacobson spoke on Monday.
In addition, the airline could delay contributions to pension plans and $1 billion in capital investments, according to a summary of Jacobson’s presentation by Raymond James analyst Savanthi Syth.
The Atlanta-based carrier also can reduce outlays thanks to its profit-sharing program, which allows it to pay less to employees when profits go down. And it brings in billions of dollars from its American Express credit card agreement, revenue that is not dependent on customers traveling. The decline in fuel costs driven by coronavirus should also cut losses.
For now, the downturn still appears manageable, with softness in domestic airline bookings appearing “notable, but not drastic,” according to Syth.
Yet to be seen is how long the decline in travel will last or if it will deepen if the coronavirus outbreak makes bigger inroads in the U.S., as many health experts expect.