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- Airlines received the $50 billion aide package
they asked for, but what's really in it?
With revenue across the industry dropping
to zero in some cases, without help from the government,
many airlines were doomed to fail.
While some costs have diminished with route reductions,
airlines still have a slew of fixed expenses on their books,
including aircraft leases, maintenance costs,
and employee pay.
The bailout funds are not free money.
They come with some serious strings attached,
including measures that prevent funds
from going into investors and guarantee that cities,
both big and small, stay connected.
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The major benefit is aimed at workers.
25 billion in the relief package is gonna go
to make sure about 750,000 employees don't get laid off.
A central condition of the grants is
airlines must not furlough staff,
and they have to maintain current pay and benefits
through September 30th.
The goal is to not just benefit airline workers,
but also their families and the overall economy.
The funds will be divvied up between carriers
based on how much they paid staff last year
between April 1st and September 30th of 2019.
The next major provision makes sure cities
don't have their service cut.
To qualify for the bailout funds,
airlines must maintain a minimum level of service
to cities within the U.S.
The Department of Transportation released these guidelines
that define minimum levels of service.
One, cities served with five flights a week
would need to maintain at least one flight per day,
five days a week.
A practical example, pre-corona American Airlines
flew hourly flights between New York and Dallas.
If it maintains one round trip flight per day
between the two cities, five days per week,
that would meet the requirement
for both New York and Dallas.
Two, cities with flights fewer than five days a week
would need to maintain at least one flight per week.
If United's only flight to Flagstaff were a roundtrip
between Denver and Flagstaff, three times a week,
the airline could reduce that to one day per week.
Three, cities with multiple routes
could reduce those routes as long as the minimums
from guidelines one and two were still met.
Delta had multiple daily flights from Green Bay, Wisconsin
to other cities including Detroit, Minneapolis, and Atlanta.
That service could be pared down to a single flight
at least five times weekly between Green Bay
and one of the other cities, such as Detroit.
Delta could also choose to operate
at least five flights weekly from GRB
and distribute them to among various destinations.
So what this means practically is
that cities will never be completely cut off.
There's always gonna be one or two flights.
Now, the amount of direct flights and connecting flights
will be reduced, sometimes dramatically,
depending on the city.
The rich won't get richer.
Airlines cannot pay investor dividends
or engage in stock buybacks until one year
after the loans are repaid.
Executive raises and compensation are also limited,
so we shouldn't see big bonuses like the ones handed out
by banks bailed out in the financial crisis of 2008.
Post-corona, airlines are likely to look
a lot smaller and a lot greener.
Despite the $50 billion aide package,
airlines will no doubt be forced to shrink.
While the package will help airlines stay in business,
it does not cover the billions of dollars in lost revenue
the companies must absorb in the months ahead.
Routes have been slashed by more than 70% in some cases.
It is unlikely we will see post-corona route availabilities
surge back to pre-corona levels for years.
Travelers might be stuck with more connecting flights.
Thousands of planes have been grounded.
The older models will likely be retired permanently.
American Airlines, for example, has accelerated
the retirement date of its 757s and 767s.
Delta will probably ground its MD-80s and MD-90s for good.
A Democratic version of the bill would have enforced
strict environmental measures.
That was stripped out of the final bill.
However, the retirement of older aircraft is likely to mean
a leaner and greener airline fleet going forward.
The gas-guzzling E190s and MD-80s
are likely to retire early.
There are possible replacements,
the Airbus 220 or the Boeing 737 MAX,
if it ever returns to the sky,
use 14 to 20% less fuel per passenger mile.
While the economy will bounce back,
travel will not be the same, at least for some time.
It's quite likely that leisure travel will eventually return
to pre-corona demand levels, but there is uncertainty
around the future of business travel.
Companies have been forced to adapt
with innovative remote-working strategies.
That may convince some of them
that using the now commonplace video calls
may be better than paying for travel to in-person meetings.
The thing we know for sure is
that everyone's doing their best to limit the damage,
not only to the airline industry,
but also to individuals and other businesses.
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with how the coronavirus is changing the industry.
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