Editor’s Note: The following is a series of interviews carried out by the author in May 2020. The series has covered so far the state of the industry and fleet (available in the Special May/June 2020 issue of Airways). Check our subscription plans if you wish to access this and other prime-quality content.
In the latest installment of this series, the author envisioned the different aspects of the Passenger Experience in the post-COVID-19 age for air travel. In this new episode, we’ve convened a panel of airline CEOs, frontline staff, journalists, analysts, and bloggers, who weigh in on the future trends on airline route maps, weighing factors of hubs, focus cities, capacity, connectivity, and frequency.
The airline industry is in the clutches of an Airpocalypse, as 2020 is on track to be the worst year ever in commercial aviation.
According to the most recent data available from the International Air Transport Association (IATA), air traffic is down to a catastrophic 91.3% worldwide (measured in revenue passenger kilometers or RPKs) in May 2020 versus May 2019.
The nascent recovery of US carriers stalled in late June, as demand plateaued owing to a surge of COVID-19 cases. A Goldman Sachs analysis presented by Airlines4America (A4A) in July, projects passenger volume in 2020 free-falling 56% below 2019, and it isn’t forecast to recover to 2019 levels until 2023.
Average capacity in available seat miles (ASMs) as of early July was down 70% year on year, with traffic depressed by 80% in revenue seat miles (RPMs). Network planning departments are under siege by the virus as route networks pruned dramatically. And with the dynamic daily, almost daily changes in the COVID-19 story, what is true today, often is not tomorrow.
All airlines have downsized their hubs, though few have permanently closed them outright. For example, American Airlines (AA) has kept its Los Angeles (LAX) hub intact for now. However, with Seattle (SEA) picking up some of the Asian routes and Dallas/Ft. Worth (DFW) becoming the airline’s major Asian hub, LAX’s international long-haul status for the airline is over.
The longer the crisis drags on, the more hubs are at risk, explains Courtney Miller, Managing Director of Analysis at The Air Current, “How much of the networks survive this crisis will be entirely dependent upon the speed at which passengers return. The longer low-passenger numbers continue, it is going to be very difficult for an airline to justify multiple half-empty flights to multiple hubs, especially with the fleet of too-large aircraft purchased for pre-COVID-19 networks. If traffic comes back quickly (within 12 months), the hubs will likely continue as planned. But as time goes on without recovery, tertiary, and even some secondary hubs, could find themselves unable to differentiate themselves from focus cities, and these losing status altogether.”
Miller continues, “Particularly at the international level, a process of re-hubbing to fortress hubs is probably inevitable. Airports such as London-Heathrow and New York-JFK will likely see more traffic routed through, while smaller markets outside the reach of narrowbodies could see reduced service. As I see it, it all comes down to airlines answering the question ‘How do I design a network with a fleet of aircraft I already have, full of excess wide-bodies that are too large?'”
Some airlines have stated that all hubs will survive, but according to Airways Podcast co-host Rohan Anand, “Others have stated, ‘there are no sacred cows.’ The reality is that international long-haul travel will continue to experience a massive drop in demand for a long time, impacting coastal and gateway hubs, and possibly even consolidating them from four to six [hubs] to two or three.”
Mid-Continent hubs in the United States, such as United Airlines (UA) in Denver (DEN), Chicago (ORD), and Houston (IAH), Delta in Detroit (DTW), and AA in DFW have been more immune to cuts than those on the coast.
Airlines will retreat to their most profitable hubs, with an emphasis on retaining connectivity. Henry Harteveldt, Principal of Atmosphere Research, uses Continental Airlines (CO) as an example when the carrier retrenched following its bankruptcies.
“Continental retreated to its most profitable roots and was also a much smaller airline at the time, and became even smaller. But they started with the basics, going to its top business and leisure destinations and slowly rebuilt from there. I think that is what you will see happen as airlines grow their routes back.” Harteveldt said.
Scott Hamilton, Managing Director, Leeham Company sees a streamlined map with some hubs ending up as focus cities, “Although American says it won’t close any hubs, I certainly expect to downsize at all. I would expect the downgrade of some hubs to perhaps a focus city during any return to service. Initially, I expect less point-to-point by the Big Three. Southwest, Frontier, and Spirit are point-to-point. Southwest has hubs—a lot of them, in fact—but its emphasis overall is still point-to-point.”
New procedures resulting directly from the COVID-19 pandemic will cause the reduction of frequencies and connectivity in hubs. According to Madhu Unnikrishnan, Editor, Airline Weekly, “If new boarding, security, and aircraft-cleaning procedures add to the time the aircraft require to stay at the gate, the quick turn is finished, and airlines will have to rethink their connecting networks. Some hubs will likely see a connecting bank or two dropped from the schedule.”
Although Unnikrishnan says this could ironically help point-to-point, “This could mean there will be more point-to-point flying (airlines, after all, have the aircraft to spare now) or there will be much less flying.”
Ben Baldanza, former CEO of Spirit Airlines and current co-host of the Airlines Confidential podcast, sees reduced long haul flying affecting short-haul, “meaning less connectivity overall, meaning less frequency on domestic routes.”
With domestic demand (in the US) recovering faster than international, Unnikrishnan sees a world with fewer international flights, at least for the next couple of years. “Ultra-long-haul flights are going probably to be on hold for a couple of years, as there may be little passenger appetite to sit in an aircraft for 17 hours, especially if airlines curtail their food and beverage service.”
Unnikrishnan continues, “I see more fifth- and sixth-freedom flights. Airlines will connect to far-flung international destinations, or will leverage their alliances and partnerships to do so.” We already see Delta leverage its Korean Air partnership for Asia connectivity from Seoul, and American using British Airways’ partner London-Heathrow hub to Europe.”
Seth Kaplan, co-host for Airlines Confidential, believes that the faster domestic recovery is because it is “a question of people overcoming their fears of traveling and of health authorities saying it’s okay to travel, whereas much of the international travel is not allowed right now. Also, people will surely be more reluctant to fly, at first, from Dallas to Beijing than from Dallas to Chicago.”
Gordon Bethune, a former CEO of Continental Airlines, paints a pretty dire picture of frequency cuts, “So there’s going to be capacity out there. I think 10 to 20% of what we used to have and enjoy instead of five flights to a city, there may be only one.”
Cranky Flier blog founder Brett Snyder is more optimistic about less point-to-point flying and fewer frequencies, “I see that as a medium-term thing. In the long run, people will still want to go to all these places. In the shorter term, yes, there will be fewer point-to-point routes, and airlines will pull back to strengthen their hubs. However, if this is a long-term look, those trends that led the airlines to build their networks out the way they have aren’t going to change. It’s just a matter of how long it’ll take for demand to catch up once the threat is over.”
Timing is everything. Baldanza believes we are experiencing the bottom, but the recovery will be halting “We are in the trough now, the question is how long does it take to come out of it? Capacity will lead to demand slightly ensuring that prices stay low for quite a while.”
Harteveldt offers an interesting solution, though one that would have to overcome anti-trust regulations, “I think one thing that may happen is that airlines through A4A, may go to the US government and say, ‘Look, we’d like to sit down with (competing airlines) in a collaborative way. We’d like anti-trust immunity, but we would like to discuss how we each and profitably serve this country, honoring the spirit and the letter of this act.”
Bethune agrees this is the right idea, “The referee, that’d be the DOT should just tell us ‘Go to your corner, and we know what our corner is’. And we can tell you what it is. Then they look it over and check it for fairness against all kinds of things, but then, tell us to go do it.”
However, Bethune believes that there is no chance of the DOT would grant this kind of anti-trust immunity, and paints a grim picture of the future, “They want the same pre-disaster behavior out of a post-disaster and a post-loss. The economy is going to stagger to its knees. What we’ll get is default and bankruptcies and all that. No one ever won a nickel in bankruptcy. It didn’t help, and everybody gets hurt. But that’s where we are headed.”
Editor’s Note: In the next chapter of The Future of Air Travel in the Age of COVID-19, the author will explore the future of regional airlines in the United States.