Opinion: U.S. Major Airlines Won’t Return to Normal Together

Everyone knows the aviation industry is in turmoil. We’ve been hearing about it since March, where people began to realize the impact on the industry would be bigger than what happened to it through 9/11, the 2008 financial crash and the Oil Crisis put together. Initially, it was the drop in demand due to people not wanting to travel. That then developed to actual travel restrictions that have grounded international fleets.

So-called experts say that demand is going to first return domestically and then after some time international demand will return. There seems to be a general consensus that at some point within the next two to three years demand will return to pre-COVID19 levels. There was a little glimmer of hope recently as demand was returning, particularly to New York and New Jersey. However, that was quickly crushed by the unenforceable quarantine requirement created by the governors of the tristate area.

The return of air travel is more a matter of when — not if — things will go back to normal eventually. Now domestic travel is far more likely to see resurgence sooner versus international travel, which likely would even restart on a large scale until the end of the year.

This broadly is good for airlines. However, there are airlines within the U.S. that are better equipped to weather out this long road to recovery than others. This is where key network differences are going to come into play.

Looking at the major airlines in the U.S., it can be determined that each has strengths and weaknesses when it comes to domestic and international travel. It’s going to be airlines with the more robust domestic networks that will be able to capitalize on the return of domestic travel, while airlines that might have a larger international network will have to ride it out longer.

Southwest Airlines

Southwest Airlines is a predominantly domestic airline. It only launched a handful of short international routes in 2014, over 40 years after it first started the business. Their international routes are limited shorter flights to Central America and the Caribbean, the vast majority of their flying is domestic. It captures 20% of the domestic market share, making it the largest domestic airline.

This gives it a key advantage as domestic travel returns. Southwest knows it too and expects to resume a full flight schedule sometime by the end of the year. On top of that, it is expecting to actually grow capacity at several airports such as Las Vegas and Phoenix.

It’s a bold statement to make but given their knack of flying through economic downturns and their strength in the domestic market, it’s not entirely improbable.

Delta Air Lines and American Airlines

Delta Air Lines and American Airlines both have roughly the same domestic market share. Their international routes though varying in where they have strengths in are relatively widespread though not as expansive as the network United Airlines has.

While both Delta and American have very similar market share the dynamics they have are quite different.

American is saddled with $40 billion in debt and is a highly leveraged airline. It has gone as far as telling Boeing that it will not be accepting the delivery of many Boeing 737MAX aircraft due to challenges finding the financing. It will be able to take advantage of returning demand but will have this looming mass of debt hanging overhead that is going to impact operations across the board.

Delta on the other hand has a relatively healthy balance sheet but it has another problem. It’s CEO, Ed Bastian, expects the airline to come from this downturn a smaller airline. This means routes will get cut in an effort to keep costs down. Delta’s problem is that it’s been very aggressive competing in markets. Where these cuts happen will be crucial to the success of Delta’s long-term strategy as demand will return to normal and grow at some point.

Currently, the airline is duking it out against competitors across the nation, and any cuts from Delta in competitive markets are going to be met by competitors who might be willing to endure the pain of flying until things go back to normal. If Delta tries to cut from Seattle, Alaska Airlines is there and waiting. If they cut from Boston or New York then JetBlue is on the sidelines waiting.

Delta says they’re committed to growth in these cities but until we see the airline building back operations it’s empty promises. At this point, it’s a race to see who will return back to key competitive markets first.

United Airlines

Finally, there is United Airlines, which has by far the most robust and arguably most profitable international network of any U.S. airline. Their domestic market share though isn’t that great— it varies from 10-14% depending on who you ask. But it’s clear that they have the smallest domestic operation, and returning to international travel is key for their return to normalcy. The airline can try to continue to grow domestic capacity as it has been doing so under the helm of Scott Kirby, but it’s going to face stiff competition by the more established domestic carriers

This is probably why Kirby is the most vocal of airline CEOs about the need for downsizing the airline.

The return of air travel is going to be good for everyone. However, airlines in the U.S. will not be able to take a uniform approach to get themselves back to normal. The downturn has shown that airlines while all competing in the U.S. have very different strategies and will need to take very different approaches.

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Hemal Gosai

Hemal took his first flight at four years old and has been an avgeek since then. When he isn't working as an analyst he's frequently found outside watching planes fly overhead or flying in them. His favorite plane is the 747-8i which Lufthansa thankfully flies to EWR allowing for some great spotting. He firmly believes that the best way to fly between JFK and BOS is via DFW and is always willing to go for that extra elite qualifying mile. Hemal's opinions are his own and do not reflect those of his employer.

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