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Msg  10 of 14  at  1/26/2022 12:39:30 PM  by


America's Airlines Face a Long Road Back to Normal

America's Airlines Face a Long Road Back to Normal

About the author: Laurie Garrow is a professor at the Georgia Institute of Technology and the president of AGIFORS, a nonprofit organization that focuses on airline research.

Many travelers returned to the skies in 2021. The Sunday after Thanksgiving, 2.4 million individuals were screened by the Transportation Security Administration, a number just shy of the 2.5 million who were screened on the same day in 2019, as reported by the Bureau of Transportation Statistics .

However, by the New Year holiday, airlines were experiencing record-level cancellations due to weather and staffing shortages associated with the Omicron variant. During the early part of December, only 0.9% of scheduled flights by U.S.-based carriers were cancelled, but starting on Christmas Eve these cancellations rose to 3.4% and would peak at 13.4% on Jan. 3, as reported by FlightAware .

Heading into 2022, many are wondering what to expect as they take to the skies and when air travel will return to normal. As John Laughter, chief of operations at Delta testified to Congress last month, "We expect, and are prepared for, an uneven, choppy recovery." The success or failure of this recovery will depend on many factors, from staffing to aircraft inventory, and some long-standing travel norms may change altogether. But one thing is certain: Airline companies will have to understand and adapt to these new challenges to survive and thrive in a postpandemic world.

To understand what the recovery path for airlines will be in 2022, it is helpful to reflect on where the industry was two years ago . At the start of the pandemic, in March 2020, airline demand plummeted by 95%. The cash burn at Delta and United was $90 to $100 million per day, or a staggering $3.8 to $4.2 million every hour.

Michael Corbridge, managing director of finance at Delta, says that when "faced with such a drastic reduction in demand and uncertainty in when demand would return, we had to make decisions very quickly and do what we could to minimize costs as much as possible while aligning resources with demand that was so small."

Airlines quickly mobilized to cut costs. By mid-May 2020, 28 U.S. passenger carriers had collectively taken 52% of their aircraft out of service, Airlines for America reported, using data compiled by Anuvu. Parking aircraft significantly reduced short-term costs as airlines were able to save fuel expenses and defer heavy maintenance until the aircraft were placed back into service. Many airlines offered their employees voluntary leaves of absence or early retirement packages, which also helped lower short-term costs, but would ultimately accelerate the pilot shortage problem. Finally, while three rounds of federal payroll support were provided to U.S. airlines for 16 of the 18 months spanning April 2020 through September 2021, the fate of these programs was uncertain, and many airlines prepared for—and in some cases implemented—massive layoffs.

In hindsight, U.S. carriers would have made different decisions on how to reduce their fleet and workforce had they known at the time that three rounds of the payroll protection support would be forthcoming and that by the end of 2021, demand would recover to 80% of its 2019 levels, as Airlines for America reported. Nonetheless, key decisions that airlines made in 2020 are now shaping their recovery path in 2022, driving higher short-term costs, and resulting in a temporary misalignment in supply and demand.

Reactivating aircraft and scaling up operations have significant short-term cost implications. Delta reported that in 2021, its nonfuel cost per available seat mile was up about 11% compared to 2019 and expected to be up about 7-10% in 2022 as the airline continues to rebuild its network.

Rebuilding an airline also means hiring additional pilots, flight attendants, aviation maintenance technicians, customer service representatives, and other personnel. As major U.S. carriers expand their service, they are recruiting new pilots from regional carriers. In turn, this is exacerbating a pilot shortage among regional carriers and limiting service to smaller communities. United's CEO Scott Kirby reported that 100 of its regional jets are grounded because of a pilot shortage.

At some airlines, pilots and flight attendants are less willing to pick up trips and work overtime. As a result, some airlines have implemented incentive pay programs to cover peak travel periods. According to CEO Doug Parker , American provided 300% pay to flight attendants with no absences between Nov. 15 and Jan. 2. Southwest and JetBlue offered flight attendants bonuses valued at $1,000 to $1,400 for meeting attendance goals. Airlines are also offering sign-on bonuses to get new employees in the door. In Denver, United is offering a $15,000 sign-on bonus for baggage handlers. These are other examples of short-term cost pressures the industry will likely continue to face in 2022.

Perhaps the biggest challenge to ramping operations back up, however, is making sure that when aircraft are reactivated, there are enough pilots available to fly them. Seniority rules identify which pilots are eligible to fly specific aircraft types. When airlines reactivate larger aircraft, some pilots flying smaller aircraft will likely be promoted and become eligible to fly the larger aircraft. But these pilots need to complete four to six weeks of training before they are certified to fly the larger aircraft. The process is further complicated because the timelines for aircraft reactivation and pilot training differ, and can be extended due to constraints on maintenance space and flight simulator availability. All of this has led to a temporary misalignment between which aircraft are available to fly and which aircraft pilots can fly.

These growing pains should stabilize in 2022 as airlines rescale their operations, but along the way consumers can expect to see volatility in fares, reduced service to smaller communities, and potentially more flight delays and cancellations. Managing operational disruptions is a complex process and many experienced FAA and airline controllers took early retirement packages, according to Tim Niznik, director of analytics at American. That has left a knowledge gap in terms of how to best handle disruption events due to weather or staffing shortages.

Particularly for larger carriers the recovery timeline will extend beyond 2022. Domestic low-cost carriers including Allegiant, Frontier, Spirit, and JetBlue are benefiting from the early return of leisure domestic air travel demand and have already restored service to prepandemic levels. In the first quarter of 2022, these four carriers will deploy more capacity than they did in the first quarter of 2019, Airlines for America reported based on its analysis of published flight schedules.

However, international recovery will take longer and is not expected to return to prepandemic levels until around 2024. Bob Lange, head of business analysis and market forecast at Airbus , expects that the worldwide recovery will continue to build momentum this year, but that recovery will lag in trans-Pacific, Europe-Asia, and intra-Asia markets.

It's "too soon to call" what is going to happen with business travel, Lange says. New trends are emerging. For example, many higher-income households took business jets for the first time during the pandemic, and according to Dean Roberts, market analysis executive at Rolls-Royce, "the business jet market has grown, with flying hours increasing by about 15% from 2019 to 2021." Sergey Shebalov, head of research at Sabre, says that business practices may affect intra-office travel as well, which "may come back in a different form in which you bring employees working in different places together for special events."

Even after the industry does return to prepandemic flight levels, it will likely look different than it did in 2019. "After 9/11 the airline industry implemented several new security measures," Shebalov says. "Likewise, I expect some countries to implement new travel policies, such as vaccine passports."

So for those traveling this year, buckle up! Recovery is well underway, but the airline industry still has a number of unprecedented challenges to overcome as it ramps back operations.

Guest commentaries like this one are written by authors outside the Barron's and MarketWatch newsroom. They reflect the perspective and opinions of the authors.


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