The first round of relief for airlines rocked by coronavirus turbulence is not arriving as a bailout check, but as a regulatory waiver that will help them dramatically trim their flight schedules without a substantial penalty.
The Federal Aviation Administration waiver issued Wednesday was a key ask of the airlines, which, two sources familiar with the industry told CNN, have not yet asked for federal funding to help their bottom lines, even while forecasting many rough months ahead as demand for air travel plummets.
Prior to the waiver, airlines faced the difficult choice of operating near-empty – and money-losing – flights or cancelling those flights and losing their share of the limited takeoff and landing opportunities at some of the nation’s busiest airports, according to Nick Calio, president of the trade group Airlines for America.
Under the now-suspended rule, each airline had specific, short windows during the day to use the congested runways at airports like New York’s LaGuardia Airport and Reagan National Airport outside the nation’s capital. If an airline did not take off or land a plane at least 80% of the time during that window, the slot could be given to another airline.
“By putting the use-or-lose slot rules on hold, the FAA and the EU are telling airlines they can go ahead and do what they have to in order to align their business with demand in the short term,” said Helene Becker, an aviation analyst at Cowen.
Instead of going to the government for direct, financial help in the form of a bailout, for now, U.S. airlines are tightening their belts, hoping to outlast the pandemic. American Airlines is slashing its trans-Pacific schedule by more than half. Delta Air Lines is eliminating as much as 25% of its international flights. The United Airlines president said he is planning for “extreme scenarios.” JetBlue’s CEO said that flight demand has fallen more now than it did after 9/11.
But federal funding is “not something that we want or something that we’re asking for,” one aviation industry official said.
“It would be useful if they’d take that money and put it towards fixing the problem,” the official said.
The industry is looking for a coordinated response from the U.S. government so that people feel the virus is being tackled, and public confidence in traveling rebounds, a second source said, noting the lasting relief will come when the spread of the virus is under control.
While airlines are trimming prices – by waiving change fees and baggage fees, for example – their efforts to drive down prices may prove to be largely irrelevant when it comes to passengers deciding to fly or not.
“The nice thing about air travel is that lower fares stimulate demand. It is nicely elastic in that way,” said Jon Ostrower, Editor-in-chief of “The Air Current.”
“But you need to have an environment where people feel comfortable and safe flying,” he added.
One of the few bright spots for airlines is the drop in fuel prices that is also linked to coronavirus fears. A gallon of jet fuel that cost about $2 in early January was selling for just $1.15 on Wednesday, according to the fuel price tracker on the Airlines for America website.
Unlike some overseas carriers that make advance purchases, many US airlines buy fuel in real time, an aviation industry source told CNN. That means airlines are poised to benefit immediately from the fuel price drop.
The savings can be significant.
For example, American Airlines, which has significant debt on its balance sheet, said in regulatory documents last year that a single cent change in the price of fuel is worth $47 million annually.
Treasury Secretary Steven Mnuchin told Congress Wednesday that the administration is “not looking for bailouts” for travel industries, but said it would consider a program like the government loan guarantees available after 9/11.
So far, the industry has not made that request.
It largely believes the slump in air travel will turn around when leisure travelers feel comfortable taking a vacation again and when businesses ease restrictions on employee travel — changes that could be a long way off as Americans choose not to leave home for work, much less vacation.
Philip Baggaley, who rates medium and large-sized airlines at S&P, said the companies he analyzes “are not near the edge at this point.”
“The general expectation is that travel will come back gradually throughout the rest of the year, but we don’t know yet because this is a new virus,” he added.
CNN’s John Hartwood, Chris Isidore and Alison Main contributed to this story.
