American Consequences - August 2020


A big part of the problem is the lack of business travel. With many companies instituting “work from home” policies, people don’t even need to leave the comfort of their own living rooms anymore... let alone go to another part of the country. Technology platforms like Zoom Video Communications (ZM) make it possible to hold essential meetings with colleagues... without the risk of getting infected with COVID-19. Delta CEO Ed Bastian best described the situation on the airline’s July 14 earnings call... Business travel, which typically provides 50% of our revenue, has not yet returned in any meaningful way with corporate offices slow to reopen. So a lot of people will stay away from vaccines – and planes – even when one is available. Bastian acknowledged that the airline industry’s recovery has “stalled.” Delta is now forecasting passenger traffic in September at levels 75% to 80% lower than last year. Bastian doesn’t expect the industry to return to normal for at least two years. And he isn’t the only airline CEO expecting tough sledding ahead. United CEO Scott Kirby said in a July 22 interview on CNBC that he expects flight revenue to peak at 50% of 2019 levels until a COVID-19 vaccine is developed. Still, a vaccine might not be widely available

until sometime in 2021 or maybe even 2022. And a lot of folks likely won’t take a perceived “rushed” vaccine even if one is available. According to a mid-May poll from the Associated Press, only 49% of those surveyed plan to take a COVID-19 vaccine when it’s available. And 20% said they’ll refuse to take it. So a lot of people will stay away from vaccines – and planes – even when one is available. That’s why it will likely take far longer for airlines to recover than even Bastian and Kirby expect. According to A4A CEO Nicholas Calio, “Air transport demand has never experienced a V-shaped recovery from a downturn.” It took passenger volume three years to recover from the September 11 terrorist attacks... and more than seven years from the 2008 financial crisis. COVID-19 is the worst crisis ever for the airline industry. The industry has never experienced anything so drastic. We’re still in the early innings of this ordeal, too... It will take several years before passenger traffic gets anywhere close to 2019 levels . Meanwhile, the planes that do fly won’t be full – far from it. I experienced this a few weeks ago on a United flight from Germany to San Francisco. As you can see in the following picture, I had most of the plane to myself. It was at least 80% empty... And here’s what the San Francisco airport looked like at 5 p.m. Pacific time that day (see picture next page)...


August 2020

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