Airlines across the world are finding the most challenging environment they’ve ever faced. But their post-coronavirus outlook is confusing based on planned staff reductions and forward pricing.
If you are considering booking travel or signing up for a new credit card please click here. Both support LiveAndLetsFly.com.
If you haven’t followed us on Facebook or Instagram, add us today.
Aircraft Retirements, Staff Reductions – Airlines Preparing for the Worst
Delta Air Lines has informed investors that revenue is down 90%, United Airlines has indicated that planes are flying at a fraction of their reduced capacity. American Airlines have expedited the retirement of 757 and 767 aircraft that were slated for this year and next. They have since expedited the retirement of older 737s that were not yet scheduled for retirement.
American Airlines has also announced a reduced schedule.
Forward Pricing and Aircraft Scheduling Reflects Peak Economy
American still shows the largest aircraft in the fleet, its 777-300ER, flying the DFW-HKG flights in December. That aircraft doesn’t have fewer seats (and won’t ever with Parker at the helm) than it did a few weeks ago. Very few seats have been sold and yet prices are even higher than they were last year. Expert Flyer shows every fare bucket with the maximum available seats (7) except, of course, for saver-level awards.
Seat maps are not always a good indicator of how many seats are available for sale (as they may be sold but not assigned), however, this year is likely the exception to that rule. From the looks of it, this flight has just (3) seats sold in coach. For the whole plane. Yet cash prices and award availability indicate the carrier remains expectant of peak demand.
If American/United/Delta swapped 773s for 772s, 737s for 767s and other aircraft down-gauging then elevated prices might make sense. If American switches from the 777-300ER with 304 seats to 234 by switching to the 787-8 – fair enough. Demand may drop, even late into the year, where swaps need to happen. But there is no way that tickets currently sold on those routes remotely suggest a premium over last year to $3400 in coach.
If you’re a shareholder with American (I am), you should be furious (I am) to see Parker and Co. running a business where it makes more sense to pay Cathay Pacific for a business class seat while they let their own plane fly empty. And… they do it for less than half the miles.
But good news, if you wanted to fly American over Cathay Pacific (seek help) you can pay either 350,000 American Advantage Miles or take advantage of a web-special with refund costs for 344,000. Which to choose?
Are Things Going to Be Bad or Return to Normal? It Can’t Be Both
On one hand, airlines are bleeding cash, discussed layoffs following the restricted bailout period, and expediting aircraft retirements even when their replacements may never arrive. The picture looks grim from the airlines’ perspective right now and I think it’s founded from what we know at this point in time.
But airlines still have big equipment and full prices listed for December and flight prices for the near future remain pretty high. Award prices are priced for peak travel, future upgrades are scarce as well.
So which is it? If United’s forward guidance really is a smaller operation and dire prospects and they have few, if any, bookings for December long-haul flights to Asia, why aren’t these prices slashed?
In fairness to the airlines and all businesses worried about the economy returning to full speed, the $2 trillion bailout was put in place to bandage the economy through this short but difficult period. I don’t think this will be the last of the bailouts, but if a recession is inevitable should we spend any more money on trying to avoid one? And shouldn’t the airlines (and hotels, cruises, and car rental firms) price like their businesses are in trouble?
Conclusion
It seems like a case of doublespeak, in which airlines and hotels are declaring the end of life as we know it, that without bailout money, they couldn’t possibly survive. But then forward pricing and planning as if we will return to the great heights we just reached. Reductions in available seats (one daily flight compared to 4-6) have helped airlines hold high prices ($600 roundtrip Pittsburgh to Houston nonstop on United) but this contrasts with a traditional recession approach in which the airlines would try to fill seats (lower prices) on more seats. It seems they are talking out of both sides of their mouth.
What do you think? Which one is true? Are airlines and hotels pricing for a return to a bustling economy? Is the situation truly going to be dire? Or would airlines rather run a limited operation with high prices?
There are 2 ways a company can price if it see having less customers in the future. They can do what most businesses would which is to slash prices so not to start a spiral. The other one is a high risk approach in which you raise prices to try and achieve similar revenue with fewer customers. Of course this has the negative effect of starting a spiral in which you lose more customer and prices keep climbing until the company goes bust or has no customers.
AA might be trying to go for the second one. Hoping that the market prices will rise fast and they unlike there competitors would not have sold any cheap seat. I don’t think it will work in the long term as I don’t see anyone paying more then last years prices after this economic shock that has lowered peoples saving and free cash flow.
Almost nobody buys tickets that far out. Remember when American did the drawdown for US Airways tickets? They picked a 90 day cutoff because 90% of customers buy tickets in that 90 day window.
They’re not pricing things to sell or throwing award inventory wide open far out because once you give away that J ticket on an award you have a lower chance of selling it later.
Oh, and American only has to pay Cathay if you actually fly. Not that a travel hacker would make speculative bookings with miles knowing that Hong Kong may not even be allowing transit in December. but a miles ticket is far easier to change or cancel than a low-end business class ticket (low fares often mean very restrictive cancellation rules, “but I can’t transit” might just mean future flight credit.) Ahem.
You on a roll Kyle. Great and entertaining article. I absolutely agree!
-A lucky software engineer to be working from home for the company I work for.
Right now, we are in a situation where people aren’t booking travel due to health fears and border closures related to Corona. Airlines not slashing prices indicate that they view the remaining demand– for travel now or in December– as inelastic. For the most part, an insignificant number of travel bloggers and deal-hunters notwithstanding, basically no one is booking for any travel period, and certainly not for leisure travel, Why would airlines dilute what little revenue they have? The examples you gave regarding mileage redemptions on partner metal are frankly fringe cases that, while an example of non-coherent pricing, are meaningless for the vast majority of those booking travel today. This isn’t a traditional recession, and it isn’t doublespeak or hypocrisy to price for inelastic demand; it is good business sense, and as a shareholder of AAL I find their approach to be reasonable and in line with the rest of the industry,
Anecdotal evidence. One flight is what you base an article off of? Knowing the actual load of the flight you are referring to, you are far off on your guess of the booked load. And when you ponder the booking curve, nine months out is very early for the majority of demand to materialize for a flight, particularly premium traffic. Over the next 45 days, fares have been in the $30s and $40s from LA to BNA/MIA on occasion and you couldn’t give them away. There has been experimentation in the short run, but given it is unknown how December may turn out, why slash and burn it now when things hopefully recover by then.
How many examples should I use. I included the flights to and from Houston on United as well as the detailed one on American. Another reader just commented on one from Delta.
I can appreciate it’s important to not have too narrow of a focus and draw conclusions from a limited view, but I also shopped flights to smaller markets like Omaha for a family member, international flights to Europe as well. If you don’t trust the writer (me in this case) to provide an accurate view without using screenshots of every search as corroborating evidence, then either 1) who/what do you trust to provide you information 2) how much evidence is sufficient for you
If I only provided domestic examples, it wouldn’t apply to the international readers, if I include both, the date ranges (next week and December) are too far apart. It’s just difficult to write for every reader and situation while still making a readable post not bogged down by 45 images.
Didn’t mean to question my trust of you. Your articles are pretty interesting and I enjoy your perspective. Granted I am much more in the weeds with this actual subject, but can’t reply in detail unfortunately. Seats maps at this point are not very reliable for estimating loads as for many flights. As one of the other resonders notes, the primary focus is closer in as the schedule keeps changing based on the best estimates for loads. Given the titanic struggle currently being faced, December seems so far off at this point.
Do you honestly think they are focusing much on long term pricing as they ride out the eye of a hurricane? How can you even price a market when you can’t predict what the winter will be with the potential of new waves of infections, especially in Asia? Sure, they might get speculative buyers right now at $2400 R/T business class fares. But the only two outcomes with that is a vaccine is developed (or therapy) and all heck breaks loose with travel and they could have sold those seats for $6K. Or, waves of new outbreaks take hold and they end up having to refund everyone anyone.
I can understand the attraction to raising cash NOW. But do you want to do so in a way that ends up costing you more later and also cheapening the brand? Oh, wait, it’s American..never mind the cheapening the brand part.
I can give my own experience with this. I was looking at some domestic flights on delta out of DTW. The flights are usually around $200-350 rt based on timing and demand (last 3 years). I just looked at tickets from early April (I was searching last week) through to July and the cheapest flight was $450 rt! So this blows out the far out booking theory, this was for flights in the next 120 days. And it was enough to convince me not to go home anymore because they were so expensive. Sry risky strategy for these airlines that I don’t see paying off