Tracking the Impacts of COVID19 Updated December 7
Tracking the Impacts of COVID-19 Updated December 7, 2020
New U. S. Cases of COVID-19 Peaked at ~197 K per Day in Week Ending Dec. 7 New Cases Recently Doubled in Mexico, Rising in Brazil and Japan, Moderating in Europe New Cases of COVID-19 (7 -Day Moving Average) 200, 000 175, 000 150, 000 125, 000 100, 000 75, 000 50, 000 USA China Source: World Health Organization and the COVID Tracking Project Japan India UK France + Italy Brazil Mexico d-MMM-yy d-MMM-yy d-MMM-yy d-MMM-yy d-MMM-yy d-MMM-yy d-MMM-yy d-MMM-yy 0 d-MMM-yy 25, 000
TSA Checkpoint Traveler Throughput Is Running 66% Below Year-Ago Levels Daily Average Bottomed Out at 95 K (Down 96% YOY) in April 11 -17 TSA Traveler Throughput* (7 -Day Moving Average, in Thousands) 2, 750 2, 500 2, 250 2, 000 1, 750 2019 1, 500 2020 1, 250 1, 000 750 500 0 d-MMM d-MMM d-MMM d-MMM d-MMM d-MMM d-MMM d-MMM d-MMM d-MMM d-MMM d-MMM d-MMM d-MMM 250 Source: Transportation Security Administration * U. S. and foreign carrier customers (excluding Known Crewmember® personnel) traversing TSA checkpoints
In November, U. S. -International Air Travel* Fell 79% From Year-Ago Levels Non-U. S. Citizen Arrivals Fell 84%; U. S. Citizen Departures Fell 74% % Change YOY in Total* U. S. -International Air Passengers: 2020 vs. 2019 Jan 20 Feb Mar Apr May Jun Jul Aug Sep Oct (87. 8) (83. 7) Nov Dec 1. 5 0 (20) (2. 0) (40) (60) (80) (100) (64. 0) (99. 2) (98. 8) (97. 0) Non-U. S. Citizen International Arrivals Source: U. S. Department of Commerce National Travel and Tourism Office using DHS I-92 / APIS data (92. 6) (90. 0) (79. 2) U. S. Citizen International Departures * Gateway-to-gateway passengers on U. S. and foreign scheduled and charter airlines and general aviation
First Nine Months of 2020: U. S. Passenger Airline Operating Revenues Down 61. 5% YOY Pre-Tax Losses Exceeding $36 Billion Through September Quarterly Pretax Income/Losses ($Billions) (32. 2) Total Op. Exp Other (3) Aircraft Thousands (1. 0) (17. 7) Airports (39. 3) Maintenance Fuel (61. 1) (47. 2) Labor Total Op. Rev (61. 5) (21. 1) Other (2) Cargo Psgr. (1) (65. 3) (6. 4) 3. 3 Change (%) in Operating Revenues and Expenses YTD 3 Q 20 vs. YTD 3 Q 19 ($6. 8) ($14. 2) 1 Q 20 2 Q 20 1. Traffic = revenue passenger miles (down 63. 5%); yield = revenue per passenger-mile flown (down 5. 0%) 2. Sale of frequent flyer award miles to airline business partners, transportation of pets, in-sourced aircraft and engine repair, flight simulator rentals, inflight sales, etc. 3. Aircraft rents, professional fees, food/beverage, insurance, commissions, GDS fees, communications, advertising, utilities, office supplies, crew hotels, payments to regionals Source: A 4 A analysis of reports by Alaska, Allegiant, American, Delta, Hawaiian, Jet. Blue, Southwest, Spirit and United on a consolidated company basis for systemwide operations ($15. 3) 3 Q 20 ($36. 3) YTD
Airlines Are Taking a Wide Variety of Self-Help Actions to Reduce Cash Burn Selected Examples of Actions to Improve Cash Flow From Operations, Investing and Financing » Making historic capacity cuts, parking and/or retiring older aircraft (and, in some cases, entire fleet types) » Utilizing passenger planes on cargo-only missions, either belly-only or belly and main cabin » Cutting executive compensation and implementing voluntary leave and early retirement programs » Freezing hiring and non-essential spending (e. g. , employee travel, consultants, events, marketing, training) » Consolidating footprint at airport facilities (e. g. , concourses); shuttering lounges; halting real estate projects » Simplifying onboard product (e. g. , food and beverage) » Negotiating with vendors: cobranded credit cards, airports (i. e. , zero-interest rent deferrals), regional airline partners (i. e. , reduced block hours), fuelers, caterers, etc. to achieve relief on payment terms/timing » Deferring aircraft deliveries and reducing non-aircraft (e. g. , ground equipment, IT) capital expenditures » Raising funds via capital markets: borrowing funds via unsecured or secured loans and/or selling stock » Selling/mortgaging aircraft/engines/other assets » Suspending capital return programs, including share repurchases and the payment of future dividends Source: A 4 A and member companies
From March-December, U. S. Passenger Airline Employment Will Have Fallen by ~90, 000 FTEs Over the Past Two Decades, Job Growth Has Closely Tracked the Industry’s Financial Health U. S. Scheduled Passenger Airline Full-Time Equivalent Employees (000 s) 550 37, 043. 0, 545. 9 525 All-Time High Pre-COVID Peak 500 43, 891. 0 461. 6 475 450 Lowest Since 1 Q 87 40, 269. 0 376. 7 Source: Bureau of Transportation Statistics for scheduled U. S. passenger airlines (i. e. , all that report scheduled passenger revenue) MMM-yyyy MMM-yyyy MMM-yyyy MMM-yyyy MMM-yyyy MMM-yyyy 350 Oct-Dec Est. 44, 166. 0 370. 0 MMM-yyyy 375 MMM-yyyy 400 MMM-yyyy 425
Collectively, U. S. Airlines Expect Cash Burn to Persist Through Winter 2020/2021 Given the Dearth of Demand (Especially Business Travel), Cost Reduction Is Paramount U. S. Passenger Airlines: Estimated Average Daily Cash Burn* (in Millions) ($142) ($133) ($129) Feb Mar ($179) Dec Source: A 4 A and various airline equity analysts Jan * Ticket and cargo sales - cash operating expenses - cash refunds - capital expenditures - interest expense – repayment of debt
Airlines Are Coping by Taking on Billions in Debt – Up ~63% From YE 2019 to YE 2020 Net Interest Expense Doubled From 2019 to 2020 and Will Approach $14. 7 B in 2021 -2023 “For 2021 and beyond, we anticipate a major deleveraging cycle as the industry will have no choice but to address its significant debt load. ” (Deutsche Bank, “Airline Industry Update, ” July 1, 2020) Year-End Total Debt ($ Billions) Interest Expense, Net ($ Billions) 108. 1 105. 4 2018 2019 2020 E 2021 F 2022 F 155. 3 161. 2 167. 2 172. 1 +$67 B 5. 2 2023 F Source: A 4 A, equity analysts and filings of Alaska, Allegiant, American, Delta, Hawaiian, Jet. Blue, Southwest, Spirit and United 4. 9 4. 6 3. 8 2. 0 1. 9 2018 2019 2020 E 2021 F 2022 F 2023 F
In 2020, S&P Has Lowered Its Credit Ratings on Eleven U. S. and Canadian Airlines* Ratings Actions Taken to Reflect Weakened Financial Condition and Heightened Risk ABBB+ BBBBB+ BB BBB+ B BCCC+ CCCCC C D Alaska Allegiant American Delta Hawaiian 15 -Mar Source: Standard & Poor’s Jet. Blue Southwest Spirit United Air Canada West. Jet 24 -Aug * Publicly traded U. S. carriers in S&P Global coverage universe
After 9/11 and the Global Financial Crisis, It Took Years for Air-Travel Demand to Recover Passenger Volumes Took More Than Seven Years to Recover From the Financial Crisis/Oil Spike Four-Quarter Rolling Passenger Volume (Millions) and Operating Revenues (Billions) $250 $200 Source: A 4 A Passenger Airline Cost Index and Bureau of Transportation Statistics (Form 41 Schedule T 1) $100 4 Q 24 $50 1 Q 24 2 Q 23 3 Q 22 4 Q 21 1 Q 21 2 Q 20 3 Q 19 4 Q 18 1 Q 18 2 Q 17 3 Q 16 4 Q 15 1 Q 15 2 Q 14 3 Q 13 4 Q 12 1 Q 12 2 Q 11 3 Q 10 4 Q 09 1 Q 09 2 Q 08 3 Q 07 4 Q 06 1 Q 06 2 Q 05 3 Q 04 4 Q 03 1 Q 03 2 Q 02 3 Q 01 Global Financial Crisis + $100 Oil Passengers Enplaned (Mils) $150 ? 9/11 4 Q 00 1, 000 900 800 700 600 500 400 300 200 100 0 $0 Operating Revenues ($ Bils) * Passengers enplaned systemwide on U. S. airlines in scheduled and nonscheduled services
We Are Unlikely to See a Return to 2019 Passenger Volumes Before 2023 -2024 2021 -2022 Clouded by Uncertainty re: State of Pandemic, Vaccination/Therapeutics, Economy Estimated U. S. Airline Industry Passenger Traffic Change (%) vs. 2019 Levels 10 0 (10) (20) (30) (40) (50) (60) (70) 2020 E 2021 F 2022 F Pessimistic Source: A 4 A and various airline equity analysts 2023 F Optimistic 2024 F
BTS: Second Quarter 2020 Air Fare Drops to New Low as Passenger Numbers Decline “U. S. domestic air fares declined in the second quarter of 2020 to $259, the lowest inflation-adjusted quarterly air fare in Bureau of Transportation Statistics (BTS) records dating back to 1995. The previous low was $334 in the first quarter of 2020. ” Source: Bureau of Transportation Statistics (https: //www. bts. dot. gov/newsroom/second-quarter-2020 -air-fare-drops-new-low-passenger-numbers-decline)
Air travel demand has weakened because of Covid-19’s resurgence Analyst commentary Darryl Genovisi / Vertical Research Partners: “Demand recovery remains on pause with harder comps ahead” (12/4/2020) Mike Linenberg / Deutsche Bank: “The View (from 35, 000 feet): Anyone counting on a faster-than-expected recovery? ” (12/6/2020) “However, the COVID-19 weekly case counts curve has gone vertical and this is also likely to matter, particularly when gov’ts exacerbate the impact by ordering businesses to close and advising citizens to remain at home as they have been doing recently. Even though the pullback we have seen in ticketing activity so far has been marginal, we must acknowledge that our most recent data point is suspect, compares have been accommodating and get much more difficult next week, and risk of customer cancellations over Christmas and New Year’s is elevated given the industry-wide elimination of change fees. ” “Who's counting on a faster-than-expected recovery? Very few industry observers (and investors) it seems as week after week we see forecasts from all corners of the industry push the COVID recovery further out to the right (by the way, no change to our forecast that US airline top-line will recover by 2023). And while the COVID headlines in the US and Europe continue to be disconcerting (which happen to be where the majority of airline forecasters reside), particularly as they relate to air travel, we are encouraged by what we are seeing in other parts of the world such as Brazil, China, India, Mexico, and Russia, among others. ” Helane Becker / Cowen & Company: “Takeoffs & Landings: Next Week’s Itinerary” (12/4/2020) Many carriers have revised financial guidance for 4 Q 2020 down – example, Jet. Blue per Duane Pfennigworth / Evercore (11/30/2020) “This week Jet. Blue, Spirit, Delta, and American warned the market on slowing bookings and higher cancellation rates due to increased COVID -19 cases and travel restrictions. These warnings follow similar commentary from Southwest, United, and Alaska. At the same time, there are concerns case counts will continue to rise into the Christmas holiday. ” “Jet. Blue lowered December quarter revenue guidance this morning to down ~70% y/y from down 65% previously. Moderation in outlook is not surprising given recent case growth headlines and CDC travel warnings prior to the Thanksgiving peak, which likely drove some close-in cancellations. It appears Jet. Blue’s year-over-year demand trends through Thanksgiving were similar to October month (vs. prior expectations of sequential improvement). Hunter Keay / Wolfe Research: “Some more stimulus chatter out there…” (12/1/2020) Jet. Blue now expects cash burn of $6 -8 m per day, up $2 m per day vs. prior guidance range. ” “Air travel demand in recent weeks has been strong relative to an obviously climbing case count of Covid-19, but bookings are weakening. ” 14 14 airlines. org
15
- Slides: 15