On Thursday, American Airlines revealed its numbers for the second quarter of 2021, posting its first profit since the beginning…
Recap: Doug Parker and Oscar Munoz Speak at Talks at GS
Goldman Sachs often invites executives from various industries for talks. This has been going for quite some time now, so the roster is quite large. The talks are more informal and have more of a talk show vibe than any sort of news interview, but they still reveal some interesting nuggets from the participants. Over the past two weeks, the talks brought two well-known aviation industry heavyweights to discuss everything from their heritage to their outlook on the industry. First, was Doug Parker, chairman and CEO of American Airlines, then followed by Oscar Munoz, executive chairman of United Airlines and formerly its CEO.
They both had some pretty interesting things to say about the industry and it offered a glimpse into their rationale.
Doug Parker spoke directly about the impact of COVID-19, took a few jabs at competitors, and of course made a plug about how he needs the government to provide American Airlines another bailout.
He feels the airline has handled the pandemic well and that the adversity has brought out great character. Mr. Parker specifically mentions the fact that American did not refuse cash refunds to passengers while some competitors would only provide vouchers.
A half-truth at best. American Airlines is currently fighting a class-action lawsuit that seeks to have the airline provide refunds for trips that were canceled during the pandemic. The airline is arguing that the people seeking reimbursements canceled their own flights and are there ineligible for refunds since these passengers canceled their own flights and were not canceled by the airline.
In addition, he stated that American Airlines didn’t reduce the work hours of their employees after taking CARES Act funding, unlike other airlines. This statement appears to be generally correct. American Airlines did not reduce work hours as other airlines did based on what has been reported so far.
Mr. Parker also is pushing hard to make customers feel comfortable about flying again, specifically mentioning surface cleanings, mask mandates, HEPA filters, and several studies.
Primarily he has been seeing leisure travel, people going to the beaches and mountains. Business travel has dropped significantly and is hoping for a recovery.
Parker then went on to discuss the necessity of the CARES Act earlier in the year and how necessary it is for another bailout from the government to keep the airline industry afloat and keep its infrastructure up and running. He cites things like needing everything in place for vaccine distribution and quick return to the skies as demand picks up. Curiously enough, Parker says that this money isn’t necessary for the airline to survive but it is money that is needed to be able to maintain the critical infrastructure as he calls it.
It’s an interesting strategy to say he doesn’t need money but is saying it would be nice to have if the government expects vaccines to be distributed.
Parker also talks about future flying and expects that there will be a 10 percent capacity reduction in 2021 vs 2019 and is hoping that 2022 is when things will start being close to or exceeding 2019 numbers.
Mr. Munoz’s talk was much broader with a discussion varying from his family to career advice. But he did provide some nuance to what the aviation industry is facing due to COVID-19.
Mr. Munoz felt the pandemic is not necessarily a crisis but an emergency. He defined a crisis being something that is a fundamental problem requiring fundamental solutions. He felt that when he took over United as its CEO the company was in crisis due to major issues plaguing the organization. These all required fundamental changes to correct.
COVID-19 on the other hand he considers an emergency, requiring immediate action but not at such a deeply rooted level as the changes required in a crisis.
HereOscar Munoz highlights United’s apparent strength in this emergency saying it was one of the first who called out the potential disaster for the industry. In the early days of the pandemic, United saw its bookings to Italy drop to zero and load factors at near zero as well. They extrapolated this and expected a similar situation in the United States.
In order to prepare for it he said the airline started to focus on getting liquidity and keeping costs down just to fight another day. They also immediately began their lobbying of the government for the payroll bailout provided by the CARES Act.
Now the pandemic is stretching longer than anticipated Munoz mentioned that there is a focus on rapid testing to facilitate international travel and attempt to prove that people can travel safely. Business travel, a key revenue source for airlines, will come back but it’s going to come back slowly and the airline is going to need to stick it out over the long term and find solutions to make it easier.
Mr. Munoz doesn’t expect any sort of recovery until midway through 2021 and feels travel won’t go back to normal until 2022 and quite possibly later.
He says the airline will come back smaller which is likely to dishearten many employees on furlough who might not know if they’ll ever go back to work.
All in all these were interesting talks that gave some insight as to what the two airlines are prioritizing and also what their hopes are for the future. Both airlines are expecting that there will be a start to the return to normal in 2021 as the vaccine makes its way to people across the globe. How much of a return to normal there will be in 2021 remains to be seen but 2022 seems to be the year both Parker and Munoz are looking forward to.
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