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Airlines slash routes, outlook and executive pay on coronavirus fallout

Delta and American scale back U.S. and international flights, while executives at Southwest and United forgo at least part of their salaries.

Demand for air travel has all but evaporated with the coronavirus, but airlines are still flying. And as of May, passengers must wear masks. (Video: The Washington Post)
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The coronavirus outbreak continued its economic pillage Tuesday, prompting several major airlines to slash routes, reset their financial outlooks and even slash executive pay.

The crisis has thrown much of the tourism industry into free fall. In a matter of weeks, hotels, airlines and convention centers have seen their bookings plummet as leisure travelers stay home and businesses discourage or cancel employee travel.

But the latest updates from Delta, American, United and Southwest airlines signaled just how bleak their outlook is for the months to come. And as travelers cancel vacations, businesses discourage employees from leaving town, and conventions are canceled en mass, industry executives are comparing the outbreak’s fear factor to the aftermath of the Sept. 11, 2001, terrorist attacks.

“We are in unprecedented territory,” Cowen’s Helane Becker wrote Tuesday in an analyst note. “Airlines have been quick to cut capacity and either park or accelerate retirement of older aircraft. … In the past, they would have waited to make these adjustments."

Delta said it is cutting international flights by as much as 25 percent and domestic routes as much as 15 percent. The carrier also is withdrawing its 2020 financial outlook, instituting a hiring freeze and suspending its stock repurchase program.

Speaking at the J.P. Morgan Industrials Conference, Delta executives said that the global outbreak has cut net bookings by at least 25 percent, a drop-off they expect will worsen. Executives said most of the uncertainty surrounded domestic travel, with CEO Ed Bastian noting that the fear that’s now keeping travelers home is “more akin to what we saw at 9/11,” as opposed to some broader economic force.

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American Airlines, meanwhile, said it will scale back peak summer international flying by 10 percent. Those cuts include a 55 percent reduction in trans-Pacific routes as the outbreak continues to exact a toll on China, South Korea and Japan. American will also reduce domestic flying in April by 7.5 percent.

“Given American’s geographic exposure (74 percent domestic), we’re less concerned about the impact of the airline’s reduced service to Asian countries … and more concerned about decreased domestic capacity and demand,” Morningstar’s Brian Bernard wrote in an analyst note.

Meanwhile, United Airlines said Tuesday that its CEO and president will forgo their base salaries through at least the end of June, and that it plans to cut 20 percent of flights indefinitely until it sees demand pick up. The carrier said that domestically, net bookings have plunged about 70 percent. Gross bookings in Europe and the Pacific are down 50 percent and 70 percent, respectively.

Southwest Airlines CEO Gary Kelly also is taking a 10 percent pay cut as the carrier contends with steep declines in bookings. (The decision was first reported by the Wall Street Journal and later confirmed by The Washington Post.)

According to public documents, Kelly made more than $7.7 million in 2018, including a base salary of $750,000.

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Last week, Southwest said it expects to lose $200 million to $300 million in March alone because of the coronavirus, which was first detected in China in late December and has spread to dozens of countries. Kelly also compared the jarring drop in sales to the aftermath of the Sept. 11 attacks, saying the blow to the travel industry “was more fear, quite frankly, and I think that that’s really what’s manifested this time.”

Airline stocks have been hit hard over the past month but popped slightly Tuesday as the markets fluctuated on word that the White House was working on economic countermeasures to the coronavirus.

Officials haven’t issued any restrictions on domestic travel. But the U.S. Centers for Disease Control and Prevention said that older people and those with underlying medical conditions should avoid “nonessential travel such as long plane trips.” But it’s clear airlines are feeling the sting even without firm directives — and that they aren’t holding their breaths. United and JetBlue have already cut domestic service.

More forceful guidance could put airlines in straits. The cruise ship industry is facing its own crisis after the State Department warned travelers against taking voyages during the coronavirus outbreak, and U.S. health officials prevented some ships from sailing. Shares of popular cruise lines have tanked as American passengers aboard two Carnival ships became infected with the coronavirus within the past two months.

If anything, major carriers are expecting some cost savings after oil prices had their biggest slides since the 1991 Gulf War. But analysts are wary of the ripple effects for the whole economy.

“It’s a big ecosystem,” said Teal Group analyst Richard Aboulafia. “This is one part of the economy, both in manufacturing and in services, that’s really the most tangible and most vulnerable.”

On Monday, President Trump said he would ask Congress to cut payroll taxes and provide relief to hourly workers suffering from the economic fallout of the virus outbreak. He also said he was looking to help the airline, hotel and cruise industries. But it wasn’t clear whether he would ask Congress to help these industries or if he thought he could do it alone.

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On Tuesday morning, Delta’s Bastian said there was “no question” the airline industry would see some form of government intervention.

“Hopefully we’ll start to see some light at the end of the tunnel before massive structural changes,” Bastian said.

Foreign carriers were hardly immune. Norwegian Air Shuttle ASA said Tuesday that it will cancel 3,000 flights through mid-June. It is also temporarily laying off workers to ride out the crisis. European carriers were also cutting off routes to and from Italy, where the government has ordered a nationwide lockdown.

Loizos Heracleous, an aviation industry expert at Britain’s Warwick Business School, said there are estimates that coronavirus could cost the aviation industry up to a fifth of its revenue, or nearly $219 billion. Much depends on when the virus is contained and how quickly the world economy bounces back.

“The aviation industry has already been consolidating over the last few years, especially in Europe, where the market is very competitive,” Heracleous said. “With the added pressure created by coronavirus, it would be no surprise to see weaker airlines go out of business or acquired by rival companies.”