American Airlines Group Inc. (NASDAQ: AAL) is phasing in a suspension of additional long-haul international flights from the U.S. on Monday in response to lower passenger demand and government travel restrictions due to coronavirus.
The idling of 135 wide-body jets will crimp air cargo capacity, forcing a shift to more expensive freighters like FedEx (NYSE: FDX), United Parcel Service Inc. (NYSE: UPS) and Deutsche Post DHL Group (OTC: DPSGY).
American will reduce international capacity by 75% year-over-year between March 16 to May 6. It will continue to operate one flight daily from Dallas-Fort Worth to London Heathrow, one flight daily from Miami to London and three flights per week from Dallas to Tokyo Narita.
American’s cuts include suspending nearly all long-haul international flights to Asia, Australia, Europe, New Zealand and South America.
American is the second-largest U.S.-flagged passenger airline following Delta Air Lines Inc. (NYSE: DAL). American is No. 2 in cargo behind United Airlines Holdings Inc. (NASDAQ: UAL) and ahead of Delta, which ranks third in cargo. American recorded more than $1 billion in cargo revenue in 2018, said independent cargo markets expert Jesse Cohen.
“This pushes more cargo to freighter aircraft,” Cohen said, adding that freighters carry about half of air cargo in normal times.
Freighter aircraft do not service smaller airports, such as Charlotte, North Carolina, that American does under normal business conditions.
Short-haul American international flights from Canada, Mexico, the Caribbean, Central America and certain markets in the northern part of South America will continue as scheduled, the airline said.
For automotive and other manufacturers, that could mean increased trucking of parts from Canadian airports south to U.S. manufacturing plants.
“It raises their costs and creates another kink in the supply chain,” Cohen said. ”When you’re pushing cargo to freighters, the number of places they can land is far fewer. It adds complexity to the supply chain, particularly for critical parts.”
Automotive parts from Germany and Italy, pharmaceuticals from the United Kingdom and Belgium as well as seafood like salmon and foodstuffs like cheese and wine and luxury items like fashion wear could switch to ocean cargo, which will increase transit time to market.
Delta Air Lines on Friday said it would scale back flights by 40% and suspend service to most of Europe amid the coronavirus crisis.
United said late Saturday it would begin cutting flights to the United Kingdom, and Delta plans to start cutting flights to the United Kingdom, according to Reuters.
“Demand for travel is declining at an accelerating pace daily, driving an unprecedented revenue impact,” Delta CEO Ed Bastian said. “We are currently seeing more cancellations than new bookings over the next month. The speed of the demand fall off is unlike anything we have ever seen.”
Even if flights resume in early May, passenger demand may come back slowly, extending the cargo crunch until more airplanes are needed, Cohen said.
American said that in addition to the international changes, the airline anticipates its domestic capacity in April will be 20% below last year and domestic capacity in May will drop by 30% on a year-over-year basis.
