What a week. In the face of the steepest global demand drop airlines have seen in a decade the cuts came, quick and deep. The COVID-19/Coronavirus outbreak will upend commercial aviation this year. The big question now is just how much, and what the longer-term impact will look like.
Around the world carriers announced they would slash capacity and routes. Some moves are triggered by new entry requirements effectively banning populations from certain countries. Others are tied to a general drop in demand as the public either follows government advice to avoid crowded places or panics and avoids crowded places.
Here are just some of the many cuts airlines have announced, expanded, or implemented in the past week:
- Cathay Pacific will suspend approximately 50 of its 106 destinations. This includes all routes into North Asia, apart from HKG-Taipei. No more Japan nor Korea, at least for now. Only four mainland China routes will remain for the rest of March, out of 23. Other routes suspended include Tel Aviv, Rome, Barcelona, Milan, Chennai, Male, Newark, and Washington, DC. The carrier will operate only about 20% of the frequencies compared to a year ago.
- The Lufthansa Group indicated it was planning to cut capacity up to 50% in light of cratering demand. The Group’s movements have been significant and quickly shifting; it went from a 25% to 50% planned cut in less than 48 hours last week. While the details are still being hashed out the decision to (temporarily??) ground the Lufthansa A380s appears to have finalized. According to a German source citing internal documents the A380s are flying at a 35% load factor currently and are to be grounded through May. Flights to Israel for the rest of March were among those canceled, citing new immigration policies that would prevent entry of passengers as part of the efforts to contain the Coronavirus. The carrier will cancel approximately 190 daily flights at Frankfurt and 175 daily flights at Munich through the end of the month, with more cuts likely in the coming days. Austrian and Swiss are facing similar cuts, though details are less clear.
- United Airlines announced plans to slash 10% of its domestic capacity through reduced frequencies, down-gauging aircraft and limiting service to some smaller airports that are served by multiple hubs. The route between San Francisco and Northwest Arkansas Regional Airport (XNA) is one example. That route typically feeds to the carrier’s Transpacific hub, bringing vendors to Walmart headquarters. The demand no longer exists and the route now appears suspended. United will also trim up to 20% of its international capacity, focused more heavily on the Pacific. The United moves extend through May and the carrier is poised to roll them into June if demand does not rebound.
- Alitalia will effectively close its Milan-Malpensa operations until 3 April 2020. A trickle of domestic flights will operate at Milan-Linate but the government’s efforts to quarantine large regions of Northern Italy to halt the spread will be felt acutely by Alitalia and other carriers serving the region. Rome remains open as an international gateway, though demand is low. The country enacted emergency laws over the weekend to lock down the north, including Milan, with 17 million residents affected.
- JetBlue will cut its schedule by approximately 5% for the coming months. The carrier will also offer unpaid leave to flight attendants, which is a polite way of asking crew to not work and not get paid but also maybe be ready to come back soon if and when things get better.
- Spirit Airlines will also cut its schedules, though the details on how much or for how long remain less clear. Pilot bids are delayed 5 days for the April schedule as a result.
- Air India trimmed frequencies to Italy, Japan and Korea while also slashing capacity to Saudi Arabia. The cuts are all dictated by health officials blocking entry of passengers from certain countries to help limit the spread. In the case of the first three the cuts were driven by India’s policies while the Saudi Arabia cuts come because that country is blocking all foreign pilgrimage visits to Mecca and Medina.
- Delta Air Lines is trimming frequencies to several international destinations. China operations remain suspended through the end of April. Seoul will see a reduction equivalent to 2 daily flights through May, with Minneapolis suspended completely while Atlanta, Detroit, and Seattle each drop to 5x weekly from daily. Japan sees a similar mix of reductions and cuts, with the planned Seattle-Osaka summer seasonal service now completely removed from the schedule. Other routes lose frequencies through April. Milan, Venice, and Rome are also affected through the end of May. In a testament to just how quickly the markets are shifting, Delta issued releases on both Friday and Sunday regarding the Rome service changes, with the latter removing all Atlanta-Rome flights through April. It was previously cut to 4x weekly operations, down from 5x in March and daily in April.
- Although not specifically announced, Virgin Atlantic is trimming service and retiring its oldest aircraft sooner than previously planned. The A340-600s have likely operated their final services already.
- Hawaiian Airlines will drop its night flight from Haneda. The service is split between Kona and Honolulu. The carrier still plans to launch its additional Honolulu-Haneda daytime flight later this month, however.
- Qatar Airways altered its schedules to Iran, Korea, Italy, Egypt, China and Hong Kong, locales of the highest reported outbreak numbers. The country also announced late Sunday a ban on entry for visitors from Bangladesh, China, Egypt, India, Iran, Iraq, Lebanon, Nepal, Pakistan, Philippines, South Korea, Sri Lanka, Syria and Thailand. That will dramatically affect the carrier’s loads and the supply of migrant workers.
- Singapore Airlines trimmed frequencies to destinations across its network into May 2020. Europe, Asia, Australia and the USA are all affected. The affected flights continue to update, with the carrier projecting a 7.1% capacity cut through May. (Note: Monday morning 10a EDT the carrier upped the cuts to 13.6% through May 2020).
- Korean Air slashed 80% of its international capacity as the country battles an outbreak and increasingly strict rules from other countries around what passengers are allowed entry.
- Air New Zealand will shed 10% of its capacity through June, including a 26% cut to Asia, 7% in the trans-Tasman market and 4% domestically.
This is a long but woefully incomplete list of the changes and cuts from airlines. And by the time it is published there’s a decent chance it will already require updates as one or more of the carriers involved will make further changes. Other carriers are also weighing in, but without as dramatic of changes. Southwest Airlines is ready to make cuts if necessary, but is not doing so yet. American Airlines is also trimming capacity on many routes, mostly by downgauging aircraft size, though it has not released a formal statement about what those cuts will include.
The broader (but still aviation-related) economic impact
Beyond the actual illnesses reported are the steps taken to slow the spread. Many trade shows and conferences are canceling and it is clear that demand will remain depressed until the world is confident that the spread is contained. Airlines are also asking for regulators to suspend the “use or lose” policies around coveted landing slots at crowded airports, noting that they’ll fly “ghost planes” without passengers to keep the slots while admitting that is a terrible thing for short term economics and for the environment. Conversations about government support for the airlines are already starting.
The broader economic ripple will be significant; on that most analysts agree. The debate now is about just how severe it will be. In commercial aviation IATA forecasts a $113bn hit to revenue, but also points out that some costs will also drop as oil costs plummet alongside demand. That won’t be enough to keep some airlines from going out of business this year, however.
New aircraft deliveries are already skewed because of the Boeing 737 MAX grounding and, to a much lesser extent, delays in A321neo production from Airbus. How many airlines will reconsider mid-term growth plans as a result of the current economic downturn? How many will use delivery delays as an excuse to avoid taking the aircraft already built or soon to roll down the assembly lines? And what will the return of business travelers to the industry look like?
Secondary and tertiary suppliers will also be affected as a result. Many of those companies remained optimistic even through a year of MAX groundings as planes were still being built and including the suspension of builds. But that optimism cannot last forever as cashflow challenges build.
IATA rightfully notes that a “V-shaped” interruption, with service returning as quickly as it dropped, is the best-case scenario for the industry. Less clear, however, is how likely that outcome is. China’s flight frequencies are slowly returning but details on passenger loads remain scarce.
That the airlines with cuts in place expect them to last months, leading into the peak Summer travel season also casts doubts on the likelihood of a quick return to normal. And given reports of up to 80% drops at some airports there is a long way to go for the recovery.