The airline business is tricky, but some carriers see opportunity in the Coronavirus to reduce their losses and save face when routes haven’t gone as planned.
For the last couple weeks, 2019 Novel Coronavirus has consumed the media. I’m not a doctor nor a scientist so do not take my assessment of the virus as anything other than a curious observer. The flu-like virus can be deadly for vulnerable patients infected, especially the very young or very old.
Similar to SARS, the concern for China (specifically Wuhan) where the virus first emanated, close proximity to millions of people can make a small problem enormous. The Lunar New Year (heavily travelled in China) also made the timing of this virus particularly disadvantageous.
For what it’s worth, the symptoms seem similar to a common cold (sore throat, headache, fever, sneezing, etc.) and for those who receive treatment, it’s not life-threatening. What remains so jarring about this particular strain is that it is highly contagious.
China-US Aviation Rules
China and the US have strict rules for flights between the two countries. Opportunities are limited and carriers cannot freely add routes but must follow guidelines:
- Slot-restricted airports (Shanghai and Beijing) require specific awards
- Route awards usually coincide with a one-for-one Chinese and American carrier
- Route must run for extended period of time
- Awarded routes have to be operated or relinquished
For example, American Airlines petitioned to gain a Delta route that had been suspended because American had competed for the same route and lost, yet Delta was not actually flying it. Ultimately, American was awarded the route.
Some of the restrictions between the two countries come down to limitations at the airports (until Beijing’s new airport opened) much like landing slot restrictions at Tokyo Haneda are doled out each year. Another factor is China’s limited approved air traffic network which allows just 20% of the country to be traversed by air. James Fallows covered this in his excellent book, China Airborne.
Deep, Lasting Cuts Without Consequence
American Airlines has been perhaps the most vocal about how costly some of their flights to China have been. The carriers wanted to have a tentpole for future growth and were willing to make an investment to secure their long term position.
Some of the routes are premium class heavy and do very well. United’s laudable Asian-network flights from San Francisco and lucrative contracts with tech firms filled large aircraft with an average of 50 business class seats daily on the Shanghai route alone.
However, this time of year is always bad for flights to China. Lunar New Year hosts a lot of domestic travel within China, but not necessarily overseas traffic. Flights can be purchased for less than $400 roundtrip from just about anywhere in the US to just about anywhere in China, business class for less than $2,000 typically.
But airlines can’t drop flights in frequency or reduce them to seasonal per the agreements. They must continue to fly big aircraft that they will need the rest of the year and for which their approval was granted at the same consistency that won them the award, usually daily flights.
This week, American and United both announced they will be suspending their service to China due to “lower demand.” Delta, the airline living in the future, has suspended flights all the way to May, a bold move considering that this issue may be short-lived and one that goes well beyond its US peers.
This appears, at least in the case of Delta, to be more than precaution but rather a way to ensure profitability for the routes when they garner the most revenue. And they can get away with it right now because of the fear of Coronavirus consequence-free. In fact, neither government can claim that Delta nor United/American are acting in any way other than an abundance of caution because the problem appears to be uncontained for the moment.
The 2019 Novel Coronavirus is certainly a threat to vulnerable citizens and its infection rate is alarming, especially considering the epicenter of the virus. However, the US carriers and especially Delta, have taken this as a convenient opportunity to reduce losses on their China flights when they would otherwise rather not fly the routes anyway.
What do you think? Are the US carriers taking advantage of the Corononavirus to reduce losses while appearing cautious? Do you think their concern is genuine? How long should carriers be allowed to suspend flights to China without losing their rights?