‘Almost Without Precedent’: Airline Industry Hit Hard by Coronavirus

In the United States, airlines are starting to make similar reductions in response to a recent rapid decline in demand, even for domestic travel. In a securities filing on Thursday, Southwest Airlines, which offers little international service, said that it had seen “healthy” revenue increases in the first two months of the year, but its position has swiftly changed.

“In recent days, the company has experienced a significant decline in customer demand, as well as an increase in trip cancellations,” the airline said, attributing it to fear over the virus.

As a result, the airline updated its earnings estimate for the first quarter and said it expected the plunging demand to cost $200 million to $300 million in the first quarter of this year. At best, it now projects revenue to rise 1 percent compared to the first quarter of last year; at worst, it will fall 2 percent. The airline had previously said it expected revenue for the quarter to climb between 3.5 and 5.5 percent.

Some of the virus’s effects will be offset by lower-than-expected fuel prices and a mild winter, Southwest said. As a result, it expects first-quarter operating costs to rise only 5 to 7 percent, compared to a previous estimate of 6 to 8 percent, with much of that cost driven by the grounding of Boeing’s 737 MAX jet.

On Wednesday, United Airlines announced plans to cut international service in April by about 20 percent and domestic service by about 10 percent, while JetBlue said it would reduce service temporarily by about 5 percent. Both airlines also announced moves like hiring freezes that were intended to shore up cash.

During the SARS crisis of 2003 and the MERS outbreak a decade later, airlines were able to entice hesitant travelers by reducing fares, but that doesn’t appear to be working as well this time, said Bill Franke, the founder and managing partner of Indigo Partners, a private equity firm invested in several low-cost airlines around the world.

“The traveling public has essentially taken the view that they don’t know enough to know that they should travel or shouldn’t travel,” he said at the U.S. Chamber of Commerce’s annual Aviation Summit on Thursday.

Source link