The COVID-19 pandemic devastated the demand for air travel in 2020 and the nation’s airlines were hit hard as a result. Analysts expect 2020 net losses by air carriers to top $35 billion just in the US alone. Even Southwest Airlines will likely report an annual loss of revenue, its first in more than four decades. Up until the coronavirus outbreak, US airlines had also seen a decade of profits and growth, but no longer.
Virus-Driven Bust
The airline industry is notorious for experiencing boom-and-bust cycles, meaning several years of expansion and high profits followed inevitably by revenue losses and a contraction in growth. In the last 10 years, however, airlines had managed to successfully avoid a bust, hiring tens of thousands of new workers, adding many new airliners, and expanding their global networks. COVID-19 unfortunately put an end to any hopes of a continuing boom, with US airlines losing huge amounts of money.
Airlines Stocks Slammed
Not since the housing and stock market crashes of the late 2000s have U.S. airlines seen their stock prices drop so steeply. The three major legacy carriers, Delta Air Lines, United Airlines, and American Airlines, all saw share price drops ranging from 31% in Delta’s case to 51% in United’s, which was the latter airline’s steepest price decline since 2008’s stock market crash. Even traditional market winner Southwest Airlines experienced a 14% decline in share price. With bottom hopefully reached, though, market analysts think there’s nowhere to go but up for air carriers.
Adjusting to Reality
The coronavirus and resulting near-disappearance of air travel demand forced US airlines to rapidly downsize operations in 2020 to prevent a complete fiscal and employment wipeout. Fortunately for the nation’s carriers, they were largely successful in doing so. Airlines parked hundreds of airliners, reduced networks, cut routes, and shrunk staffing through a combination of buyouts and retirements for the most part, though some layoffs proved regrettably necessary. To survive, the nation’s airlines also took on an estimated $67 billion in additional debt, raising their total to $172 billion. Paying down that debt over the next several years will likely be a drag on profitability.
Less Turbulence Ahead
All is not doom and gloom when it comes to the US airline industry, however, with air travel demand recovering much ground compared with the huge hit seen in the pandemic’s early months. Though still down about 45% year over year, the Transportation Security Administration has reported several days in early 2021 in which it security screened more than 1 million air travelers, a huge improvement over early 2020’s screening numbers.
Return to Profitability
Airlines are also focusing far more attention on leisure travel demand than in years past, when lucrative international and business travel – both of which are still depressed – called all the economic shots. They’ve added more flights to traditional US vacation and sightseeing destinations and added routes to formerly less-traveled though potentially lucrative cities and regions. Some US air carriers, including Delta, Southwest, and Alaska Airlines, even expect to see profits in 2021, with Delta predicting cash flows turning positive in the spring after halving its cash burn from much of 2020’s steep losses. Air carriers’ expectations are also being bolstered by the development of several coronavirus vaccines, with hopes that optimism among travelers will also result.
Riding the Storm Out
Airlines expect to ride the continuing economic storm out through a combination of matching their capacity to reduced US air travel demand along with a welcome second injection of federal aid. Tapping that aid required carriers to recall furloughed employees and to keep them on staff until at least March 31. By early spring of this year, a clearer picture of just which direction airlines will be flying in for 2021 should emerge.
Kelly Hoggan, Founder and CEO of H4 Solutions, previously served as assistant administrator for operations at the Transportation Security Administration. In that role, he was responsible for aircraft and checkpoint security operations at the nation's 450-plus commercial airports.