Airlines’ Long Covid

Edward Russell and Madhu Unnikrishnan
January 2022
12 min read

Staffing Problems May Linger After the Pandemic Recedes

Pushing Back: Inside The Issue

Airlines around the world are looking past the pandemic to a future in which Covid-19 may be endemic. But just as with some people who contract the disease, the effects of Covid may last longer than the initial shock. One way that is coming into focus is in staffing. In the U.S. pilot shortages are becoming acute for the regional carriers. Elsewhere, tight labor markets and the “Great Resignation” — or people quitting jobs or unwilling to go back into the workforce — are complicating airlines’ and aerospace companies’ ability to hire. In response, airlines are trimming schedules and cutting flights, and the airframers’ suppliers are struggling to find workers, calling into question Airbus’s ambitious production targets. The Omicron variant has done nothing to help matters.

By the time you read this and if you’re based in the U.S., you could either have super-fast mobile Internet access and snarled flights, or you could have slower mobile Internet and on-time flights. It’s very unlikely that you’ll have both. The wireless industry and its regulator, and the aviation sector and its regulator are engaged in pitched battle over the roll out of 5G wireless networks. A two-week delay to allow the Federal Aviation Administration time to identify airports where 5G might interfere with radio altimeters yielded news no one wanted. FAA issued 1,500 notices on approaches that could be impaired, affecting 90 airports, or all of the major airline markets in the country. We’ll know by January 19 which of the two scenarios above will play out.

Meanwhile, Airbus had a banner year of deliveries (for the pandemic, that is), delivering almost double the number of aircraft Boeing did. And speaking of Boeing, it risks losing market share unless it can design and build an aircraft for the middle of the market, which the Airbus A321 currently is walking away with.

Almost lost in all this was that fourth-quarter and full-year earnings season started, kicked off last week by Delta Air Lines. The carrier lost more than $400 million in the quarter, a result it didn’t want to see but one that can be blamed on Omicron, bad weather, and a terrible holiday season for all airlines. The earnings fun continues next week. Stay tuned.

The Airline Weekly Lounge Podcast

Airbus and Boeing have split the commercial aircraft market for a while, but analysts say Boeing could become the junior partner if it doesn’t come up with something for the middle of the market. Hosts Madhu Unnikrishnan and Edward “Ned” Russell chew on Boeing’s options and discuss Airbus’s rather good 2021. Listen to the episode. The ‘Lounge’s full archive is here.

Weekly Skies

Delta Air Lines is the latest to cull schedules as a result of the pilot shortage facing the regional industry in the U.S. The Atlanta-based carrier has cut regional flights by as much as a quarter from previous plans through the first half of 2022 due to the staffing challenges at Delta Connection operators, Delta President Glen Hauenstein said last week.

The airline’s affiliates have been forced to pull out of several markets and temporarily park an undisclosed number of aircraft due to the staffing issues, Hauenstein said during Delta’s fourth-quarter earnings call. Its mainline operation does not face a lack of pilots — and is hiring between 100 to 200 new pilots a month — beyond the disruptions caused by the elevated number of employees out sick as a results of the Omicron variant surge, something that executives expect to subside within days.

“We’re really pretty confident now that by the second half of this year, that the [pilot] pipelines will be more full, and we’ll be able to restore a lot of the small- and medium-sized communities that we’ve had to pull down during the shortage in the first half,” said Hauenstein with a note of optimism — one that has yet to be shared by many of Delta’s competitors.

American Airlines and United Airlines face similar staffing issues at their regional affiliates. The latter has exited more than eight smaller markets, as well as cut 14 routes from its Washington Dulles hub to make up for the shortage in pilots. In November, United CEO Scott Kirby said the carrier had parked more than 100 small jets as a result. However, neither American CEO Doug Parker nor Kirby have publicly said when they think the pilot shortage will subside.

Many of the small airports where United has cut flights have said that the airline informed them of intentions to resume service within a year, or in 2023. That timeline suggests at least six more months of regional pilot staffing woes than Hauenstein said Delta forecasts.

Asked how Delta is mitigating the problem, Hauenstein said it is a matter of hiring people and getting them “through the training … with the right number of hours.” And Delta CEO Ed Bastian added that the airline is working closely with its affiliates, particularly wholly-owned Endeavor Air, to “mitigate” the disruption from the crew shortage.

The regional pilot shortage is the result of many of the actions taken by Delta and other airlines during the pandemic. Nearly every airline offered voluntary departure or early retirement packages to crews that, despite the industry avoiding any involuntary furloughs thanks to federal aid, depleted their senior ranks and forced them to step up hiring as the recovery surged. For major carriers, that has meant turning to their long-standing primary pool of new pilots: Regional airlines.

According to a recent analysis by The Air Current, the number of pilot retirements at U.S. mainline carriers in 2020 equaled the entire pilot ranks at Air Wisconsin, GoJet Airlines, and Mesa Airlines combined.

Airlines are taking various measures to address the shortage, which is only forecast to worsen as the decade progresses. These include partnering with flight schools and creating new pathway programs to increase the supply of new pilots. However, with current rules that require commercial airline pilots to have a minimum of 1,500 hours, most agree that these programs will take some time to actually increase the supply of pilots.

One current operational headache that Delta hopes is in the rearview mirror is the Omicron variant. An elevated numbers of crews out sick with Covid-19 resulted in hundreds — thousands across the industry — of cancelled flights, and disrupted holiday trips for thousands of travelers in December and earlier in January.

Bastian expected Covid-19 case numbers in the U.S. to begin subsiding in the “next few days,” followed by a similarly steep decline to ones seen in other countries, including South Africa and the UK. This outlook has Delta forecasting losses in January and February with profits returning by March. Omicron is showing no adverse effect on bookings past the Presidents Day holiday weekend — February 19-21 — in the U.S., he added.

“The [Omicron] variant is likely to mark the shift in Covid-19 from being a pandemic to a manageable and ordinary seasonal virus, which should accelerate the path to a normalized environment,” said Bastian. In other words: Covid-19 has become an endemic disease.

An endemic Covid-19 may sound less than ideal but, at least for airlines, it is something of a positive shift. As Bastian noted, living with the virus allows Delta to operate in a more normal manner — or as it did prior to the pandemic’s start in March 2020. Flight cancellations that spike along with the latest Covid wave would be a thing of the past, travelers could drink alcohol onboard planes again, and business travelers would return to the skies from their hermetic Zoom bubbles.

But even as Bastian spoke of returning to a “normalized” world, he did not dismiss the continued risk Covid-19 poses. After likening the virus to the seasonal flu, he noted that the flu is still a “pretty significant cause of death” in the U.S. And when asked about mask mandates on planes, Bastian declined to say when or whether U.S. rules requiring travelers wear masks on planes should be relaxed.

Many public health officials agree with Bastian’s view of an endemic Covid-19. The top U.S. infectious disease expert Dr. Anthony Fauci said last week that, at this point, “virtually everybody is going to wind up getting exposed and likely get infected” with the virus. Vaccines and boosters dramatically reduce the risk of severe illness, added Fauci.

Delta maintained its outlook of a 2022 profit after what is now forecast to be an Omicron-driven first-quarter loss. Executives expect lucrative business travelers will continue to return once the variant subsides, and international markets to continue reopening with both tourists and corporate road warriors eager to travel again. The latter is expected to accelerate this summer, particularly between the U.S. and Europe, which has been essentially closed or greatly limited for the past two summer seasons. The Asian travel recovery is unlikely to begin in a material way before the summer.

Delta lost $2.6 billion on an adjusted basis in 2021, or a small $280 million profit when including the benefit of $4.5 billion in government Covid-19 aid and other special items. Revenues were down 36 percent to $29.9 billion and expenses by 31 percent to $28 billion during the year compared to 2019. Unit costs (CASM) excluding fuel and special items increased at an elevated rate of 11 percent to 12.12 cents.

In the fourth quarter, Delta lost $408 million including the impact of $564 million in one-time expenses. Revenues recovered to 83 percent of 2019 levels, passenger traffic to 72 percent, and capacity to 79 percent. And CASM-ex jumped 8 percent to 12.56 cents.

“Delta was on track for a better quarter, but flight cancelations hurt results at the end of the month,” wrote Cowen analyst Helane Becker last week.

Looking ahead, Delta expects revenues to recover to 72-76 percent of 2019 levels — or to nearly $8 billion — in the first quarter. Passenger capacity will be 83-85 percent of three years ago. The March quarter bears the brunt of Omicron-related financial expenses, with executives anticipated $60-70 million in direct additional expenses.

Edward Russell

Cargo, Passenger Recovery Momentum Slows

The momentum of international passenger traffic growth slowed in November, IATA reported, as fresh lockdowns in response to the Omicron variant began to take a bite out of air travel demand. Yet, the pain wasn’t spread evenly. Most notably, European and U.S. carriers saw demand across the Atlantic rise as the U.S. eased travel restrictions for vaccinated Europeans early in the month.

Domestic demand growth momentum also slowed, except for in certain markets, during November. In Russia, for example, domestic traffic is exceeding 2019 levels. China’s traffic fell in response to new lockdowns. The U.S. domestic market was only 15 percent off 2019 levels, and Brazil and other markets in Latin America also showed improving domestic demand.

Capacity is showing slow growth. November capacity growth was just over 39 percent off 2019, a slight improvement from 40 percent off 2019 in October. December’s numbers will show the effects of the Omicron variant’s spread, IATA said.

Meanwhile, the supply chain crisis has finally caught up with air cargo, which until now had been a lifeline as maritime and surface shipping snarled. Air freight traffic grew by only 3.7 percent in November over 2019, the lowest level since January last year and down significantly from the 8.2 percent growth IATA reported in October. Maritime shipping has been plagued by an excess of capacity in some regions, and a lack in regions that need it. That dynamic now has hit air freight as well, IATA reported, calling the November data “somewhat unexpected.”

Some key airports, like New York JFK, Los Angeles, and Amsterdam Schiphol, are facing labor shortages, backlogs in supplies, and a lack of storage space for arriving cargo, further adding to air freight’s woes, IATA said.

But it’s not all bad news. The slow return of international traffic means more cargo capacity is coming online. World trade grew by almost 5 percent in the month. Consumer confidence and spending remains strong in much of the world. The near-term outlook for cargo remains strong, IATA said, although the latest data do not reflect staffing shortages — at both airlines and trucking companies — and capacity reductions caused by the Omicron variant.

Madhu Unnikrishnan

In Other News

  • The Omicron variant continues to wreak havoc with airline schedules. In the past week, Finnair, Qantas, and Virgin Australia have cut their schedules by 20-30 percent through March, citing rising numbers of Covid-19 cases and staff out sick. The moves come with the hope of preventing the elevated number of cancellations that airlines have been forced to make as the virus sidelines workers, and also — at least for carriers in the Northern Hemisphere — during the conveniently slow March quarter. In addition to culling flights, Finnair has postponed the launch of new service to Dallas-Fort Worth to March 27 from February, and the resumption of Nagoya flights to the summer.
  • Roughly 86 percent of Aeromexico creditors that represent around $2.3 billion in the airline’s debt have voted in favor of its U.S. Chapter 11 restructuring plan. Support of creditors is critical to a judge approving the plan, and Aeromexico exiting from bankruptcy protection. A confirmation hearing is scheduled for January 27.
  • Delta poached senior JetBlue executive Scott Laurence to map its network going forward. Laurence begins as vice president of network planning at the Atlanta-based carrier today, January 18, after departing from JetBlue where he was head of revenue and planning. It’s a step change in size for Laurence: Delta’s network touches six continents with nearly 4,100 daily flights on January 18, whereas JetBlue touched three continents with just over 800 daily flights, according to Cirium schedules. One question we’re asking: What does Laurence think of focus cities?

    And out West, Alaska Airlines hired Neil Thwaites as its new regional vice president of California. Thwaites, who joins the Seattle-based carrier from TripArc, steps into a new role for Alaska, but one that was effectively held by Annabel Chang as vice president of Bay Area until she left the airline in 2020. California has been a focus of Alaska’s growth since it acquired Virgin America in 2016.
  • It looks like Norse Atlantic may realize its dreams of a spring launch for transatlantic flights. Shortly after getting its air operators certificate from Norway, the start-up last week got the nod from the U.S. Transportation Department (DOT). In its order, DOT said Norse Atlantic had met all the conditions for an exemption and a foreign air carrier permit to operate flights between the U.S. and Norway and beyond. “This significant milestone brings Norse one step closer to launching affordable and more environmentally friendly service to customers traveling between Europe and the United States,” Norse Atlantic CEO Bjørn Tore Larsen said.

Edward Russell & Madhu Unnikrishnan