Hubert Horan: What Will it Take to Save the Airlines?

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Yves here. Hubert lays out why the airlines need a deep restructuring, including a much greater focus on operational efficiency, to have any prospect of being self-supporting. Yet he deems the industry to be dead set against these changes and the US both unwilling to and incapable of imposing them. So we’ll have the worst of all possible worlds: permanent corporate welfare queens that get to keep private sector executive pay and perks.

By Hubert Horan, who has 40 years of experience in the management and regulation of transportation companies (primarily airlines). Horan currently has no financial links with any airlines or other industry participants

Coronavirus has created the greatest challenge the airline industry has ever faced. For the large legacy carriers serving intercontinental markets, the threat is comparable to the meteor that caused massive climate change and drove dinosaurs into extinction. While the industry was clearly viable prior to coronavirus, it faced a number of serious competitive and financial issues that will impede efforts to deal with the impact of the coronavirus meteor.

The industry requires major, painful restructuring. Baring staggering increases in taxpayer subsidies (beyond the $60 billion already pledged in the US), it is unclear how most (perhaps any) of these carriers survive under current ownership in anything like their current form. None of the changes needed to ensure the long-term efficiency and competitiveness of the airline industry are even being discussed at this point, and the processes needed to manage the needed restructuring do not currently exist.

The Financial Devastation Directly Caused by Coronavirus

Airline economics depend critically on extremely high capacity utilization. Small changes have huge profit leverage. US airlines filled 85% of their seats in 2019 (up from 58% when the industry was deregulated and 70% 20 years ago). Once an airline has committed to the costs of operating a given schedule, almost all of the lost revenue from a shortfall of passengers directly reduces the bottom line.

Coronavirus-driven traffic losses have been vastly larger than anyone could have ever imagined. Traffic through TSA checkpoints in US airports was down 96% versus the year before in mid April and 88% in mid-May. While the industry had faced demand shocks in the past (9/11 in the US, various wars, the original SARS outbreak in Asia), none were global in scope, and none were seen as driving permanent declines in demand. Never before has flying on an airplane required accepting serious medical risk.  In a recent poll only 23% of US travelers thought flying on an airplane was safe. [FN1]

While no one knows what will happen, this analysis assumes that there is no widely available vaccine and no reliable way to prove individual immunity during 2020. Perhaps infection rates decline gradually and economic activity gradually increases. Perhaps there are new outbreaks and efforts to reopen the economy are put on hold. Perhaps economic activity declines seriously as companies realize that recent losses are unsustainable, and major new waves of layoffs and bankruptcies occur. But the idea of a rapid, “V-shaped” recovery to the January status quo seems wildly improbable.

The revenue losses have been even worse than the drop in passenger counts. Airline profits depend heavily on business travelers paying higher fares. But the gradual increase in domestic traffic appears to be almost exclusively leisure demand, such as pent up desire to visit family members. Corporate travel remains close to zero, [FN2] and the massive short-term substitution of videoconferencing may reduce business travel for years to come.

The profitability of the large US legacy carriers (Delta, United, American) also depends heavily on intercontinental traffic, which has fallen even further than domestic traffic. Cross-border travel bans have been key to slowing the spread of the virus,  and the point where the mass market is no longer concerned with the health risks is somewhere in the distant future.

Profitability requires very tightly aligning an airlines’ cost structure with its revenue base. Airlines lock-in to most of their costs (e.g. fleet, airport facilities, IT infrastructure, corporate debt) on lower-cost long-term arrangements because historically they have had very high certainty about future demand. Contracts with labor and suppliers are similarly inflexible, with major penalties if they are suddenly terminated.

In the short-term (3-9 months) airlines might be able to readily shed 10-20% of their costs. Over two years, cost reductions of 30-40% might be possible, depending on the timing of contracts. But revenue can vanish overnight, while cost efficiency plummets and cost per passenger skyrockets. The much smaller demand shocks of the past (the post-dotcom and 2008 financial collapses, fuel prices suddenly exceeding $100/bbl) were highly traumatic, leading to years of major losses. The cost per passenger impact of the coronavirus “meteor striking Earth” magnitude shock is far worse, and (unlike previous crises) there is major risk that it may be many years before demand fully recovers.

In their first quarter investor conference calls Delta, United and American all said that by the end of the second quarter they hoped to reduce their daily cash drain to roughly $50 from the $70-100 million a day they had been hemmoraging at the outset of the crisis. Southwest, a purely shorthaul, narrowbody operator with smaller hubs and less overhead and debt, predicted a cash drain of $30-35 million day by the end of June. Whether this is explained by a staggering level of cognitive dissonance, or by Wall Street’s expectation that Washington will do whatever it takes to protect these equity values, it suggests that capital markets will be a major obstacle to the major restructuring the industry desperately needs.

Thus the big 4 US carriers (DL, UA, AA, WN) are hoping that their daily cash flow can improve to negative $180 million per day, which would annualize to negative $66 billion. Those estimates appear to include $32 billion in payroll protection bailout money provided by Congress under the CARES act.[FN3] In 2019, those four carriers generated positive cash flow of $23 billion from operating activities.

The day-to-day dynamics of cash flows in a crisis is obviously more complicated than can be discussed here.  Carriers have been less than totally transparent as to how cash flow and other key metrics are being calculated during the crisis. But as a crude first approximation, the direct impact of coronavirus was to reduce the annual cash generated from the operations of the big 4 by $121 billion, an impact reduced to $89 billion by the one-time receipt of the first tranche of federal bailout money.  A financial impact that can be reasonably characterized along “meteor strikes Earth and drives dinosaurs extinct” lines, and that will require radically greater restructuring than the industry had ever contemplated before.

Detailed financial information about major carriers outside the US is less readily available. However,  several airlines have already filed for bankruptcy protection (LATAM, Avianca, Virgin, Thai, South African) and many are negotiating with governments for major bailouts and even nationalization (Alitalia).

This industry financial crisis extends across the entire airline ecosystem. Airports, distribution providers (Expedia,, Sabre, etc) and service contractors have all had revenues largely disappear, without having comparable access to multi-billion dollar taxpayer subsidies. Those contractors employ staff paid much less than airline employees. Since most have no access to payroll protection subsidies. they have implemented major layoffs. Current obligations to aircraft/engine manufacturers and lessors remain in place but are not sustainable.

 What Would an Ideal Plan To Save the Commercial Airlines Include?

By facilitating commerce and tourism, an efficient airline industry creates huge benefits for the economy as a whole. If one is primarily concerned with overall economic welfare, and the public’s interest in maximizing those benefits, the required major restructuring of the airline industry should focus on three objectives:

Providing the greatest level of service and employment possible at each stage of demand recovery that can be justified by actual revenue (and subsidies)

Maximizing the competitiveness and productivity of the restructured industry that eventually emerges and

Ensuring that the (very significant) pain of the restructuring process is fairly distributed.

If the industry revenue base in the second half of 2020 is only 25-50% of what was expected before cononavirus, and 2021 revenue is likely to still be well below previous levels, then a huge chunk of total industry costs need to be permanently eliminated, and half (or more) of planned costs need to be deferred, cut or subsidized by taxpayers this year.

Operations and costs maintained because of unrealistic expectations that the pre-virus status quo can be magically restored will simply serve as a deadweight that will make the efficiency improvements that longer-term recovery requires much more difficult to achieve.

Those efficiency improvements will also require that the restructuring address problems that predate coronavirus, including the systematic reduction in industry competitiveness over the last 15 years. Domestically, this led to mergers of 6 Legacy carriers into just 3, and allowed Southwest to acquire Airtran, its most important competitor. [FN4]

Because the demand collapse will drive huge increases in cost per passenger, industry recovery will require major new offsetting efficiency/productivity gains. Robust competition is needed to maximize the pressure to find the new innovations and service improvements to drive those gains. An industry based on open collusion and protected by huge entry barriers will not produce those improvements.

The virus creates major risks that competition in many markets could quickly become horribly distorted, or vanish altogether. Approval of the domestic mergers and intercontinental alliances had been justified by the false claim that the current existence of three competitors is all that is required to indefinitely provide consumers will the full benefits of competition. The coronavirus crisis provides a painful demonstration why that was never true.

The three collusive intercontinental alliances need to be broken up immediately, as they cannot serve as the basis for competitive international markets in the future. [FN5] They had been justified by the false claim that the current existence of three competitors is all that was required to y provide consumers will the full benefits of competition.

In fact, the collusive alliances never provided sustainably balanced 3-way competition. Instead each enjoyed major pockets of domination (as with the AA/BA alliance in the UK, and the UA/LH alliance in Germany, Switzerland, Austria, Belgium and Scandinavia) where the other alliances played a very secondary role.

With the collapse of international traffic, the alliance carriers will shrink (or abandon) secondary positions, and focus on increasing market power in the markets they dominate. Several key alliance members are especially vulnerable at the moment, and those problems could rapidly destabilize the entire alliance structure.

Within the US, the industry consolidation process distorted competition by giving Delta an artificial advantage among the legacy carriers, and American an artificial disadvantage. This is because in both the creation of the collusive intercontinental alliances and the domestic US mergers that followed, Delta went first, United went second, and American went last. This gave Delta years where it had a huge scale and network advantage, which it used to create a profit/cash flow advantage that was still strong in 2019.

American, with weaker cash flow and greater debt, is widely considered the airline most at risk of bankruptcy while Delta is widely considered to be the least at risk. But if the crisis is not dealt with on an industry-wide basis, but on isolated company-by-company basis, this would likely destroy any semblance of competitive balance between the three big legacy carriers, and could eventually collapse the legacy sector into a Delta-United duopoly.

Outside the US, many markets that were never large enough to support two reasonably sized airlines may collapse into an effective monopoly. Qantas has been aggressively fighting subsidy requests from Virgin Australia in the hope that it could emerge from the crisis with a permanent stranglehold on Australian aviation. Consumers in numerous other countries (Canada, Korea, Russia, much of South America) face similar competitive risks.

The airline bailout requests that led to the CARES Act clearly indicate that when the crisis began both the industry and Congress expected a fairly rapid “V-shaped” demand recovery that would protect the current owners of the major carriers. [FN6] The current revenue (and medical) reality demands an immediate move to bankruptcy protection for most carriers and an industry-wide restructuring program. The industry’s 2019 status quo cannot survive.

Bankruptcy is needed to protect assets that will be critical to the (much smaller) reorganized industry from short-term creditor claims, and to ensure that current owners and insiders cannot divert scarce cash into their own pockets. It will also help maximize the future viability of the reorganized operations, which will be critical to maximizing creditor recovery.

Given the critical importance of robust competition, and the major risks of competitive reductions and distortions, restructuring needs to be addressed on an industry-wide basis. One model for an industry-wide restructuring program is the U.S. Railway Association, a temporary Federal agency that successfully reorganized the bankrupt freight railroads in the Eastern US in the late 1970s. [FN7] At the time the Penn Central was the biggest bankruptcy in world history. Congress created USRA because it recognized that the railroad industry’s deep-rooted problems far exceeded what the Bankruptcy Courts could possibly handle.

However organized, a bankruptcy restructuring of this magnitude and complexity cannot possibly succeed if it is dominated by one set of stakeholders determined to avoid costs and pain by pushing them onto the other stakeholders.  Passengers will clearly pay higher fares in a downsized world, but cannot be gouged by airlines exploiting market power after competition has been eliminated. Huge numbers of staff will lose their jobs through no fault of their own, but should not face draconian wage cuts designed to save airlines the bother of better managing operational efficiency and customer service. The recovery of the overall economy depends on maximizing airline service, but capacity must be tailored to actual revenue demand, and not to arbitrary political or bureaucratic preferences.

An Economically Sensible Industry Restructuring Program Appears Impossible in Today’s Political Environment

While it is easy to lay out the basic requirements and objective a successful airline industry restructuring program would require, it is even easier to point out the many political obstacles that will likely prevent the needed restructuring from happening.

All efforts by airlines and Washington to deal with the crisis appear to have been entirely focused on protecting the owners and the future equity value of the incumbent companies, which totally precludes any consideration of the major downsizing and industry-wide restructuring that is actually needed. This is consistent with Washington’s overall emphasis on helping the owners of politically organized large corporations while providing only token support for suppliers, small business and workers. Airline employees did not receive payroll protection support because of the critical work they were doing but to ensure that the airline did not file for the bankruptcy that would wipe out equity.

Even if one argues that programs designed to protect the 2019 status quo for a couple months until a powerful “V-shaped” demand recovery occurred was a plausible position in March, it is now a delusional fantasy. Subsidies for the status quo will waste billions that could be used to allow the future industry to reorganize with more capacity and jobs. But the only people at the table discussing the future of the industry are executives totally dedicated to protecting their shareholders and Washington officials who see the interests of capital accumulators as superior to all other economic interests.

An eventual industry recovery will require dealing with both major problems that existed prior to March and the virus-driven revenue collapse. Washington’s current programs appear heavily focused on bailing out company owners for failed pre-coronavirus investments, since those industries are the ones most aggressively lobbying for taxpayer money. Many other industries (retail, oil and gas, commercial real estate, tech bubble unicorns) made far more irresponsible investments than the airlines, but the airlines still need to deal with the tens of billions wasted on stock repurchases that could only be justified by the assumption that profits would rise indefinitely and the industry would never again face a recessionary-type downturn.

Between 2014 and 2019, the big 4 airlines used $42.4 billion of the cash they had generated to repurchase stock. The combination of stock buybacks and increased leverage (between 2016 and 2019 debt increased from $47 to $75 billion) was designed to inflate short term stock prices. This was done at the direction of these four boards, who had incentivized the four CEOs with $431 million in stock based compensation. Stock buybacks exceeded the free cash flow these airlines were generating, and increased even as key financial metrics began declining. [FN8] Because of the artificial problems created by the industry consolidation process mentioned earlier, American has had to do more to boost its stock price (and thus now has the weakest balance sheet) but all four carriers have pursued buybacks and debt aggressively.

By replacing this cash, the taxpayer bailout money allows the owners of these companies to avoid taking any responsibility for the extractive self-dealing that left them vulnerable to downturns far less serious than coronavirus.

It is not clear whether the current owners and senior executives would be capable of reorganizing these companies into the smaller but more competitive and efficient industry that the larger economy needs. Some of this myopia is understandable. Doug Parker’ job is to do everything possible to avoid the bankruptcy that would wipe out American’s shareholders, and it is Ed Bastian’s job to exploit every possible way to increase Delta’s competitive power on behalf of his shareholders. But this narrow shareholder focus will not serve the public’s interest in eventually achieving a sustainably efficient and competitive industry.

More importantly, these people have focused almost exclusively on petitioning governments to eliminate competition, using increased artificial market power to raise prices and extract more favorable terms from unions and suppliers, and then enriching themselves. They are likely to fight tooth and nail to preserve the collusive alliances that drove consolidation and major increases in market power.

It is also not clear whether any Federal Government entity has the administrative competence or industry expertise to manage a major restructuring program, and it is even less likely that anyone in Washington would ensure that such efforts focused on maximizing long-run industry efficiency and competitiveness and overall economic welfare. The industry expertise and greater public interest perspective that allowed the USRA to successfully reorganize the railroad industry vanished long ago.

Similarly, while the US bankruptcy courts may have been able to reasonably address these issues 30 years ago, their dismal performance handling the airline bankruptcies after 2004 (when over two-thirds of US airline capacity was under Chapter 11 protection) demonstrates that they would probably make today’s problems worse.  By contrast, the numerous 20th century cases forced the bankrupt airlines to replace management, make painful capacity cuts, and restructure fleets and networks, changes needed to maximize future viability and creditor payments.

As with Federal agencies such as DOT nominally responsible for industry oversight and protecting broader interests, the biggest airlines have successfully captured the bankruptcy process. Instead of protecting creditors and broader economic welfare it now focuses on serving the interests of incumbent managers and capital accumulators. In the United case, CEO Glen Tilton maintained exclusive control of the reorganization process for four years until he finally produced a minimally acceptable plan. Even though that plan left the company competitive crippled for several more years, the court allowed Tilton to pocket $30 million.

In each recent case, the courts dumped pension obligations onto taxpayers and rubber stamped draconian labor cuts without the legally required evidence that the company could not have reorganized without cuts that extreme. The recent American case was the only time creditors were allowed to challenge management’s reorganization plan, but the Court delayed American’s emergence from bankruptcy by 18 months until creditors agreed to pay the American CEO who had written the rejected plan $10 million. [FN9]

The ability to deal with major industry crises always depended on government agencies tasked with representing broader public interests and judicial processes tasked with upholding evidentiary standards. But they also depended on the ability of capital markets to allocate resources based on objective information about corporate efficiency. The economy’s ability to  deal with the airline industry crisis has not only been compromised by the capture of oversight and bankruptcy processes but by the conversion of capital markets into a political utility disconnected from the real economy. The staggering cognitive dissonance between airline equity values and the actual evidence about airline economics suggests a level of “market failure” that may make the desperately needed industry recovery impossible.

Commercial aviation is critical to the economy, and no one wants major parts of the industry to collapse as a result of coronavirus or other problems. To save as much of the industry as possible in the near and medium terms will require a difficult, painful restructuring process focused on maximizing future efficiency and competitiveness.

But if “saving the industry” is redefined as “saving investors from the consequence of incurring excessive debt while extracting massive value in order to enrich themselves” then the effort cannot succeed. If efforts to “save the industry” are arbitrarily limited to those that can be financed by private investors seeking quick, outsized returns based on artificial market power derived from even more drastic reductions in competition, then the value of airlines to the rest of the economy will be dramatically reduced, and the risk of a major industry collapse increases.

Since commercial aviation is critical to the economy, and traditional restructuring approaches may be totally inadequate, the best interim solution may be to convert the industry to a regulated public utility for several years. Under normal conditions, the industry is obviously able to function on a lightly regulated basis, but it may take 2-5 years for normal conditions to return. At the moment there is no evidence that capital markets and current political and judicial systems could drive a the restructuring that the American economy needs. But the obstacles to that approach appear totally insurmountable at the moment, and there is no evidence that approaches reliant on capital markets and current political and judicial systems could possibly drive the restructuring that the American economy needs.


[FN1] 74% said flying on an airplane was unsafe. Quinnipiac University Poll released 20 May 2020

[FN2] Comments from the 13th Annual Wolfe Research Global Transportation and Industrials Conference quoted in Holly Hegeman, Plane Business, 28 May 2020, p.7

[FN3] It does not appear that these cash drain estimates include any of the separate $29 billion in loans available until September under the CARES act. Those loans will require collateral and giving the government stock warrants, although the value of most airline assets has collapsed, and the terms of the stock warrants have not yet been defined.

[FN4] The three collusive alliances are led by Lufthansa and United, by Delta and Air France-KLM and by American and British Airways(IAG). For a detailed explanation of how these alliance carriers and the US Department of Transportation succeeded in converting highly competitive intercontinental markets into an oligopoly/cartel see my four part series on airline industry consolidation at ProMarket including “The Airline Industry’s Post-2004 Consolidation Reversed 30 Years of Successful Pro-Consumer Policies”

[FN5] Current alliance partners could retain codesharing links and frequent flyer reciprocity; the serious competitive issues arise when arms-length marketing links are converted to full economic joint ventures with full revenue and profit sharing. For a more detailed discussion of alliance competitive issues see “Double Marginalization and the Counter-Revolution Against Liberal Airline Competition”, Transportation Law Journal, v.37 n.1, Fall 2010.

[FN6]. The CARES Act required that every carrier maintain service to every airport it had previously served, and banned any effort to temporarily ration capacity to where it was most needed and could be most economically operated. This might have made some sense had traffic initially declined 40% and quickly began recovering to pre-virus levels, but created significant waste given the actual, ongoing 85-95% traffic loss. This not only reflects Washington’s reluctance to recognize the actual magnitude of the demand collapse, but their disinterest in considering industry-wide solutions.

[FN7] The author worked for USRA. The two best books about the magnitude of the Eastern railroad crisis and how it was addressed are Loving, Rush, The Men Who Loved Trains, The Men Who Battled Greed to Save an Ailing Industry, Indiana University Press 2006, and chapters 6-9 of Gallamore, Robert and Meyer, John, American Railroads, Decline and Renaissance in the Twentieth Century, Harvard University Press, 2014.

[FN8] The details of the airline stock buyback and the executive compensation tied to them are laid out at Hunt, Ben, Do The Right Thing, Epsilon Theory, March 19, 2020. “Free Cash Flow” is less than the numbers quoted earlier for cash generated by operating activities as it includes the debt incurred to boost stock prices and to help pay for the buybacks. Again, many companies are guilty of more extreme extractive self-dealing than these 4 airlines (Boeing for example) but any restructuring effort that ignores these issues will likely fail.

[FN9] The author worked on five US airline bankruptcy cases. See  “How Alliances Carriers Established a Permanent Cartel”


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  1. PlutoniumKun

    Thank you so much for this – trust NC to come up with an article far in advance of anything else available.

    In Europe the situation is complicated by the convoluted set up of formerly ‘national’ airlines. Nobody is quite sure what constitutes a national flagship carrier now, so there will be many arguments about who gets a bail out. Endless legal challenges in European courts could well prevent any kind of coherent bail out.

    One impact which I don’t think has recieved much attention is on hub airports. If I had to fly, I’d very willing to pay extra for a direct point to point flight now – it seems to me that any hub is likely to be very problematic for virus control, and greatly increases the possibility of finding yourself in an emergency quarantine. No matter how urgent the flight, there is no way you would persuade me to do a flight change in Abu Dhabi or Qatar, and I’m sure I’m not alone in that. If you combine this with the new generation of smaller, long range jets, this could be the death knell for the Gulf State airlines, and could fundamentally restructure how airlines operate.

    I would just quibble with one part of the article – the assumption that airline travel is vital to the economy. It is certainly a very big sector, but I’m unclear as to just how important airline travel is to real productivity, which is the only thing that really matters for national prosperity. If, for example, everyone was restricted to one flight a year, would that really impact on overall wealth, or would it simply change expenditure patterns? I suspect the latter. Certainly here in Europe, people consider it normal to have three, four, or more flights for holiday breaks a year, when once a ‘holiday’ was something you did once. Would changing this pattern really mean less wealth for all? (it would obviously impact tourism dependant localities, but I’m thinking in overall terms).

    1. Ignacio

      I agree on both observations: this is an excellent piece of analysis that I wouldn’t bother to look for in mainstream media.

      Second, the meteorite should end with air transport excesses that aren’t really as necessary for the economy and even qualify as deletereous for our fragile ecosystems. IMO, both, tourism and business air travels should shrink permanently by much.

      I have lost a client: a beberage&snack supplier near Barajas airport in Madrid.

      1. HotFlash

        Agree w you and PuKun about airlines, very little of it is necessary, perhaps none, and it is an unsupportable use of petroleum. Doubt if I would miss ’em much if they were gone forever — an live fine on local produce, imported goods by ship. I’d be OK with sailing ships, we-all got around the world quite nicely (and nastily) before Wilbur and Orville.

        So sorry about your client, Ignacio. Condolences.

        1. Ian Ollmann

          Agree on the fuel issue. Run a carbon footprint calculator sometime. If you fly your family somewhere more than once a year, probably the largest single share in your carbon footprint is the airline.

          Amtrak would certainly benefit, and train can be way less CO2 than flying. We need E-planes or hydrogen planes, with accompanying greening of hydrogen.

    2. Thuto

      Re: Gulf airlines, they may be the most vulnerable to a demand shock of this scale because they have practically no internal market to fall back on to at least keep some of the cash registers ringing. They’re totally at the mercy of international travel bans being lifted by governments over which they have absolutely no lobbying influence. The advantageous factors that drove these plucky upstarts punching above their weight to dizzying heights in global aviation may now be their biggest handicaps, namely:

      1. The geographic locations which made them global aviation hubs may now be their achilles heel for the reasons you mention.

      2. Fleets almost entirely made up of jumbo and super jumbo jets for long haul intercontinental travel during the heady days of travel (i’m including FlyDubai in this).

      3. High oil prices, while crippling for competitors, meant Gulf states, as shareholders, had plenty of cash to pump into expansion of these airlines. Those days are gone.

      That said, I wouldn’t be writing their obituary just yet, especially Emirates. For one we know their appraisal of the situation is realistic and not taken in by the delusional talk about v-shaped recoveries (the outgoing president of Emirates said recently it could take up to four years for the airline to fly to its entire pre-covid network again). Doha and Abu Dhabi, in contrast with Dubai, are in a weaker position imo because they don’t have the pull of the latter as a standalone tourist destination so, depending on how protracted this whole thing turns out to be, Emirates could pull that lever to entice passengers to fly with them again once we get the “all-clear”, leveraging the entire offering of Dubai as a destination to dig themselves out of the hole (e.g. bundled lay over packages paired with relaxed visa requirements). The prognosis for Etihad and Qatar Airways is a trickier one to tease out of the crystal ball.

      I think ultimately their fortunes are tied to the fortunes of the mass tourism market and whether or not it recovers to anything near what it was before covid, and the size of the bite video conferencing takes out of international business travel in the long term.

      1. Upstater

        Doha may not be the tourist draw of Dubai (although I question why anyone would vacation there), but given its small population at very deep pockets, I suggest Qatar Airways may be the Gulf carrier to best weather the storm. Their service quality is the best.

  2. Bob

    Please –

    Passenger rail has been destroyed as has been long distance bus service.

    We are stuck with air travel even if the seats are smaller and less comfortable with terrible service. And want to get to an out of the way location tough luck you’ll end up driving.

    1. John Wright

      There is the auto train concept ( in which passengers and their autos travel on the Amtrak train to/from Wash DC and Orlando, Fla.

      “The Auto Train transports you and your car (or van, motorcycle, SUV, small boat, jet-ski or other recreational vehicle) nonstop from the Washington, DC area to sunny Florida, just outside of Orlando. This is the best way to drive I-95 without even driving. And remember, you can pack your car as if it were your suitcase.”

      I remember attending a presentation by the original Auto-Train founder (Eugene Garfield) in the late 1970’s

      The idea appealed to me then and it still does.

      I’d like to have an auto-train that would avoid driving I-5 in CA’s central valley.

      It would be good for limited range EV’s that wanted to get to/from SF to LA without stopping for charging. The EV’s could drive a, perhaps short, distance to the train, be fully charged en-route on the train and be ready to go at the destination.

      1. Ian Ollmann

        > I’d like to have an auto-train that would avoid driving I-5 in CA’s central valley.

        Amtrak’s starlight express is quite delightful. You’ll have to get off in San Jose though, so more Hwy 101 than I-5.

        1. John Wright

          I have taken this many times, Oakland to/from Union Station LA.

          It takes a lot of time, about 12 hours, so bring a laptop and reading material for use when not looking at the scenery..

          Good scenery, including a ride through Vandenberg AFB and a chance to see Elon Musk’s SpaceX launching pad.

          I’d like for for Amtrak to have an autotrain on this route with exits for Salinas (Monterey Peninsula), San Luis Obispo (Hearst Castle), Santa Barbara and LA.

          Amtrak does try to get extra revenue as they charged a group to pull a private railcar for part of one trip.

  3. witters

    Passenger rail has been destroyed as has been long distance bus service.

    We are stuck with air travell



  4. Bsoder

    Similar to Ignacio, where is the climate heating impact statement, which includes alternatives. The solution to paraphrase Lambert is if the solution to oil is keep it in the ground, then the solution for commercial air travel is to keep it on the ground. Use blimps or travel by sea if necessary. Climate heating is going to cause mass human relocations, so we have to figure out that. Then rebuild or build railroads so people can get around 500 miles or so from where they live. At something less than a billion dollars a mile. Probably should be public owned. I point out we are supposed to in year 1 of 12 year plan to get carbon fuel use down to zero. It’s not arbitrary, it’s about how high above 2C° do you want to go? My vote is none, that’s high enough. The only purpose Airlines are serving now is alleged convenience at the price of murdering us in exchange. I know that may sound too much, but truth is, it’s not heated enough.

    1. Carla

      “Probably should be public owned.”

      From this day forward, ANY infrastructure that is built whatsoever must be publicly owned.

      The 1% are gonna have to live with what we decide to let them keep out of what they’ve already stolen from us, and from our planet.

    2. Math is Your Friend

      “At something less than a billion dollars a mile. Probably should be public owned.”

      1. This is way too expensive to be publicly owned. Add in staffing, rolling stock, operational costs, non-track infrastucture and you are now looking at probably three to five times the GDP for a single line across the country, particulary since such projects invariably run over budget, especially when done by governments. Just the track alone would be about twice the GDP at your cost estimate.

      2. Trains are slow. And vulnerable to sabotage. Securing airports is practical, though expensive, Securing 30,000+ km of track is fundamentaly unworkable.

      3. The longest flights tend to be over water. Trains, and tracks, do not float.

      4. Many routes served by aircraft would be orders of magnitude more expensive to serve by train and thus impractical to try to do so.

      1. Mel

        1. No, while it’s being built, and while it’s being operated, the money that’s spent on it is part of the GDP. It can’t exceed the GDP. That’s an MMT mantra: If you can do it, you can afford it.

  5. jfleni

    Only passenger rail makes any sense, IT WORKS VERY WELL
    in EUROPE, why not here too, after all the two continents are
    about the same size?

    1. John k

      A lot of us travel is coast to coast bc of the population hole/desert in flyover, or 2500 mi. Not much eu travel at that distance.


    Actually long distance high speed rail is booming right across Europe. ‘The train is taking the strain’ at speeds of up to 150 mph and more- the speed envelope is constantly expanding more like over the ground rockets. The tech is derived from early Japanese engineering which after some heel digging by George Stephenson types in the state railway networks, has spread right across Europe, Russia and is now gingerly nosing around Africa. Passengers like HST because comfort levels are way beyond service offered by planes. Swift and delightful in terms of on board customer service and experience. Rail is now replacing medium range haul altogether right across Europe. Yet caveats there are.
    Chief among them fossil fuel reliance in terms of power supplies, but the direction of progress points to hydrogen delivery in probably the medium term. Naturally the US is the usual party pooper thanks to stone age brains in Congress and state assemblies wedded to the entrapment of the personal pod we call the car.
    Here in Italy where I live I can shoot from Venice to Rome in a couple of hours by means of the state rail operator or its flourishing independent rivals. Business types who in past times would never have been seen anywhere near a rail hub now enjoy superlative customer service tailor made for speed and comfort – and NOWHERE near the hell of airports.
    Rail has reinvented itself more than once. First from steam to diesel then the switch to electricity. Then body design to reduce friction. Now distance conquering adventures like no rails Maglev (Japanese/Chinese VHS (Very High Speed overcoming friction)
    The US sits on the sidelines ignoring the rail key to heaven because the ethos of the car as every man’s right as a personal pod rules supreme over health, safety, efficiency and the environment.

    1. Biologist


      For me the main attractions of rail travel in Europe are comfort on board, boarding and alighting right in the city centre, and much reduced or no security theatre when at the station. Compare that with the sardine can aviation model, with airports often far outside the city (e.g. London airports except City), and having to arrive at the airport way too early to deal with security resulting in too much time spent at these horrible, crowded, crapified airports.

      I don’t mind even when it takes more time, for instance between London and south of France, because I can work on my laptop. But the cost, oh boy. It’s always cheaper to fly, sometimes much cheaper, even if you book early.

      Now in era of Covid-19 I don’t know whether airplanes or trains are safer. But it would be great if bailouts for airlines could instead go toward investing in rail travel.

  7. dbk

    This is really excellent. It seems hard to imagine that air travel – commercial, certainly and touristic, probably – will return to anything like its 2019 levels unless the coronavirus either mutates into some much-less severe form, or an effective therapeutic regimen or vaccine is developed. Even 50% seems rather optimistic to me at this point. This obviously will have all the expected knock-on effects on agents/booking companies, the hotel-dining industry, the tourist sector, esp. in countries heavily dependent on (international) tourism.

    I had concluded what is stated in the conclusion – namely, that airlines will need to become public utilities for some period of time, both to oversee the massive re-structuring that will ensue following bankruptcies as well as to ensure pricing remains at least minimally affordable. I think maybe price controls will need to be implemented for some period as well.

    It’s hard to see how this downsizing and streamlining of routes can be reconciled with enhanced competitiveness, however. It seems to me that in the interests of efficiency (and economy), many routes will have to be assumed by a single carrier. Who will that single carrier be competing with?

    Perhaps routes should be “bid out” for some period, and if an airline fails to meet its efficiency / service levels / pricing goals, it should be shut out of a route in the next bidding process – perhaps every 2-3 years.

    The ideal would be international cooperation – bidding for international routes (as I assume is done today), but with price controls imposed internationally (perhaps some standardized formula) similarly to the way they would be domestically. Bidding repeated every couple of years for international routes. If the sector is to survive at all except as a luxury product for the 1%, profitability and executive remunerations are going to have to come way down – otherwise, there seems little hope of even medium-term survival.

    International routes (and domestic ones in large countries): yes, hubs are a big problem, and perhaps there should be fewer but longer direct flights so that the public health risk of exposure in hubs during layovers (security checks/passport control, etc.) can be lessened somewhat.

    I’ve been traveling between Europe and the Midwest twice a year for years – three flights going, three coming, + four domestic (2 + 2) flights when I visit my kids. That’s ten flights a trip – I’m not going to even consider it for the foreseeable future, nor are any of my travel-inclined acquaintances.

    1. bold'un

      “this analysis assumes that there is no widely available vaccine and no reliable way to prove individual immunity during 2020” Surely we have to learn to live with the new virus for a time, and it does not seem to me that airlines are so different from everything else. In particular airline air filtration / recirculation is streaks ahead of railway aircon.

      X subway/train rides = risk of 1 flight
      Y days serving at a bank till = risk of 1 flight
      Z visits to the supermarket = risk of 1 flight
      N visits to Starbucks = risk of 1 flight
      M days spent in a hospital = risk of 1 flight
      and so on.

      A contrario, I believe that, absent some treatment, two-thirds of urban dwellers in the world will meet this virus by Easter 2021, whether they fly or not. Remember, people in 2019 paid good money to travel voluntarily to places where dengue and malaria are endemic, where snakes and spiders can kill, where muggings happen… so what’s so different about taking a plane?

      And the idea that stopping the transfer of virus between say America and Europe is so important is ridiculous if it exists equally on both sides!

  8. chuck roast

    We are in for a long hot summer in any case. The vast white fuzz that I would see fill the stratosphere over the Gulf of Maine on a daily basis served to cool the ground temperature. The contrails are now mercifully gone along with euro-flights. And now the skies are a blue that I have not seen since my youth. We will pay a price for this clarity. Affordable in the extreme for me if I never see another silver speck at 35,000 feet spewing noxious gases. The Queen Mary has a June 14 sailing from Manhattan to Southampton. Be there or be square. And don’t forget your mask.

    1. lyman alpha blob

      Lots of people talking in ME about how this has been the sunniest spring in recent memory. You may be on to something there – I will gladly take that trade too.

  9. The Rev Kev

    The only way that I see forward for the airlines is revenue and the only way to do that is to have b*** on seats. Sure the airlines have been dumping older, less fuel-efficient airliners and I have no doubt that many smaller airlines will go bust, combine with other airlines or be absorbed by one of the big airlines but positive cash flow is the only real answer. And until there is some way to guarantee people’s health (and lives) in aircraft I can’t see a real way forward.

  10. Boomheist

    The problems are even deeper than this article suggests, because over the last 25 years the industry has invested billions in vastly expanded airport facilities and the use of enormous hubs for the big carriers – feeding everyone into these gigantic complexes and reducing point to point service, all again driven by the formula of maximally filling each plane. This work has been continuing – here in the Pacific Northwest the Seattle-Tacoma airport is finishing vastly over budget International Arrivals Facility that, when open, will be totally unnecessary for decades. So in addition to the airlines themselves being in trouble, dozen of huge airports face economic ruin – the concessions the service providers, the hotels, the livery services – and the economic impact is just beginning. I don’t think this will ever come back. I see a chance to still use and rebuild the rail infrastructure, perhaps even the return of transoceanic ship travel…..

  11. Red

    Commodifying airlines was a big mistake. Reduced quality for quantity and they still don’t manage to make profit while at the same time reduce service quality and increased carbon emissions. Call me elitist but making everything cheap is not the way to go.

    1. Olivier

      Exactly. I don’t buy the analysis of Mr Horan at all. He says airlines have to become ever more ruthlessly efficient but aren’t they already? Purely financial shenanigans like stock buybacks and excessive CEO pay packages aside, is there any evidence that their day-to-day operations are poorly run? Where is the fat? Mr Horan doesn’t say.

      1. Upstater

        The fat is the 50-75% overcapacity for the next several years at a minimum. Huge amounts of stranded investment.

        1. Olivier

          Overcapacity is not the same thing as inefficiency. Maybe a question of semantics. Anyway, airlines can and will mothball airplanes but my question stands: where is the fat in day-to-day operations?

      2. Oh

        Maybe you need to read the article again and look at the cash flow numbers. Airlines cannot live with the same overhead for leased aircraft, terminal fees, routes etc. with a much lower volume and passenger load, It’s not what you’d call fat but it’s simply that costs won’t make sense with lower volume. If they raise prices, less people will fly and they’ll be digging a bigger hole. The airlines executives who created this situations need to go.

  12. Mikerw0

    To me this is one of the most important, cohesive analysis on NC. The aviation industry is a total mess throughout its entire chain of commerce. While noted by inference, both Boeing and Airbus are in a world of hurt too and are very important players in the industrial economy.

    Equally important is while this focuses in aviation the same article could be written about so many other industries.

    We have real serious issues and no one is really willing to address them so long as capital is protected.

  13. Glen

    So far, bailouts are structured to protect the CEOs and screw employees. Better to structure bailouts to protect employee pensions and let airlines go BK to sort out the future. Business travel will probably never recover since new business norms are now in place. Airlines will emerge from CV to find a different world. Most Americans will be worried about a roof over their heads and food on the table. There will not be a V shaped recovery.

    America would be smart to invest in high speed rail, but elites see no need so it will not happen. It would also be smart to reinvest in roads so the New Great Depression Oakies can leave the CV infested cities and resettle the abandon portions of middle America, but infrastructure investment is not desired by the elites so that probably won’t happen either .

    The recovery of America will be blocked by elites propping up useless corporations so that they can richly reward themselves with taxpayer bailouts while real America goes down the tubes. Nothing really new about that I suppose, it’s just going to be much more stark.

  14. Arizona Slim

    I don’t know about the rest of you, but I’m not feeling the need to travel anywhere for a good, long time. Multiply me by a few million, and there’s a huge problem for the travel industrial complex.

  15. shinola

    From the article:

    “It is not clear whether the current owners and senior executives would be capable of reorganizing these companies into the smaller but more competitive and efficient industry that the larger economy needs. These people have focused almost exclusively on petitioning governments to eliminate competition, using increased artificial market power to raise prices and extract more favorable terms from unions and suppliers, and then enriching themselves.”

    Unfortunately, this applies to a lot more than just airlines.

  16. upstater

    I don’t think using the USRA model from the early 1970s, which combined 7 bankrupt railroads into Conrail and eliminated perhaps one third or half the industry capacity is a valid model for today’s airline dilemma.

    First, railroads in that era were truly vital for the economy as a a whole. At the time most freight associated with manufacturing and power generation was carried by railroads. Even though de-industrialization was gathering pace, it was still centered in the rust belt.

    Secondly, USRA and subsequent deregulation pushed by Carter facilitated the development of oligopolies or outright monopolies in certain regions. There is no transparency in pricing and massive market segments have been abandoned and given over to the trucking industry with terrible environmental and infrastructure costs. The massive destruction of railroad infrastructure in that period cannot be overstated — while some was necessary, many abandonments created massive bottlenecks that remain to this day. And the adoption of “Precision Scheduled Railroading” by the Class 1s in recent years is asset-stripping extraordinaire.

    From my perspective as a unionized rail worker in the 1970s USRA restructuring was an anti-competitive disaster for customers and workers. My view today from the PMC perspective remains exactly the same.

    Rail passenger travel certainly won’t ever become a travel for Americans. It isn’t a federal government priority and never has been. And virtually all rail infrastructure is privately owned by the freight railroads, none of which support increased passenger speeds or frequencies by Amtrak on their networks. Here in upstate New York, CSX has barred the state from adding a third passenger track to allow for 110 MPH diesel trains — even though the right-of-way was built for 4 tracks (two were ripped out in the 1960s). The state could but won’t use eminent domain to build it. There are no consequences for bad behavior. Plus we don’t even have the engineering or managerial expertise to pull off passenger rail — you need only look at Amtrak, commuter agencies or California’s HSR debacle.

    Regarding airlines, probably 75% of passengers are leisure travelers, heading to COVID hotspots like cruises, Orlando or Vegas. While some of that may come back, a lot of it is gone probably forever. Likewise for business travel, which was already declining.

    I think the only logical solution is stringent government regulation of airline routes and capacities with meaningful service quality standards and penalties. It was nonsense that pre-COVID secondary markets like Syracuse (where I fly from) had dozens of small regional jets with departures on the big 3 throughout the day instead of just a few mainline jets — which are more reliable and comfortable and do not use satellite terminals. This was customer choice, I suppose.

    It will be interesting to see what happens with the major hub airports, some of which are undergoing mid- to major expansions (DCA, CLT, ORD). Municipalities and regional agencies will be left with huge white elephants and the bondholders will get trashed. And there is the issue of all the unnecessary aircraft — the B737Max, in particular and all those wide body planes. There is a lot of high value scrap out there.

    I used to travel 6-12 times domestically and a couple of international trips a year, about half for work. I cannot see how I’ll be doing ANY airline trips in the absence of a vaccine.

  17. David

    Excellent analysis, but if anything not apocalyptic enough. The airline industry in its current Neo-liberalised configuration, is almost the perfect victim of Covid. Some things have already been mentioned: the move to hub and spoke operations , such that passengers and flight crew from all over the world pass each other all the time, the adoption of smaller aircraft with very high load factors so that you sit elbow to elbow with other people for hours, the proliferation of low-cost, no frills, barely profitable airlines who have eaten away at the profitability of the flag carriers …. and so on.
    I’m not sure that the airline industry as it existed last year will ever come back. 737s full of kids going to Prague to get pissed over a weekend will not save them: airlines make almost all their money on premium class travellers, and those are precisely the people who won’t be travelling. Would you send you people to a conference in Dubai or a negotiation in New York any time soon? (I’m betting the next UN General Assembly will have to be cancelled). How can you ever guarantee that you’re not sitting next to somebody who contacted the virus in a hotel, from somebody who contacted it in an airport, from somebody from a country where somebody brought it to a conference?
    The really interesting thing is the indirect consequences. If you think about it, the international system, and the position of the Global West in that, is very largely underpinned by easy and frequent air travel. What happens when that’s not possible? Globalisation is a psychological phenomenon as well, not just an economic one.

  18. lyman alpha blob

    An industry recovery will require major new efficiency/productivity gains…

    Why do I get the feeling that for the airlines, this will mean everyone standing up in an 18″x18″ square marked on the floor of the plane for the duration of the flight. Or perhaps just stacking everyone like logs.

    If they can’t stay in business on their own, nationalize them. Or just nationalize them regardless.

  19. Irrational

    Sorry for being out of line by not wishing universal death to arilines, but I would like to see my US in-laws without having to invite them to live with us in Europe. I acknowledge that might take a while at current infection rates. Also, my family lives all over Europe at 10-25 hour driving distance.
    Guess I was stupid enough to embrace globalisation.
    Business travel? Could not care less.

  20. VietnamVet

    The fundamental problem is that the coronavirus is not the flu. It is the fifth common cold that kills the elderly and unhealthy. The countries like Greece and Austria that have controlled the virus require negative virus tests or a 2 week quarantine for incoming airline passengers. This will kill most air travel from nations that cannot control the virus like the USA and UK. It will kill mid-level managerial global travel, just not worth the risk or time. The rich will try to bribe their way in to see their holdings. But if a nation was competent enough in the first place to control the virus, they are unlikely not to require testing and quarantine for passengers on private jets.

    This highlights the problem of the fall of globalism. There seems to be no awareness of the difficulties of the withdrawal from airline travel let alone overseas manufacturing. What and how to replace it? Even worse, the nations of the former Western Empire, there is no push to combat the virus with a rebuilt public health system; just wait until there is a profit making vaccine. As the last week has proven, this is guaranteed to generate unrest in the infected nations.

  21. run75441


    I see a too much capacity issue in total and for singular flights also. What is being described here is a logistical problem which can be solved with less capacity. There were times in the past (Wabac Machine used to verify) when 707s and 727s flew with a dozen passengers on them between certain cities. It was fun and very wasteful.

    The airlines down sized the planes and decreased the numbers of flights. Time to reorganize.

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