US airlines have just gotten $50 billion in government aid, and now they’re already looking for ways to skirt the terms that they agreed to…
“Ladies and gentlemen, welcome aboard this American Airlines flight, operated in conjunction with our codeshare partners, Delta Air Lines, Southwest Airlines, and United Airlines.”
Could that soon be a reality?
In this post:
The CARES ACT made sense
Late last week we saw the passing of the $2 trillion CARES Act, which was an overwhelmingly bipartisan effort to inject some money into the economy.
It’s far from perfect on many levels, but that’s to be expected:
- Nobody knows how long this situation will last, or how bad the economy will get, so it’s tough to know the appropriate measures to take when you have no sense of how bad the situation will get
- Overall the CARES Act is well intentioned, though you can always point out specific situations that are questionable (obviously these are extremes) — so there’s no aid directly for restaurant workers, while the government is essentially directly taking over payroll for airlines, paying the ~$300K salaries that senior captains at major US airlines make?
The truth is that no matter what kind of stimulus the government comes up with, there will always be examples where you say “that doesn’t seem especially fair.”
Government aid for airlines comes with some conditions
The airline conditions were well intentioned, but…
In exchange for giving airlines this relief, the government has requested US airlines do two things through September 30, 2020:
- Not lay off/involuntarily furlough any employees
- Not eliminate service to any cities that currently have service
The idea behind both of those makes perfect sense. The government:
- Recognizes the importance of the airline industry, and the ability for the industry to rebound once demand does; if you lay off pilots now and demand recovers, the process of retraining pilots will be time consuming and costly
- Wants service to continue to smaller markets that might otherwise be cut off from the outside world, since there’s still some essential travel that needs to take place
While the idea behind both of these makes sense, the practical implications are a different story:
- United Airlines’ CEO has already made it clear to expect lay offs as of October 1, 2020, when the government aid stops, since they expect the decrease in demand to last a long time
- While I can appreciate the desire to have some service to all markets, does it really make sense for every single airline to operate flights to smaller markets, given that most planes are empty?
What happens come October 1?
US airlines want to be able to consolidate service
CNBC reports that US airline executives will be meeting with the Department of Transportation this week, and one of the topics of discussion will be service consolidation.
As one airline executive commented on background:
“Does it make sense for more than one of us to be flying to a city when there are only a few seats filled on each plane? It may make more sense to maintain service to that city, but put all passengers on one plane.”
It’s a totally valid point. For smaller markets that are served by many airlines, it seems counterproductive to operate many flights per day, when each flight is almost empty.
The issue is the logistics of seeing airlines consolidate service:
- How will pricing be set to ensure that it’s still competitive? If only a single airline operates a route, will we still see $16 fares? 😉
- The process of negotiating revenue sharing and coming up with terms seems rather complicated in this situation
Could we soon see major US airlines working together?
Bottom line
US airlines apparently plan to present the DOT with the concept of working together to serve smaller markets. In many ways that’s logical, in terms of conserving cash, not flying empty planes unnecessarily, etc.
However, I suspect the logistics will be too much of a roadblock, and will ultimately lead to this not happening.
But my gosh, if you told me a few months ago that in 2020 US airlines would be trying to work together as one to operate some domestic flights, I would’ve told you to get outta here…
What do you make of this concept from airlines?
This was the situation pre-deregulation. The carriers would allot certain routes to certain airlines, and basically not compete with each with each other. Fares were inflated, service was limited.
Granted, times now are challenging, but there should be at least 2 carriers operating even in essential markets.
Dominic,
Your comments all offer but one conclusion, to be made any reality. There would have to be a return to a regulated environment for the US air traffic system to use mode of your conclusions. Need to return to a Civil Aeronautics Board.
I don't know why people are so worked up about this.
Before we continue, I'd just like to say: JetBlue and Alaska need legislation or something, to prevent them from being the targets of a price war between the big 3 and ends up so overpriced, it will definitely lead to the bankruptcy of the two airlines who buy them. Call it TWA buying whoever, or Pan Am buying whichever, or AA merging with US...
I don't know why people are so worked up about this.
Before we continue, I'd just like to say: JetBlue and Alaska need legislation or something, to prevent them from being the targets of a price war between the big 3 and ends up so overpriced, it will definitely lead to the bankruptcy of the two airlines who buy them. Call it TWA buying whoever, or Pan Am buying whichever, or AA merging with US Airways, a merger it really didn't need, but I believe this is the spark for the beginning of the end of American.
The biggest benefit is that this will reduce the likelihood of American, Delta and United in a needless constant battle to the detriment of customers in the domestic and regional markets. It will reduce cost cutting, lower congestion and improve service and punctuality. This for example, will greatly help Northeast America shuttle flights.
Second, they can plug gaps in the network that would be otherwise unprofitable if they attempted it themselves.
For example, UNITED needs to have some representation at JFK. United needs B6 domestic and regional to feed the partner airlines that can't realistically move all their operations to Newark or don't want to. Newark will NEVER be the New York airport. Public transport sucks, and most of us are not business travelers. Plus, there is a prestige - a genuine value to "JFK".
Let's be very real here. JetBlue was NEVER going to fly to Europe. Yes, they've announced it, yes they have made a big hoo-hah about it. But they have not applied to the BAA or anyone in Europe. Where are they expanding into? It's obvious isn't it? Domestic. Where? Well, they have already run down American in JFK and BOS. Why not Chicago and Miami? That's why Neelman wants Breeze Airways - this outfit is being prepared to kill American and American Eagle from the east.
Delta and Alaska may claim they're at loggerheads, but in the west coast, they have a very symbiotic relationship. They have a shared interest in ensuring Seattle is strong. They're definitely joining oneworld to suck American from the west.
This would force American to make a play for Southwest. They already absorbed US Airways, aka the world's largest real LCC. Why not Southwest?
Everyone who isn't BA-AA have been trying to breakup oneworld, presumably I suppose, is to remove the political implications that the 3 alliances have always stood to symbolize.
The above cannot be allowed to spiral. Because we're starting to see UA and DL be selective about their closest airline partners. Don't BS me. Alaska and JetBlue are not even remotely fit for Singapore Airlines' Business Class passengers. The fact UA and SQ can't partner, has nothing to do with hostility... t(his is not some made up football rivalry) but anti-immunity issues. UA and SQ are the only ones who flies between US and Singapore. They have no choice but to compete. This is why CX and AA never JV. Or why 9W-ST JV never happened. KE-DL includes Singapore allegedly, but Singapore and South Korea are not even open skies. So the JV never applies.
Plus, there are issues coming the DOJs way? Firstly, the fact they allowed Virgin America in, means on some level, the rules can be bent to allow "favorable" foreign brands to market flights. So, isn't this basically a virtual foreign airline operating US domestic routes. This blunder is really, really, really bad. Second, if Delta isn't the largest, who is actually in control of Delta? Third, if United can farm out its brand to Copa, why can't others do the same.
Finally, we really do not need 3 flights by AA UA DL every hour. Or any 3 on say BOS-WAS or LAX-SFO. You have private jetshare for that. At most, between LGA-BOS or LGA-DC or LGA-PHL, ONE flight per hour, on a bigger plane or widebody even. NOT for business travelers, convenience but most planes flying empty. Just bloody codeshare.
Perhaps if things get too dire we could see the government imposing minimum and maximum set fares for markets (like $100-150 one-way for transcon flights, $50-100 for LGA-MIA, etc.). As for medical workers who need to travel, the airlines could offer special fares (such as Delta who has free flights for medical professionals to certain markets).
Many of the concepts you speak of here, have been in place for many years. Revenue sharing, flight sharing, equipment sharing have all been a part of aviation history.
One part of this puzzle is the regulatory portion, and the need to make sure this never occurs again. The callous manner that the boards of most airlines conducted their finances, was truly criminal. We had deregulation work for the most part in a positive...
Many of the concepts you speak of here, have been in place for many years. Revenue sharing, flight sharing, equipment sharing have all been a part of aviation history.
One part of this puzzle is the regulatory portion, and the need to make sure this never occurs again. The callous manner that the boards of most airlines conducted their finances, was truly criminal. We had deregulation work for the most part in a positive manner. However the fact the taxpayer has now been asked twice in less than 20 years to save the industry. And in between, most carriers went bankrupt,
I think it’s time to return to a form of regulation, Return the CAB, to monitor the actions of the airlines, and their executives.
@Flyoften
But does it have Gogo?
Air force pilots will fly the planes. They also own the planes. Each plane will have sections marked as "delta", "united" and "greedy ***hole".
There will be no inflight service (no change there).
No bags allowed (no change again).
Each "airline" pays the airforce per seat.
Why not?
Rule #1. Make money
Rule #2. Don't lose money
Rule #3. If unable to do #1 or #2, at least lose as little as possible.
"Smaller destinations" are probably served by only 1 or 2 carriers, possibly 3. By consolidating flights the carriers can reduce their losses substantially.
#justsayno
I think the question is "What flights get consolidated?" I could see a scenario where, say, NYC-LAX doesn't see full consolidation (and neither do routes such as LAX-SFO or LAX-LAS) but airports like CHO, PHF, or ROA see operational consolidation. Consider that air demand is down to below 10% of what it was at this point last year (based on pax counts on Saturday, it's at like 8.5%), so the alternative might well be airlines...
I think the question is "What flights get consolidated?" I could see a scenario where, say, NYC-LAX doesn't see full consolidation (and neither do routes such as LAX-SFO or LAX-LAS) but airports like CHO, PHF, or ROA see operational consolidation. Consider that air demand is down to below 10% of what it was at this point last year (based on pax counts on Saturday, it's at like 8.5%), so the alternative might well be airlines simply cutting lots and lots of airports from their networks for an extended period. A non-coordinated wave of that could see a number of airports lose service entirely (or only retain a minor carrier with no interlining).
I agree that the deal is not likely to be good for the consumer in terms of prices, but the alternative may well be major, if temporary, disintegration the national route system. Putting it slightly differently, would you rather have an expensive flight (because the solo carrier can't guarantee a reasonable load factor) or no flight?
Also, even with routes retaining multiple carriers, you'll probably see near universal interlining with this since a cut to, say, seven JFK-LAX flights could easily manifest as something like 1 B6, 1 AS, 1 WN, 2 DL, and 2 AA...but they probably would have tangles of misconnections thrown in.
Four wild cards in this:
(1) What's the status of the smaller carriers (B6, AS, and HA topping the list here)? I suspect there will be pressure to include them in the design of said system (particularly in certain regional cases). I'm guessing that Spirit, Allegiant, and Sun Country (among others) might be left out due to massively different business models and products. That leads to...
(2) How does this mess jibe with WN's utterly different business model from the "big three"? Does WN start having to offer assigned seats and everyone else have to comp checked bags?
(3) Does this start bringing back multi-stop runs as an alternative to extreme frequency cuts (to maintain connections)?
(4) What will be the status of things as demand (presumably) picks back up at the end of the crisis? Figuring out how to disentangle this will be...er...fascinating.
While theyre at it, can they remove some seats to create more leg room. Social distancing.
I think the airlines would have some internal work to be done to make this a reality. They would have to have code-share agreements and allow the other airlines to sell seats on their flights and they would have to allow mileage accrual on the other airline too. It is very well thought of but the logistics of implementing this are messy at best.
For example, if you have an AA flight that is...
I think the airlines would have some internal work to be done to make this a reality. They would have to have code-share agreements and allow the other airlines to sell seats on their flights and they would have to allow mileage accrual on the other airline too. It is very well thought of but the logistics of implementing this are messy at best.
For example, if you have an AA flight that is cooperated with Delta and United, then you would have to allow the other two to sell seats on that flight and people to get miles for one of the other airlines if they prefer.
Gene just could not stay on topic and had to make this post political!
Putting more people on a plane is NOT social distancing. Reduce the number of flights - no need for 8 non stops daily from LAX to DFW or ATL/slash the pay of of executives and top paid pilots across the board. Keep smaller markets, but reduce the number of flights to one or 2/day. Get smart and figure it out. Quit looking for a handout and make it work like most Americans are facing.
The problem with all this is that America is dangerously dependant on air travel. They have to bail them out because we have no other good public infrastructure. Outside of the Northeast, trains are useless. Decades of building freeways for car centered culture and airports for air transport means once thriving rails that went to every small city have totally evaporated. My hometown is small but my grandmother would show me the abandoned train station...
The problem with all this is that America is dangerously dependant on air travel. They have to bail them out because we have no other good public infrastructure. Outside of the Northeast, trains are useless. Decades of building freeways for car centered culture and airports for air transport means once thriving rails that went to every small city have totally evaporated. My hometown is small but my grandmother would show me the abandoned train station and talk about how easy it was to get around. All the tracks are gone now. It's similar story when you travel all over the east coast and rust belt. Then, once we started expanding west cities were built with cars, not trains, in mind. It is what it is but without a diverse public infrastructure system like trains, buses, ferries, etc....we have no choice but to bailout our main, and arguably only form of transport in this country outside of a personal vehicle.
As a retired airline employee I have often heard that if one airline ditched their frequent flyer programs they probably all would. There has been inter-carrier grumbling since AA started theirs and now it is a huge liability and administrative headache. I could easily see the majors using the current situation as a convenient excuse to ditch them saying they were no longer relevant. It all depends on whether or not we see a fast...
As a retired airline employee I have often heard that if one airline ditched their frequent flyer programs they probably all would. There has been inter-carrier grumbling since AA started theirs and now it is a huge liability and administrative headache. I could easily see the majors using the current situation as a convenient excuse to ditch them saying they were no longer relevant. It all depends on whether or not we see a fast snap back at the end of this current crisis. But you never know—there might be one out there that will refuse and then all will have to leave it as stars quo. I would say that the DOJ would have some serious anti-trust concerns but then I look at our current AG and wonder.
Never going to work.
Never understand how you could let airlines fail but help airline employees, never gonna happen either.
What would be fun, is a flight with AA pilot, WN crew, operating a UA jet out of a DL hub serving NK menus, and credit miles to AS under a ticket issued by B6.
The airline de-deregulation at its finest.
I wonder what the ME3 make of this? I thought US airlines were commercial enterprises without government support. Laughable! Absolutely necessary but I hope they get off their respective soapboxes afterwards!
So...it will now cost $1250 one way to travel from NYC to Miami because they will "consolidate" to two flights a day. The unintended consequences will be severe.
I don't know why people cant see this coming.
@ Taylor -- I bet you want your student loans forgiven, too.
If 4 airlines consolidate their flights on a route down to 2 or even 1 plane what are all the paid (with the government bailout) employees from the other 2-3 flights doing at that time?
Im guessing that the airlines reduce everyone's hours to the minimum that their contracts allow and cancels all extenral contractors where possible but with the drop in demand and then consolidation on top of this there must be a lot of government money going to stationary employees.
So airlines want planes full of people during a period when we are suppose to practice social distancing?
I mean what in the fuck?
~ The Honorable Reginald
Ben, I love you, but come on. The proposal floated (which is only a proposal at this point) is a pragmatic one. You even draw that same conclusion at the end of the post. Opening the post with phrases that imply deviant behavior — like "skirt the terms" — just prime the pump for the comments to go off the rails like they've done on every coronavirus-related post on this site. It's as if the...
Ben, I love you, but come on. The proposal floated (which is only a proposal at this point) is a pragmatic one. You even draw that same conclusion at the end of the post. Opening the post with phrases that imply deviant behavior — like "skirt the terms" — just prime the pump for the comments to go off the rails like they've done on every coronavirus-related post on this site. It's as if the TPG commentariat has infiltrated what used to be a generally civil, pragmatic comments section.
@Gene — Government assistance means US airline employees (which total 750,000) will continue to be employed and receive full pay for the next six months, despite airlines having near-zero revenue. Please take your hysterics elsewhere.
@Chris I agree. Its also not as if Only airline workers vote? Just anti-trump people wanting to find any way to be anti-trump.
@Gene - How does layoffs on October 1 -- Right before the election -- Help Trump at all?!
How is this not illegal anti-competitive behavior?
It would basically mean the end of the frequent flyer programs. Imagine Delta customers suddenly flying United. When things return to normal, could Delta really risk those customers never coming back? The same for American. Why would American want to expose its customers to better airlines? Not to mention the logistics of this even possible. Even something as simple as getting a bag from one airline to another is a challenge with airlines in partner...
It would basically mean the end of the frequent flyer programs. Imagine Delta customers suddenly flying United. When things return to normal, could Delta really risk those customers never coming back? The same for American. Why would American want to expose its customers to better airlines? Not to mention the logistics of this even possible. Even something as simple as getting a bag from one airline to another is a challenge with airlines in partner relationships. Could you imagine something say in Chicago where suddenly hit somebody has to go from the main terminal to a random terminal that Delta is using? And they only have 25 minutes to do it with a checked bag?
I think what happens is we see further consolidations. Maybe Alaska and JetBlue? Or Hawaiian and Alaska? Spirit, Sun Country and Frontier.
When domestic services started to get cut I was thinking that this would be a pretty damn good idea. Certainly there are still ways to maintain social distancing in the airport process (as they are doing in Beijing) and on airplanes (blocking middle seats or doing staggered configurations). In terms of competition, I figure that airlines already price flights very similarly on highly-competitive routes, and if people want to choose to purchase one codeshare flight...
When domestic services started to get cut I was thinking that this would be a pretty damn good idea. Certainly there are still ways to maintain social distancing in the airport process (as they are doing in Beijing) and on airplanes (blocking middle seats or doing staggered configurations). In terms of competition, I figure that airlines already price flights very similarly on highly-competitive routes, and if people want to choose to purchase one codeshare flight over another, they simply are buying into mileage and loyalty programs since onboard services are already quite limited and there aren't many ways to compete outside of onboard service/loyalty programs/price.
If governments are giving airlines such a large bailout then this could certainly justify airlines coming together to work this out. And I feel like if you calculated saved carbon emissions from consolidating service and *not* flying empty planes it would justify it even further (especially if you put the more fuel-efficient United/American Dreamliners and Delta A220s!). I think the real question lies in whether the technology is available to plan this incredibly complex consolidation project and merge reservations, ticketing, and seat assignment systems to handle this. I mean, airlines charter planes all the time so would it be that weird to have a "American/United/JetBlue flight chartered on a United aircraft"?
Conceptually this makes sense, until you run into the problem of hub transfers. It doesn't make sense for me to fly from a small market like Saginaw MI or Chattanooga TN on United to Chicago using Delta ticket stock (issued ticket), because I can't actually get a connecting Delta flight to most destinations unless I then take a connection to DTW or ATL, or unless United then honors the onward flight on UA metal with...
Conceptually this makes sense, until you run into the problem of hub transfers. It doesn't make sense for me to fly from a small market like Saginaw MI or Chattanooga TN on United to Chicago using Delta ticket stock (issued ticket), because I can't actually get a connecting Delta flight to most destinations unless I then take a connection to DTW or ATL, or unless United then honors the onward flight on UA metal with the Delta stock.
And dont get me started about how SW or UA might honor DL status. But in difficult times like these, I suppose that matters the least.
@Matt. What about people who work in restaurants in NYC. I am sure a lot of people are over the $75K. Just b/c you work in a restaurant doesn’t mean you make nothing. Some restaurant staff makes way more than you realize. So I think most people in NYC, LA, and SF that work in restaurants won’t be getting any cash injections.
@lucky - the terms of the act are not to continue to foster competition. they are to ensure that mid- and small-tier american cities don't lose airline coverage because of the biggest pandemic and economic meltdown in the better part of a century. the airlines are making an honest attempt to keep that going. if you want the airlines to make a financially sound decision, they would shut down operations to ride out the storm....
@lucky - the terms of the act are not to continue to foster competition. they are to ensure that mid- and small-tier american cities don't lose airline coverage because of the biggest pandemic and economic meltdown in the better part of a century. the airlines are making an honest attempt to keep that going. if you want the airlines to make a financially sound decision, they would shut down operations to ride out the storm. this would eliminate a ton, but not all, of their ongoing costs. the government saw this as a risk to our country and worked out a deal to keep them flying.
Better idea - let 3 of the four "majors" declare bankruptcy. The last one standing takes all the routes. You wanted consolidation, right?
Here's your chance. Take it and shove it up your....storage bin.
Shameless leeches need to be torn off the free market and dispatched to the garbage bin of history.
Enough!
"When the snows fall and the white winds blow, the lone wolf dies, but the pack survives."
Your comment that there is no direct aid to restaurant workers at the outset of this article is misleading at best and manipulative journalism at worst. Most if not all restaurant workers will get a direct payment of $1200, $2400, or more ($500 per child) because of their income levels. As will most workers in the airline industry, save for the most senior pilots, FA’s, and corporate managers because of income restrictions. It’s an invalid comparison.
I get why the airlines are doing this. At the same time, I hope that for most of the mid-sized regionals, at least two airlines will continue some type of service to prevent a total monopoly/one carrier dominance. I could definitely see traffic picking up a little, but carriers deciding it's more profitable for everyone to continue to operate their own little fiefdoms for longer than necessary or good from a consumer POV.
Nice sensationalism. In no way are they ‘skirting the terms’. They are figuring out a way to serve all cities as they agreed to without furloughing employees.
@ Biz Guy -- Of course they're trying to skirt the terms? The airlines agreed to serve all cities they currently serve. Now they're trying to have fewer airlines serve cities and consolidate service. Never did I suggest this was a bad idea, but this is quite literally trying to skirt the terms...
@ Ben -- This whole thing is disgusting. The ONLY reason the "no layoffs" until September 30 rules exits is to get Trump re-elected. Now, the only reason for this proposed disaster is to keep the airline executive's pockets lined. The upside is that this should virtually guarantee one-year extensions of all elite statii. I, for one, won't be participating in this mess, so see you in the air in 2021+. We can all just...
@ Ben -- This whole thing is disgusting. The ONLY reason the "no layoffs" until September 30 rules exits is to get Trump re-elected. Now, the only reason for this proposed disaster is to keep the airline executive's pockets lined. The upside is that this should virtually guarantee one-year extensions of all elite statii. I, for one, won't be participating in this mess, so see you in the air in 2021+. We can all just stay home and get over our travel addictions. The airlines will likely need to beg me to spend money with them going forward. Good luck to them all in bankruptcy.
Should have just let all go bankrupt smh
They aren’t making any money on the flights anyway. I doubt they care about the revenue on the flights that they’d be give up since the operator is charging all the costs. I think the social distancing concern is valid, but I also think it’s easily possible on a 20-30% full flight.
I don’t think they are requesting a complicated codeshare/revenue split system. It’s more like AA gets tiny city A-H, DL I-P, UA Q-Z. Basically just saying Sioux City doesn’t need 3-4 airlines right now.
This is like the New York MTA reducing subway service because ridership is down (which it has done) - all it does is increase crowding on the remaining service, which you don’t want. Airlines should be paid to basically keep most service as is the next two months or so - maybe in the summer, when social distancing has been relaxed, this will make sense
They’re only proposing to work as one to maximise government bailout money and fare income and to minimise costs. Not sure they see what the customer pays as part of the equation.