US airlines continue to operate a significant portion of their route networks despite passenger loads teetering perilously close to single digits. They are, effectively, burning cash with every flight they operate but remain hesitant to cut their schedules too deeply. And they are running out of excuses for that behavior.
The recently approved bailout funds will help cover some of the costs, but require a minimal level of service from the airlines to receive the payouts. A recent review of published schedules suggests that for most carriers significant additional cuts could occur without risking access to those funds.
The billions in payroll funding that the CARES Act delivers for airlines comes with some strings attached. Treasury Secretary Mnuchin could decide to take an equity stake in the airlines as a condition of the grants, making them less a handout and more of a proper investment by the government. And the airlines must agree to not lay off any of the employees whose salaries are covered by the funding.
But there’s also the recently published guidance requiring the airlines to maintain service to all cities currently on the schedule with a minimal number of flights. As the airlines consider their options, however, it is clear that the current schedule exceeds these requirements by a massive margin.
How many cities, how many flights??
A review of OAG schedule data from 31 March for flights operating on 27 April suggests that most US carriers are easily in compliance with this requirement. The National Air Carrier Association representing, among others, Allegiant, Sun Country, Spirit Airlines, and Frontier, notes that its low cost and ultra low cost member airlines operate highly seasonal schedules with frequent adjustments to the service patterns. These are not reflected in the newly published requirements, though presumably the DOT will eventually allow for these carriers to operate based on their previously planned route maps rather than the schedule from February. JetBlue also has some seasonal routes that could affect its eligibility, though, again, an appeal to the DOT should clear that up as the routes were previously slated to end.
Currently Allegiant, Frontier, Sun Country, and Hawaiian Airlines all have destinations removed from their operation in April relative that could disqualify them from the CARES Act compensation. Hawaiian’s cuts are tied to its home market enforcing a strict 14-day quarantine rule for all arrivals to the islands. The others are generally seasonal shifts. In Frontier’s case the destination reduction also comes from drawing down underperforming markets.
In understanding the service requirements it is also critical to realize that any particular airport could see a massive reduction in capacity while the associated airline(s) retain their funding eligibility. JetBlue‘s approach to the cuts is perhaps the most aggressive so far. The carrier will remove 70% of its domestic capacity starting this month (with additional rolling cuts if flights are under-booked) and is also significantly reducing the number of routes serving its smaller markets. Nearly a third of the domestic routes will be cut; only Hawaiian and Frontier beat that level, and JetBlue does it while maintaining all its non-seasonal destinations.
Looking at the Big 4 US carriers the current filings suggest that 7-22% of routes will be removed, with Southwest Airlines cutting the least and Delta Air Lines the most. Delta also has a significantly larger overall number of flights removed from the domestic schedule (~54%) than the others (10-30%), suggesting that not all the previously announced changes are reflected in the schedules so far.
Spirit Airlines is also expected to announce significant cuts, to the tune of 90%+, in the coming days, though that data is not yet reflected in the published schedules.
Breaking the Network Effect
These airlines could simply drop to a single flight on each route each day. This would still be more flights than required by CARES and would reduce the current April 27th schedule by approximately 60%. But the CARES requirements are not the only consideration for the airlines. They must also maintain some semblance of their network and the connectivity that it enables. This is particularly important for passengers flying on routes that require a double connection between two small markets. Forcing an overnight somewhere along the way would create a significant additional burden for those travelers, going against the legislative goal of maintaining service.
Still, when looking at the number of routes with very high frequency levels it is much harder to summon sympathy for the airlines.
Very high frequencies remain in service
American Airlines currently expects to operate 254 routes with once daily service on 27 April. This is a decrease from the 31 March number. The number of twice daily routes increases for the carrier. At the “very frequent” level of service (>=5x daily) American drops from ~480 routes to ~280, showing a more responsible level of cuts. But it still scheduled 11 flights from Los Angeles to DFW, just in case some passengers show up.
And those passengers are not showing up. Data from New York City this week suggests American Airlines saw an average load below 10 passengers on Wednesday. But the flight frequencies remain in place.
Delta Air Lines also sees its number of 2x daily routes increase but so do the 1x daily routes. At the “very frequent” level the carrier drops from 470 to just 74 routes, a much more significant drop.
United Airlines will keep nearly 90% of its “very frequent” routes operating (300 v 330). Southwest drops from 255 to 111. And while Hawaiian continues to operate a handful of interisland routes at 8x daily frequencies that is a massive cut from the peak in excess of 20 daily trips it normally runs on some “shuttle” markets.
No cooperation, no mandate
Short of being forced to cede markets to each other or halt operations completely is it reasonable to expect that airlines will simply walk away from their more popular routes, even in these trying times? Perhaps not, even as the airlines are burning cash and fuel to no real benefit.
The 16,000 daily flights showing in the schedules today is an almost egregious level of operations from the airlines. There is no rational justification for continuing those expenses and putting those employees at risk, particularly given the single digit load factors.
In other countries the cuts run far deeper. Air New Zealand will operate at 5% of its prior capacity linking only a handful of cities. That’s easier with only one flag carrier and tight government cooperation. But the US could make similar mandates, particularly seeing as how the government is paying the bulk of the airlines’ fixed costs for the next six months.
For a (generally) up-to-date listing of airlines and their operational levels check out this spreadsheet maintained by PaxEx.Aero and other industry experts.
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