More than seven months into a pandemic, some small cities are grappling with airline service cuts because of the slump in air travel.
U.S. airlines lost more than $10 billion in the previous quarter and have been cutting routes to some small cities in an effort to stop bleeding cash.
Under the terms of $25 billion in federal aid, airlines were prohibited from laying off employees through Sept. 30 and were required to maintain minimum levels of service.
Now that those terms have expired, airlines have begun furloughing thousands of workers and are cutting additional routes — service reductions that are hitting smaller cities especially hard. Talks for additional aid have dragged on for months without a deal.
American Airlines, for example, initially suspended service to 11 cities from Oct. 7 to Nov. 3 and has recently extended those suspensions until the end of November. CEO Doug Parker told CNBC’s “Squawk Alley” on Oct. 8 that American would be forced to make cuts to other markets if the government fails to provide additional aid to the industry.
For six of those airports, American is the only carrier operating scheduled flights. Many of them are hundreds of miles from the nearest airport or major city.
Service cuts at airports like these are more than an inconvenience. Airports, even small ones, provide a wide range of jobs, everything from maintenance and food service to taxi driving and construction. Some airports may get by with private and chartered flights, but scheduled airline flights provide a valuable stream of visitors and revenue.
Congress approved $10 billion for U.S. airports in the March CARES Act, and the industry is seeking $15 billion more. Airports Council International, an industry group, expects U.S. commercial airports to lose more than $23 billion in revenue this year. Airports generate revenue from airlines through fees for landing aircraft and gate rentals that airlines pay and from a host of other sources like retail and parking, all of which are suffering because of the pandemic’s toll on air travel.
In Dubuque, Iowa, where service was suspended in early October, passengers will now have to drive three to four hours for a flight, according to regional airport manager Todd Dalsing. The service cut marks a sharp contrast to Dubuque’s growing ambitions. The city had been negotiating with other carriers to add service to Denver, in order to complement American’s service to Chicago.
“The good news about Dubuque is that for a small airport we’re well-diversified,” said Dalsing. Dubuque Regional Airport owns and operates the Dubuque Jet Center, which provides a variety of services, including fueling and hangar space, for planes passing through, and flies several charters per month to Biloxi, Mississippi, and similar destinations. Its University of Dubuque flight training program also brings in hundreds of students.
Nevertheless, in terms of the effect on employment, the big carriers’ furloughs of tens of thousands of employees are “just the tip of the iceberg,” said Dalsing. “Then you’ve got the trickledown effect.”
In Dubuque’s case, for example, Dalsing pointed to reduced demand for TSA screeners, car rentals and restaurants. Dubuque Regional Airport’s only restaurant, Judy’s Runway Cafe and Catering, has been closed since spring. Though the newest round of service cuts did not affect the decision to close, restaurant owner Luke Schiltz said, “It’s unfortunate because the airlines say they are a public service provider. Now they’re nowhere to be found.”
Schiltz, 26, opened Judy’s in October 2018, replacing two previous businesses that had failed within their first years of operation. Judy’s seemed to be on a different trajectory and was profitable in 2019. When Covid upended the industry, he initially tried to innovate and take advantage of changes such as new liquor sales policies, but the cost was too high. “We wanted to make sure we had the resources to play the long game and open back up,” said Schiltz — so Judy’s has been closed for most of the year.
Schiltz luckily runs a second nonairport related business, so he can stay afloat. He has tried to move the restaurant’s employees to his other company, the discount service provider Errand Boys, but the physical nature of some work has meant that not everyone could make the shift.
Other cities have managed to stave off suspensions, at least for now — a welcome relief since local economies depend on access and mobility.
Roswell, New Mexico, was on the initial list to lose airline flights but was able to negotiate a financial agreement with American to keep some reduced service. “We were very concerned about losing service,” said Mayor Dennis Kintigh. “We’re a long way from anywhere else” — around 200 miles from the next bigger city.
Airline service for Roswell is particularly important for local industry. Kintigh pointed to agriculture, particularly the dairy industry, as well as the oil and gas business and a nearby federal law enforcement training center, as examples of local economic sectors that rely on convenient travel. “It’s critical for a community’s economic vitality to be able to move people in and out,” he said.
Since the deal, an American Airlines spokesperson said the airline’s conversations with local officials are ongoing and it has deferred the decision to suspend. Kintigh said there’s been no indication that American would like to reevaluate the decision. “We still hope to be able to expand air service,” he added.
Despite the uncertainty over the area’s future airline service, Roswell’s local aviation industry has actually been thriving during the pandemic because of its strong airplane maintenance businesses. According to Kintigh, Roswell Air Center, a former military base, has more than 480 parked airliners, with 330 coming in since the start of the pandemic.
Parked planes don’t just sit there — they require hundreds of hours of service to be put into storage and then roughly 20 hours of attention per week. Airlines, including American and United, pay the air center a fee to park their aircraft and then contract with one of Roswell’s maintenance, repair and overhaul companies, known as MROs. In each month since April, parking revenue has been about 325% higher than the same month a year earlier, and the MROs anticipate hiring over 200 new employees this year.
Joplin, Missouri, also managed to avoid having its American flights suspended. It turned out the city had grandfathered status under the Essential Air Service, so the carrier couldn’t legally leave the market yet, and it is still flying there.
While Joplin’s airport traffic is certainly lower than last year — 3,919 passengers in September 2020 compared with 10,088 in September 2019 — it has bounced back from a low of 601 in April, according to regional airport manager Steve Stockam. A large increase in leisure travelers passing through its airport to destination markets has also helped offset the decline in business travel, Stockam said.
In August, Joplin sales tax revenue was up 1.4% from the previous year, and unemployment was at 6.4%, 2 percentage points lower than the national average that month.
In contrast to the proposed cuts this year, Joplin and American had expanded service last summer to Chicago. “We were really on our way to growing the market,” said Stockam.
Joplin itself only has around 50,000 residents, but the larger metro area is home to 500,000. “We’re a regional facility for industry and school and universities and medical institutions,” Stockam said. “We have a lot of companies with direct ties. Having legacy service through major hubs is essential.”
Other airlines have made similar suspension decisions as the pandemic continues to put financial pressure on them. Delta Air Lines suspended service to 11 markets in July, and a spokesperson said it does not have a date to resume service, although it is monitoring demand. A United Airlines spokesperson said the carrier has added service to nine small communities, resumed service to six previously suspended and is continuing to evaluate the status of four others still suspended.
Airports are still holding up well in general, at least through the end of the year, according to Fitch Ratings senior director Seth Lehman — thanks in part to existing agreements with airlines to pay for the cost of facilities, healthy cash reserves, and the CARES Act funding that have helped airports offset lost revenues.
Fewer government-imposed coronavirus-related restrictions on domestic travel compared with international make U.S. travel a more viable option for Americans looking to get away. So the faster return of domestic, rather than international, travel demand may help smaller airports. But major airlines know their highest revenues usually come from larger, wealthier markets, said Lehman. It is still “smaller airports we caution could be most exposed because we’ve seen in the past during economic downturns they recover the slowest.”
As for the future of Judy’s and air travel in Dubuque — and perhaps fittingly for the industry as a whole — restaurant owner Schiltz said, “I think everyone just has their fingers crossed. I don’t think anyone knows.”
To learn more about the coronavirus pandemic’s effect on the air travel system, watch CNBC Documentaries’ “Shepard Smith Reports: Air Travel in Turmoil.”
