United Cargo: big plans after blazing a trail through the pandemic
Two carriers in particular stand out for their flexibility and speed in shifting cargo at ...
The disintegration of the major airlines has begun. Yesterday, British Airways (BA) announced the likely loss of 12,000 jobs, one quarter of its workforce, as it warned that it would take years to return to 2019 levels of passenger demand.
The carrier announced preliminary results of a first-quarter loss of €535m ($580.5m), after a profit of €135m last year, on revenue down 13% to €4.6bn.
It also pointed to an exceptional charge of €1.3bn, “resulting from the ineffectiveness of fuel and foreign currency hedges for the rest of 2020, due to over-hedging”.
BA furloughed 22,626 employees in April, but acknowledged that the government could not fund them indefinitely.
CFO Steve Gunning noted on the carrier’s website that “recovery to the level of passenger demand in 2019 is expected to take several years, necessitating group-wide restructuring”.
And it added: “The group expects its operating loss in the second quarter to be significantly worse than in the first, given the substantial decline in passenger capacity and traffic, and despite some relief on employee costs from government job retention and wage support schemes.”
Its losses broadly mirror those of rival Delta Air Lines. The Atlanta-based carrier, and 49% owner of Virgin Atlantic, posted its first loss in five years, but the $534m Q1 deficit it reported, like BA’s, will look balmy compared with the anticipated flood of red ink on the balance sheet for the April-June period.
With US passenger numbers down to levels of the 1950s, it will also be a long haul back for America’s largest airline and its rivals, as hopes for the rebound that was initially expected have given way to gloomy predictions of a slow recovery that may take two or three years.
Delta’s revenues slumped 18% in the first quarter, but for the next quarter the airline’s management anticipates a drop of 90%.
United Airlines is faring even worse: the carrier warned it would be filing a pre-tax loss of $2.1bn for Q1, far worse than the projected deficit of $533m.
Revenue was down 17%, and management has warned that it expects to carry as many passengers in the whole of May as it previously did in a single day.
US passenger traffic has collapsed, dropping 96% in mid-April. According to Airlines for America, US domestic flights, on average, carried 12 passengers last week. Delta has slashed 80% of its domestic flights and dialled back international flights by 90%.
With their hub-and-spoke models and ties into global alliances, these cuts hurt the large network carriers more than point-to-point operators like Southwest Airlines, which has kept a larger portion of its fleet in the air.
Delta has parked 650 aircraft, reducing its capacity by 85% for the second quarter (again with the deepest cuts in the international arena). How many of these planes will ultimately return to service is anyone’s guess at this point. According to one aviation analyst, as many as 313 of Delta’s planes could exit the fleet.
Airlines for America reported last week that US carriers had idled 2,914 aircraft – more than 40% of their active fleets. – and according to one estimate, between 800 and 1,000 of them may not return to service.
“We are in for a massive shift in airline dynamics. I expect the scrapyards and recycling business to be the next growth industry,” said Stan Wraight, president and CEO of Strategic Aviation Solutions International.
Under a $50bn support programme from Washington, US carriers are obliged to keep all employees on their payroll until 30 September , but some have already signalled that job cuts will be inevitable in October.
In a memo to his employees, Delta CEO Ed Bastian warned: “Delta will be a smaller airline for some time, and we should be prepared for a choppy, sluggish recovery, even after the virus is contained.”
United Airlines CEO Oscar Munoz and president Scott Kirby struck a similar note in a message to staff: “We have some tough decisions ahead as we plan for our airline and our overall workforce to be smaller than it is today.”
Similar sounds are emanating from the other side of the Atlantic. Lufthansa CEO Carsten Spohr said he expected the airline to cut about 10,000 jobs and take out about 100 aircraft, with expectations of 10% lower utilisation and 10% lower earnings after Covid. Moreover, interest and loan repayments cost the airline about €1bn a year.
Delta has carried out a number of cargo charters with passenger aircraft and is looking to step up that operation. A spokesperson said it was working with Airlines for America to obtain the necessary approvals to remove seats to load more cargo.
With rates from China to the US reportedly reaching $19 a kg, using passenger planes to carry freight has a growing appeal for airlinemanagement. As one executive noted, profitability may be a secondary concern, first and foremost it can generate cash flow, which is a huge issue at this point.
On 14 April, Airlines for America president Nicholas Calio noted that US carriers were “burning through cash at a rapid rate – $10-12bn a month” and Delta CFO Paul Jacobson told analysts: “We are prepared for cash flow to remain negative through the end of the year.”
He said Delta had been “burning $100m a day” in late March and aimed to reduce this to $50m by the end of the second quarter.
Notwithstanding brakes on spending, Delta Cargo pushed ahead this month with the expansion of its DASH door-to-door programme to include larger packages of 101-300lbs and up to the maximum size that fits on an aircraft. The service was launched last year in partnership with Roadie, an Atlanta-based same-day delivery service provider. It currently reaches 60 cities and will be expanded, Delta announced.
Mr Wraight thinks the vital role cargo is playing for many passenger airlines at the moment should elevate its profile in airline boardrooms, but Ram Menen, former head of cargo of Emirates, has doubts.
“Though air cargo reigns at the moment, the second the passenger business starts coming back it will revert to its old days,” he predicted. “There isn’t much appetite in the boardrooms for combination carriers.”