Airlines face trouble without further stimulus, here’s why liquidations and more job losses may be ahead: Analyst
After Congress failed to pass a last minute deal for a broad coronavirus relief package, American and United Airlines will move forward with laying off more than 32,000 employees. Helane Becker of Cowen Securities, joins Yahoo Finance’s The First Trade with Alexis Christoforous and Brian Sozzi to discuss that and more.
Video Transcript
ALEXIS CHRISTOFOROUS: The airline industry continues to tighten its belt during this pandemic. Today, we learned that both American and United Airlines will move forward with laying off more than 32,000 employees. This is after Congress failed to pass a last-minute deal for a broad coronavirus relief package.
Joining us now to discuss is Helane Becker of Cowen Securities. Helane, always good to see you. Before we get to your take on the airlines, because I understand you’re still quite bullish, are we done here with the layoffs? Or is this just the tip of the iceberg, unfortunately?
HELANE BECKER: No, this is just starting. So two things have happened in the last six months. The first is that most of the airlines have gone through a process where they’ve had voluntary furloughs– or voluntary leaves of absences, I guess is the right way to say it. And then they’ve all given notice to their employees that will be affected by layoffs that they’re going to be furloughed today, which is, you know, obviously, the day after the money runs out, unless there’s an extension of the CARES Act funding.
And that’s just because you’re looking at traffic numbers right now that are equal to where we were 40 years ago, and you can’t run an airline like that, right. You can’t have 700,000, 800,000 passengers a day when a year ago we would have had 2.3 to 2.5 million passengers a day. So until we get caught up, what the CARES Act did was twofold.
One, it kept airline employees in jobs. So from that perspective, we view it as a jobs program. And then the other thing it did was give airline executives a chance to look at their– their networks and figure out what works and what doesn’t and scale the airline to the new size.
You know, Alexis, it’s kind of interesting because I think a lot of executives thought this would be short-lived and would be similar to what happened in China where they had a– basically a V-shaped recovery. Their number of flights per day is back to where it was a year ago, about 12,000, 13,000. Passenger traffic is only down about 3% in the domestic market. There’s not a lot of international going on. But domestic, they’re down only 3%, and we’re down 70%, so we’re still not near recovery status.
BRIAN SOZZI: Helane, airlines are huge employers in this country. Can you give us a sense of the economic impact of the airlines laying off this– this amount of employees? It’s not just the airlines. You have part suppliers. You have companies that refurbish parts. There’s huge ramifications here for the US economy.
HELANE BECKER: Oh, my gosh, this is so horrible. There’s– the pain is uncalculable, right– or incalculable? So here’s how I think about it. Travel and tourism is 5% of US GDP, so that’s a big number right there. I think we have, what, a 20– we had a $20 trillion economy? So 5% of that is, you know, just enormous, A.
And B, the other way to think about it is for every one airline job, it creates 13 jobs behind it in restaurants, taxis, ride shares, hotels, airport workers, and so on. So I mean, the damage to the economy is pretty significant. Because if the US economy– if the US airline industry doesn’t recover and isn’t there to help the US economy, the US economy can’t recover.
You can’t have a strong economy without a strong airline industry, and that’s so important. And you know, it’s unfortunate that we’re caught up in this situation, which is partly political and partly a function of this virus, which, obviously, people, you know, nine months ago, 10 months ago didn’t see coming, at least didn’t see coming to the United States.
ALEXIS CHRISTOFOROUS: Helane, when are you forecasting a recovery or, dare we say, pre-pandemic levels for travel? I’m seeing things go out as far as 2024.
HELANE BECKER: Yeah.
ALEXIS CHRISTOFOROUS: And if that is the case, are you a buyer right now? Do you have any sell ratings on any of the airlines at the moment?
HELANE BECKER: So yes and no. [? You ?] mean– have a lot of questions in there. So for starters, we think it’s a three to five-year recovery process for domestic and probably five to seven years for international. So let’s just say four to five years, in general, right, that’s number one.
And you know, I think business traffic is going to start to come back. I mean, one of the issues is– if you think about the 2 and 1/2 million passengers a day we had a year ago, think in terms of 40% domestic leisure, 30% international, and 30% business. So you know, we’re already at about 800,000, 900,000 passengers a day on most peak days, and it’s clear there’s pent-up demand. So you’re talking about– I think at the holidays, we’ll have a million passengers a day traveling by the end of the year, and that won’t continue into the first quarter because it’s generally a weak quarter anyway.
And then for business traffic, if you think that 30% number, that’s probably 700,000, 750,000 a day. You know, I think business people will want to get back on the road. They might not get back on for the one-hour meeting that they can easily do the way we’re doing our meeting today, but I think they’re going to get back on the road. So we’re thinking maybe half a million passengers.
You know, it’s– what’s the definition of recovery, right? My definition is pre-pandemic levels takes three to five years domestic and five to seven international. I think for the airlines, though, if they’re seeing, you know, some traffic, business traffic being down 50% instead of 90% would be a win. If you’re seeing, you know, leisure traffic kind of flattish, that would be a win. Borders have to reopen for international traffic to come back.
I personally think there’s huge pent-up demand and, in that regard, I’m a little more optimistic than I was six months ago when I thought, you know, one of the reasons it would take so long for the economy– or for airline traffic, rather, to get back on track was because so many people were losing their jobs. They weren’t thinking about, you know, going on a vacation. They were thinking about how they were going to pay rent, utilities, and buy food for their families.
And I’m a little more optimistic now, you know, just that we’re seeing that demand around holiday weekends. So I think there’s pretty good pent-up demand for that. That said, the second part of your question was with respect to–
ALEXIS CHRISTOFOROUS: Your ratings [INAUDIBLE]–
HELANE BECKER: –our buys and sells. So we’re kind of neutral on the group. We have seven buys and seven holds. And our view is that if this– if we’re back to, you know, let’s say a million and a half, a million eight passengers a day by June of next year, I think the industry will be fine. But if we’re still bouncing along this under a million, and people are afraid to travel and there are quarantine measures in effect, you know, it’s going to be really hard for this industry to get through without liquidations and more job loss. I mean, like, at the beginning, you asked me if this was the start, and it is the start, and it’s just going to be a long road back.
