As spring break approached this year America’s airline chiefs were ready to party. Their business had never been better.
Usually the airlines worry about flying empty seats. This time there were not enough seats to meet the demand. American Airlines, United Airlines, and Southwest had to cancel thousands of flights for want of airplanes to fly them—because their fleets were depleted by the grounding of the Boeing 737-MAX over safety issues.
Then came the coronavirus. Not since the terrorist attacks of 9/11 have the airlines seen such a precipitous loss of business—and this blow is far more global in its impact.
ADVERTISEMENT
Delta announced Tuesday that it is cutting its international flights by as much as 25 percent and domestic flights by 10 to 25 percent, and putting a freeze on hiring. American is cutting back its peak summer international schedule by 10 percent. United is cutting international flights by 20 percent and domestic flights by 10 percent.
Meanwhile Southwest—a perennially profitable airline—said it could lose up to $300 million this month alone.
All this comes on the heels of a decade of mergers that created a virtual oligopoly in the American airline industry. Eighty percent of flights are now made by just four airlines: American, Delta, United and Southwest. The remaining 20 percent are mostly shared between Alaska and Jet Blue.
There is both good news and bad news in this picture. The good news is that because of the consolidation and the profits it has produced none of these airlines will go bust—even in a deep slump. The bad news is that for passengers there is little likelihood of a competitor appearing any time soon to force prices down.
In fact, one result of the slump is that the last airline to try to gatecrash the American market’s international routes could well go bust.
Norwegian Airlines has just announced that it’s canceling 3,000 flights between mid-March and mid-June, including 22 flights between Europe and the U.S. It was Norwegian, a European budget airline, that in 2017 launched an international operation to make a two-pronged assault on the North American market.
The first was what it called a “hub-busting” mission to create an alternative to major metropolitan airports for flights across the pond. Norwegian launched services from three Irish cities—Dublin, Cork and Shannon—with budget flights to Newburgh, New York, Providence, Rhode Island, and Hartford, Connecticut.
The second prong was to compete directly with U.S. and British airlines by flying between New York and London Gatwick using new Boeing 787 Dreamliners that combined premium and coach seating at cheaper prices.
The Irish-based flights were ended last summer and the drastic new cancellations on the remaining transatlantic flights will exacerbate the condition of an already over-stretched business. At the end of 2019 Norwegian had a debt of more than $8.5 billion.
The man behind Norwegian’s buccaneering approach to the American market, CEO Bjorn Kjos, stepped down last year and the airline restructured its finances. But now its stock has fallen by almost 70 percent since February. The new wave of flight cancellations makes its situation look critical, but industry analyst Craig Jenks says that the airline’s fate is still hard to call because its investors have deep pockets.
And it’s the lack of a foreseeable end and the psychological response of flyers to the risks of flying during the coronavirus outbreak that makes it impossible to guess when the airline business will recover. Jenks estimates that “within three months of perceptible falling off of the disease demand should be back to normal.”
After 9/11 the experience of flying was transformed forever by the hardening of airport security across the world—we called it “the new normal.” The coronavirus will not bring an enduring change to the airport experience like that. But some measures being taken now could have a lasting effect on the most profitable part of the cabin for the airlines. Many businesses are grounding their executives, replacing trips for face-to-face meetings with vastly improved tele-conferencing technology. If this proves to work as well as actually being in the same room the company bean counters will get the message.
This might be the beginning of a “new abnormal.”
