How Does a Global Super-Connector Manage Through the Shutdown of Intercontinental Travel?
Pushing Back: Inside This Issue
How does a global super-connector handle the near absence of international travel? We asked Qatar Airways Chief Commercial Officer Thierry Antinori this very question, and he attributed the carrier’s relative success to its fleet mix, its cargo capacity, and, above all, its agility in finding new markets and capturing what traffic it could find. Read the interview in this week’s Feature Story, which also includes a link to the unedited audio from the discussion.
Elsewhere in this issue, U.S. airline CEOs are feeling pretty confident that vaccines will usher in a recovery in air travel. Lessors report they are hearing the same thing. New York is planning to link one of its airports to its subway system. And a group of former Norwegian Air executives decide there’s still life in the low-cost longhaul model. Meanwhile, airlines the world over are adding routes and destinations in an effort to grab traffic where they can.
“The democratization of air transportation will always be our trademark and it drives us to broaden continuously our horizons.”Gol CEO Paulo Kakinoff on the company’s 20th anniversary.
The Airline Weekly Lounge Podcast
New episodes drop every week and are available wherever you get your podcasts and on AirlineWeekly.com. In the latest podcast, Edward “Ned” Russell and Madhu Unnikrishnan discuss whether the confidence U.S. airline CEOs have in the recovery is misplaced. When will people really start to travel again? Listen to the episode.
Travel demand in the U.S. may finally have turned the corner. Alaska Airlines, Delta Air Lines and United Airlines all anticipate either breaking even or generating positive cash flow in March after a year of daily losses. They, and others, are eagerly looking ahead to possibly strong leisure demand this summer.
“Assuming the current bookings trajectory continues, we’d expect core cash burn to be positive going forward,” United CEO Scott Kirby said at the J.P. Morgan Industrials Conference last week. However, he added that there is “still a lot of hard work” ahead, not least in turning positive cash flow into profits. United lost $8.8 billion before taxes in 2020.
Kirby failed to point how this achievement — while undoubtedly a sign of positive progress — comes as United and other U.S. carriers continue to benefit from billions of dollars in federal relief covering the majority of their labor costs. The latest $1.9 trillion coronavirus stimulus measure includes $14 billion in payroll support for the industry.
A booking inflection point — something airline executives waxed on about in January — seems to have occurred in recent weeks. The driving factors appear to be falling Covid-19 case counts and a steadily increasing number of vaccinated Americans. At the end of last week, more than 23 percent of the U.S. population, or more than 77 million people, had at least one inoculation against the virus, according to Centers for Disease Control and Prevention data.
Delta CEO Ed Bastian pegged the shift in bookings to five or six weeks ago, or early February. The airline’s revenues took a “big step up” improving by 40 percent from February to March on the back of the rise in bookings, he said.
Both executives’ comments come as Transportation Security Administration screening numbers are regularly coming in above a million people a day.
“This pandemic was very much a yellow flag — everyone needed to slow down and get a pit stop … [Now] we’re very close to the green flag dropping,” American Airlines CEO Doug Parker said at the same J.P. Morgan event employing an auto racing metaphor to describe the recovery.
Vacationers to domestic and near-international destinations — the Caribbean and Mexico primarily — are “definitely coming back,” he said. However, the lucrative business travel and long-haul international segments have yet to come back in any notable way.
Those latter prognoses were true across U.S. airlines. Even as the industry looks forward to eager Americans returning to the skies to fill their unrequited wanderlust this summer, visiting family and taking an overdue holiday represents only a partial recovery. Corporate road warriors and long-haul international travel must return for a full recovery, something Airlines for America (A4A) does not expect until around 2024.
“It’s going to take a while for the business travel to come back, and it may never get back to pre-pandemic levels — there’s just no way to know that right now,” Southwest Airlines CEO Gary Kelly said at a Washington Post Live event last week. He cited the five-year recoveries in corporate travel after past economic crises as a base timeline but added that, with how Covid-19 has changed how we work, it could take much longer.
Business travel is down roughly 90 percent from normal levels at Dallas-based Southwest, Kelly said.
An international recovery is more a function of when governments are willing to reopen their borders or, at least, lessen travel restrictions. Executives across the industry are pushing for the adoption of Covid testing or vaccination verification regimes to replace mandatory quarantines as a first step to restarting long-haul international flying.
One thing is clear: every U.S. airline benefitted enormously from the government’s financial assistance during the crisis. The initial CARES Act in March 2020 included $25 billion in both payroll assistance and $25 billion in direct aid to the industry as both loans and grants. Congress provided an additional $15 billion in payroll aid in December before the $1.9 trillion package earlier in March. Altogether, the government will have foot the bill for the majority of airlines’ labor costs — their largest expense alongside fuel — for nearly a year-and-a-half.
“One of the things that has allowed the U.S. industry to emerge from this crisis bruised but relatively strong is the support of Congress,” Bastian said on Monday.
Of course, once travelers do come back and airlines’ return to profitability they face their next challenge: repaying all the government loans and other debt that they took on to weather Covid-19. But that concern is for another day.
Gol Cuts Capacity as Virus Resurges in Brazil
A resurgent virus in Brazil is squashing Gol’s recovery. The company reported good fourth-quarter performance, all things being relative, but the first few months of this year have seen much of those gains reversed.
Gol’s fourth-quarter capacity was down 42 percent compared with the same period in 2019, but it was 93 percent higher than in the third quarter. At the end of the year, Brazil’s airlines were bullish on the recovery, and conventional wisdom held that the country’s airline market would be well on the road to recovery in the first half of this year.
But Brazil is enduring a fresh wave of the virus, forcing the cancellation of this year’s Carnival holiday. Capacity in February was down 37 percent from January, and March capacity is expected to be even lower, CEO Paulo Kakinoff told investors during the company’s fourth-quarter 2020 earnings call last week. The carrier has the flexibility to adjust capacity up and down by 10 percent quickly, he added.
Still, Gol remains confident that the recovery is in the offing. It won’t be “linear,” Kakinoff noted, but it is coming, as more people get vaccinated. Demand for travel can return quickly when Covid cases fall, he said.
The carrier will end the year with 129 aircraft after taking delivery of 10 Boeing 737 Max aircraft and returning 737 NGs. Gol ended 2020 with 127 aircraft, including seven Maxes.
Gol’s fourth-quarter 2020 revenue was down 50 percent compared with 2019. Capacity fell by 42 percent, as did traffic, the company reported. The company will hold an investor meeting later this month on the integration of the airline with its loyalty program, Smiles.
Former Norwegian Air Executives Go Back to the Low-Cost Longhaul Well
If at first you don’t succeed, try, try again. That seems to be the mantra informing a group of former Norwegian Air executives and investors in the Scandinavian country to launch a new low-cost, longhaul airline, Norse Atlantic Airways.
Former Norwegian Air CEO Bjorn Kjos, who left the airline last year, and Bjorn Kise, who stepped down as chairman last year, are teaming up with a third Bjorn – Bjorn Tore Larsen — on the endeavor, which aims to launch transatlantic flights in December. Larsen currently heads aviation crew agency OSM Aviation, which previously had sourced crews for Norwegian.
Norse Atlantic Airways plans to launch with a fleet of leased Boeing 787s, some of which will have been offloaded by Norwegian, which recently abandoned its longhaul operations to focus on shorthaul and European flights. Initial routes will focus on popular leisure destinations, like New York, Miami, and Paris, and Norwegian Air is expected to provide feed for the routes.
The low-cost longhaul model has come under considerable criticism in the wake of Wow Air’s bankruptcy in 2019 and Norwegian’s retrenchment. Last week, Aircastle CEO Mike Inglese said the company would more closely scrutinize potential lessees’ business models after the failure of those two airlines in the low-cost longhaul market. United CEO Scott Kirby was more blunt, saying the business model is a failure, but the two airlines “caused a lot of damage” while they operated.
The investors have raised $24 million and intend to list the company on the Oslo Stock Exchange.
In Other News
- All that online shopping we’re doing is paying off for FedEx. The company reported record-setting profits in its most recent quarter and sees nothing but good times ahead. FedEx shipped an astonishing 500 million packages over the year-end holiday period, also a record, the company said. “I’m exceedingly optimistic about the future of FedEx,” CEO Fred Smith said to underscore the point during the company’s quarterly earnings call. FedEx reported quarterly revenue of $21.5 billion, up from $17.5 billion the year prior. Net income reached $892 million, up from $315 million, and the company generated an operating profit of 5 percent, up from 2 percent in fiscal 2020. This post has been updated to reflect that FedEx’s net income was $892 million.
- Clarification: A story in the March 15 issue should have stated that the Latam-Delta joint venture has been approved by regulators in Brazil and Uruguay.
— Madhu Unnikrishnan