Travel Ban Saves Airlines Billions
President Trump's speech last night left many Americans uneasy about the Coronavirus outbreak, as evidenced by today's market performance. Furthermore, the travel ban on flights from Europe came as a total shock.
Flight Attendant Sara Nelson, president of the Flight Attendant Association, one of the largest flight attendant unions in the countries whose members include United told The New York Times:
"The airline industry was fairly blind by the announcement by Mr. Trump. It created a total pandemonium. The airline workers had no idea what it meant and for some it completely disrupted their lives. They didn’t even know if they were going to have a job in the next 24 hours or go home. The current trajectory is beyond job loss, it’s about whether the industry can really work. You cannot operate a flight when no one wants to be there.”
But is the fact that nobody wants to ride on planes right now one of the many reasons Trump decided on his travel ban?
Over the next 30 days there are expected to be upwards of 16,000 flight cancellations.
Game theory says that the order to ban entry from Europe (excluding UK) is to save the airlines.
Trump's move saves both American and European aviation from flying all of these 7-10 hour flights to keep their network presence and keep their slots.
By Consolidating all of those passengers through Heathrow and putting the rest of the planes to sleep for 30 days. The airlines are saving between $150,000 and $300,000 per one way flight operating with 40-50 people on it. With 16,000 cancellations expected because of the travel ban, savings for the airlines will be in the billions over the 30 day period.
The cash preservation will be important at a critical time. “The airlines are in cash preservation mode, and we expect to see credit facilities expanded and increased over the next week,” According to Cowen Financial's airline analyst, Helane Becker.
One of the airline's most powerful lobbying groups, Airlines For America, immediately issued a statement commending the actions of the president and promising to continue to work "hand-in-hand with the White House."
The airlines can use the time window to accelerate maintenance or retire cranky planes. They can all do it together and not worry about their competitive position.
It is a brilliant strategy until mid-April, when things hopefully will be consistently warmer and the virus will be abating. By then the idea is that there will be a U or a V shaped recovery in airline travel as the public feels the risk has gone away.
Written by Joel Anabilah-Azumah & Edited by Alexander Fleiss
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