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.
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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?
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?