U.S. airlines, casting themselves as a vital cog in the economic recovery from the pandemic, appealed Monday to the incoming Biden administration for more flexible, risk-based COVID measures that will enable the safe revival of air travel and with it the revenues necessary to survive.
In a letter to Transportation Secretary-designate Pete Buttigieg obtained by FreightWaves, the Airlines for America (A4A) warned that some carriers, and thousands of their workers, may not be around to transport people and goods — including vaccines and medical supplies — if the government continues with blunt travel restrictions.
The Senate Commerce, Science and Transportation Committee will hold a confirmation hearing for the former mayor of South Bend, Indiana, on Thursday.
A4A President Nicholas Calio endorsed the creation of an Aviation Recovery Commission, currently under consideration by the Biden transition team, composed of leaders from government, the airline and travel industries, labor, doctors and scientists, to quickly study how to minimize virus transmission while increasing flights.
“This remains a very dire situation for our industry. Recovery is expected to take longer than the aftermath of 9/11. We cannot sustain our businesses as they exist with this kind of passenger capacity,” Calio said. “We have taken significant steps to keep passengers and employees safe during this pandemic. However, we believe we are uniquely positioned to help empower the recovery of our economy, our nation and our communities.”
[Click here to read the A4A letter]
The trade association, which represents major passenger airlines as well as cargo haulers Atlas Air, FedEx Express and UPS, recommended the adoption of globally accepted, pretravel antigen tests for international passengers taken three days prior to arrival in the U.S. as a substitute for closed borders and quarantines.
It also asked the Biden administration to issue federal standards for a digital health pass so authorities can verify a travelers testing status and vaccine record. The International Air Transport Association is similarly pushing the European Union for a common digital COVID-19 vaccination certificate that would enable those who are vaccinated to travel freely within Europe. It also is testing an app that would create a so-called digital passport to verify pretravel tests or vaccinations meet the requirements of the destination jurisdiction.
Biden’s team this week said it would not implement a Trump administration plan to lift travel bans on most travelers from the U.K., Europe and Brazil on Jan. 26. “With the pandemic worsening, and more contagious variants emerging around the world, this is not the time to be lifting restrictions on international travel,” Biden Press Secretary Jen Psaki wrote on Twitter. “On the advice of our medical team, the Administration does not intend to lift these restrictions on 1/26. In fact, we plan to strengthen public health measures around international travel in order to further mitigate the spread of Covid-19.”
Airlines have been financially decimated by the coronavirus crisis, after a stretch of profitable years that culminated in a record number of passengers carried and strong balance sheets in 2019. Passenger traffic is still 60% below precrisis levels and airlines are operating 1,109 fewer aircraft, with a fifth of the fleet in storage at the end of 2020.
Passenger carriers reported $36 billion in pretax losses in the first three quarters of 2020, with fourth-quarter results expected to be equally bleak. Last week, Delta Air Lines (NYSE: DAL) reported an adjusted pretax loss of $2.1 billion in the fourth quarter and said it was spending $10 million to $15 million per day of cash. The International Civil Aviation Organization said airlines worldwide received $391 billion less revenue last year than in 2019.
With COVID cases surging nationwide, domestic airlines say bookings for future travel remain weak, especially for corporate travel, which remains 83% below 2019 levels.
In a separate update posted on its website, the A4A said domestic airlines are unlikely to achieve cash breakeven during the first half of the year.
U.S. carriers are burning an estimated $150 million of cash every day, which is only possible after taking on $67 billion in cumulative debt and accepting billions more in federal payroll support — some of it with strings attached. The debt load adds more than $5 billion in interest expense for the domestic industry in each of the next three years — more than double the amounts paid in 2018 and 2019, according to the letter.
Calio noted that Congress’ four month-extension of direct payroll assistance to airlines through March prevented tens of thousands of furloughs, although he warned that job separations are likely after March 31 as airlines continue to slash operating costs and capital expenditures.
The airline industry, which employed 460,000 full-time jobs before losing 92,000 positions by October, has a 9-to-1 multiplier effect and drove 5% of GDP, the FAA said in a report last January.
“While the advent of multiple vaccines is encouraging, we do not expect volumes to return to pre-pandemic levels before 2024, at the earliest. As traffic recovery eventually leads to revenue recovery, shoring up our financial condition will be paramount,” Calio said.
A best-case scenario for an early recovery depends on better-than-expected vaccine efficacy, accelerated rates of vaccination worldwide, more economic stimulus and faster growth, and a resurgence of personal and business travel.
“Carriers will need to retire the massive sums of debt they have taken on to cope with the evaporation of demand and consequent depletion of cash reserves. It will take years, not months, to pay off that debt. Until that time, we will see a much smaller industry with fewer operations, aircraft and workers and scarce funds available for these companies to invest in their products,” the A4A chief said..
“The financial priorities for airlines are clear: Reduce cash burn, restore profitability and repair balance sheets,” Calio said. But doing so, he added, will be more difficult than last decade because Wall Street, unions and directors will expect airlines to have an even stronger cash cushion so they can access capital markets without depending on federal bailouts while avoiding painful cuts for employees.
A4A also asked the Biden administration to use its authority to clarify federal safety regulations for dealing with COVID that would replace a patchwork of federal and state rules that are poorly suited to the airport environment.
Other top policy priorities outlined in the A4A letter included:
- A light regulatory touch. Government intervention should only be used for proven market failures to prevent consumer harm and when dictated by data. Maintaining performance standards without being prescriptive is the best way to ensure the public interest and minimize costs for regulated parties.
- Federal preemption. The DOT should continue to support federal preemption in state and local labor initiatives, such as enforcement of meal and rest breaks against truckers.
- Environment. Take the lead on aviation climate policy on the international state and implement policies to scale up commercial use of sustainable aviation fuels.
- Aviation infrastructure. Prioritize implementation of the NexGen system to modernize air traffic control. Rather than raising passenger taxes to pay for airport and airway trust funds, increase the general fund contribution, prioritize funding for larger airports that serve the general public and prevent state and local grant recipients from diverting money to non-airport purposes.
Click here for more FreightWaves/American Shipper stories by Eric Kulisch.
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