U.S. airlines announced service cuts Tuesday to counter the
plummeting demand caused by the Covid-19 virus.
“This is a crisis that is going to have a large near-term
impact on revenue,” United president Scott Kirby said during a presentation at
the J.P. Morgan Industrials Conference.
United had already announced a 10% cut to domestic capacity
and a 20% cut in international flying for April. On Tuesday, Kirby said the
carrier expects to increase the cut to 20% systemwide for May, and to either
maintain or increase the reduction after May until it sees concrete signs of
Other airlines made similar moves Tuesday.
Delta will implement a 15% system reduction. The changes are
to include a 10% to 15% drop in domestic capacity. Transatlantic capacity will
be down 15% to 20% and transpacific capacity will be down 65%. The carrier also
plans to drop its Latin America capacity by 5%.
American said it would drop domestic capacity by 7.5% for
April while reducing international capacity for the summer peak season by 10%.
The cuts are to include a 55% reduction in transpacific capacity. Domestic
cuts, the carrier said, will be undertaken through frequency reductions on
heavily serviced routes and via the cancellation of selected routes that can be
Spirit, too, will trim its April schedule. The carrier still
plans to offer 9% more capacity in April than it did last year, but that’s down
from a planned 14% increase.
JetBlue, meanwhile, previously committed to a capacity cut
of 5% through early May.
Bucking the trend is Alaska, which stated Tuesday that is
has no material cuts scheduled for March and April.
“We are analyzing the need to consolidate frequencies or
trim flights that would operate at a cash loss in May and beyond,” said the airline.
Kirby presented some of the most dismal data at
the conference, saying that since the spread of Covid-19 outside Asia, United’s
gross domestic bookings are down 25%. Net bookings, which factor in
cancellations, have dropped 70%. The figures are even worse for Asia and
Europe, where gross bookings are down 50% and 70%, respectively.
Delta CEO Ed Bastian had similar news. Delta has seen a 25%
to 30% decrease in net bookings since the virus spread beyond Asia. And the
carrier is preparing for the situation to get worse.
United is modeling for a scenario in which demand falls 70%
systemwide in April and May, and then 60% in June and July. Kirby stressed that
the model isn’t a forecast, but rather a method to prepare for whatever comes.
News out of the conference wasn’t entirely bad. American CEO
Doug Parker said that ahead of the summer season, the carrier last week took
the unusual step of putting some of its lowest fare buckets on the market
early. As a result, bookings increased.
“There’s a real demand for air travel,” Parker said.
Airlines also reported that domestic load factors have
remained strong, even if slightly down from before the crisis. Spirit, for
example, reported that load factors from March 1 to March 8 ranged from a high
of 88.5% to a low of 76.6%. The carrier estimates that its load factor for the
full month will be 81.4%.
The various airlines also boasted of their strength entering
this sharp downturn, including high levels of liquidity. The Covid-19 outbreak
will put a halt to what has been the longest sustained run of profitability in
the U.S. airline industry’s history.
American, for example, has $7.3 billion in cash on hand,
“Seven billion isn’t a target we need to run the company.
It’s a target we always wanted to have in place for situations like this,” he
JetBlue has $1.2 billion in cash and cash equivalents, said
CEO Robin Hayes, which is approximately 15% of total 2019 revenue.
Kirby said United is prepared to weather the storm, even if
federal assistance, hinted at by President Donald Trump on Monday, doesn’t
“We are not going to count on any sort of government
intervention,” he said. “We are going to manage the airline to make sure we
make it through the crisis without any of that.”
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