Like so many airlines worldwide, US major American Airlines is bracing for a prolonged period of depressed corporate demand as the US attempts to beat back the rapid spread of Covid-19.
Most would agree with the general assumption that leisure demand will return before corporate; but as US cases have hit an alarming four million with no signs of abating, all demand in the country has stalled.
“So much of what this crisis is, it’s not just the demand as well but it’s such uncertainty about it,” the airline’s chief revenue officer Vasu Raja recently told analysts and investors.
Prior to the rapid spread of the virus that began in Jun-2020, American was seeing some movement off the bottom in business travel amongst small and medium sized businesses.
Mr Raja remarked that during the first week of Apr-2020, which was probably the airline’s lowest point for bookings for those smaller businesses, business bookings from its home state of Texas were almost zero. “They were like 10,000 a week… not even single digit percentages,” he explained.
By 15-Jun-2020, after Texas completed its phase three re-opening, bookings from small and medium sized businesses had grown by 300% to roughly 45,000 per week, “which is still relatively small”, said Mr Raja and “far from where we would like them to be”.
For that same period, “corporate books didn’t really change at all”, said Mr Raja, noting there is a lot of uncertainty around the ultimate size of some companies. As a result, American is continuing to adapt for the change in customer base. Texas, meanwhile, is now a hotspot for Covid-19, with nearly 384,000 reported cases.
Latest performance data for the three months and six months ending 30-Jun-2020 highlights how significant the airline has been hit by the pandemic. For the three month period group passenger numbers fell to just 8.4 million, down -84.9% year-on-year and hitting both mainline (5.5 million, -86.4%) and regional (2.9 million, -81.2%) flying. Load factors halved year-on-year to 42.3%, down -44.3 pp with international markets hit the hardest – domestic was down to 44.1%, -44.1pp; international to 25.9%, -57.9pp; Asia Pacific to 29.0%, -56.1pp; Latin America to 28.6%, -56.9pp; and Europe to 23.1%, -59.0pp.
For the six month period group passenger numbers were down to 50.6 million, -52.0% year-on-year with mainline traffic down -53.2% to 35.8 million and regional down -48.8% to 14.8 million. Passenger load factor for the period was down -18.3pp to 66.2% with domestic (64.8%, -21.0pp) and Europe (62.0%, -17.1pp) passenger levels hit the hardest, albeit declines were recorded across the board with Latin America loads down to 74.9%, -8.7pp and Asia Pacific to 76.4%, -8.5pp.
American Airlines Chairman and CEO Doug Parker describes 2Q as “one of the most challenging quarters in American’s history” as the Covid-19 pandemic and the resulting shutdown of the US economy have “caused severe disruptions to global demand for air travel”. He warns that there “is much uncertainty ahead, but remains confident American will “emerge from this crisis more agile and more efficient than ever before”.
Like all airlines American continues to take steps to reduce costs and preserve cash. The airline estimates that it will reduce its 2020 total operating and capital expenditures by more than USD15 billion, achieved primarily through cost savings resulting from less flying and company implemented cost actions.
CHART – American Airlines has retired four aircraft types in a simplification of its fleet and wider storage programme that has seen more than 150 aircraft from its fleetSource: CAPA – Centre for Aviation Fleet Database (as at 27-Jun-2020)
These include the retirement of four aircraft types, consisting of 20 Embraer 190s, 34 Boeing 757s, 17 Boeing 767s and nine Airbus A330-300s, along with a number of older regional aircraft. In addition, the company placed its Airbus A330-200s and certain older Boeing 737s into a temporary storage programme. In total it has removed more than 150 aircraft from its fleet.
This will naturally have an impact on its future flying programme and announced changes to its international schedule for 2021 shows its summer 2021 long-haul international capacity will be down a quarter on 2019 and will see the airline exit 19 international routes from six hubs. American says these changes will allow it “to reset its international network for future growth as demand returns”.