The last two weeks have brought a lot of back and forth between the airline industry and the federal government as the two have hammered out details of the billions in financial aid Congress came up with in order to help airlines stay afloat in the wake of the COVID-19 pandemic. The downturn has rocked the airline industry, which had been riding high on high load factors and consequently remarkable profits. The aid package promises to preserve jobs through September for employees in an industry where demand has all but vaporized in recent weeks.
The preservation buys airlines a bit of time to regroup and plan for a new normal, but at least one airline has hinted that big cuts loom once the CARES Act job protections are past.
As borders began to close for international travel and shelter-in-place orders sprang up, load factors fell from nearly full airplanes, to flights that had just a few passengers, or in some cases, no passengers at all. In many cases, deadheading crewmembers outnumbered paying passengers as airlines shuffled people and equipment to deal with the plummeting demand. Claiming they were essential to the country, the airlines continued operating, but even on reduced schedules they were bleeding millions of dollars a day.
The CARES Act was initially pitched with about $50 billion for the airline industry, but the agreement in principle reached with the federal government is nearer to $25 billion. The bailout is a mixture of grants and loans intended to help airlines keep as many employees on their payroll for several months to ride out the worst of the pandemic. Currently, passenger loads are down almost 97 percent, and upwards of 2,000 airplanes are parked, mostly in short-term storage. Some fleets of aging types, however, may never return to passenger service.
At this point, we know that Alaska, American, Delta, JetBlue and Southwest have hammered out numbers for their aid. American has the biggest aid so far $5.8 billion, followed closely by Delta’s $5.1 billion. Southwest is set for $3.2 Billion; Alaska and JetBlue stand to receive just less than $1 billion each. Each airline’s aid package is about a 70/30 mixture of grants and loans, along with a small stake of the company’s stock. Talks continue between other airlines and the Treasury, so more agreements are likely to be announced soon.
There’s no such thing as free money, and this package comes with strings attached. In addition to the stock ownership, airlines are limited from cutting jobs or salaries until September 30. There are limitations in place on stock buybacks, a practice many airlines had actively performed before this downturn. Dividends and executive compensation are also limited per the act. Airlines are also required to continue serving most of their markets, although airlines are being allowed to consolidate to one airport in markets that were served by multiple airports, and carriers are petitioning for permission to adjust service to cities that were only served seasonally.
Three airlines have already ceased operations. Regional carriers Compass and Trans-States had their flying cut in the first week of April, and RAVN in Alaska ceased operations and declared bankruptcy as the CARES act was being formulated.
Beyond September, many questions remain as airline employees are hopeful for a quick rebound, but predictions for Americans returning to air travel are all over the place. In a memo published last night to employees and shared publicly, United expressed a grim outlook for recovery. “Travel demand is essentially zero and shows no sign of improving in the near-term. We expect to fly fewer people during the entire month of May than we did on a single day in May 2019.”
United expects to receive about $5 billion in aid, but makes no promises beyond the September limitation for retaining employees. “…We have some tough decisions ahead as we plan for our airline, and our overall workforce, to be smaller than it is today, starting as early as October 1.”