- United Airlines said travel demand is falling again, as COVID-19 hotspots break out across the US.
- The airline expects to warn tens of thousands of workers of impending furloughs and layoffs.
- United said it expects the airline industry to recover slowly, with demand rising and falling until there’s a vaccine for the coronavirus.
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Just as things were starting to improve for US airlines, the explosion of new coronavirus cases is set to send the industry back into a tail spin.
Complicating matters are government travel restrictions and quarantine orders, which are making people nervous about booking flights.
United Airlines told employees in a recent presentation that new bookings began to slide almost as soon as New York, New Jersey, and Connecticut said that they would require people coming from states with COVID-19 spikes to quarantine for 14 days. Specifically, reservations for near-term travel within the next 30 days began to plummet after steadily rebounding for months. The presentation, which was disclosed by United on Tuesday, was first reported by the Wall Street Journal.
The fall was most severe at the airline’s New York City-area hub in Newark, New Jersey, where near-term net bookings were just 16% of the previous year’s levels – down from about a third shortly before the tri-state quarantine order was announced. The decrease in demand also coincides with when airlines are largely expected to begin notifying employees of furloughs and layoffs.
While airlines are prohibited from furloughing or laying off workers until October 1 under the terms of the payroll support they received from the CARES Act, most employers are required to give 60 days of notice, where possible, under the Worker Adjustment and Retraining Notification Act, known as the WARN Act.
In the presentation, United told its employees to expect WARN notices in early to mid July, with a final notice about their position’s status coming in early August. American Airlines began informing some employees of furloughs in late June.
Airlines including United have tried to limit involuntary layoffs by reducing head count through voluntary measures including buyouts, leaves, and early retirements. But it seems like that wasn’t enough for United, and the airline reportedly said on Tuesday that tens of thousands of layoffs were coming.
Notably, as the coronavirus resurgence has spread across the US, United said it was now clear that the airline industry’s recovery will be a slow and protracted one, with many fits and starts.
United “does not expect the recovery from COVID-19 to follow a linear path, as illustrated by recent booking and demand trends,” the airline wrote in a filing with the SEC on Tuesday. “[C]onsolidated capacity through the end of 2020 is expected to be generally consistent with August 2020,” the filing continued, indicating that the airline does not expect a material improvement in demand until at least 2021.
Henry Harteveldt, an airline and travel-industry analyst, said he was not surprised by the bad news.
“Houston, one of United’s major hubs, is a virus hotspot, as is Los Angeles, another major United market,” Harteveldt wrote to Business Insider on Tuesday. “Plus, Florida, a popular summer vacation destination, is another Covid hotspot. With the New York metro area and Chicago requiring quarantines from multiple states, including Florida, Texas and California, it’s logical that United is seeing a fall-off in reservations.
“Unfortunately, they won’t be the only airline affected.”
In the SEC filing, United said it expects capacity to fall 65% in August compared to 2019. The airline estimated last week that the drop would be 60%, but United said it made adjustments to that announced schedule “resulting from reduced demand to destinations experiencing increases in COVID-19 cases and/or new quarantine requirements or other restrictions on travel.”
As air-travel demand has slowly picked up from lows reached in April, airlines have said most of the demand is coming from leisure and “VFR” travellers – those visiting friends and relatives – as states lift lockdowns and Americans seek to shake off the cabin fever built up after months in quarantine.
Corporate travel, which yields higher margins for airlines than leisure, has not begun to meaningfully return.
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