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Don’t Bet On An Airline Recovery Just Yet

Airline

Once the pandemic is over many industries will surely recover, but the travel--and the airline segment in particular--will be doing it at a pace that doesn’t exactly inspire confidence.  The Fourth of July holiday brought record traffic to airports with the Transportation Security Administration (TSA) reported a nearly 400% increase from April, but it may have been a blip in the recovery radar.  

Since that--and likely because of that--a resurgence in coronavirus cases has raised fears that air travel may not rebound this year after all. 

According to a new report from Moody’s Investor Services, the airline industry will continue to suffer well into 2023 because of the current coronavirus pandemic. And that is the best-case scenario. 

In the worst-case prediction, the industry will not rebound to last year’s levels until 2024 or 2025.

"Recent experience of increasing rates of infection concurrent with loosening social distancing and quarantine protocols indicates that passenger demand will likely align more with our slower recovery case," the report said.

The International Air Transport Association (IATA) has predicted airlines could lose $84 billion just this year. 

That could very well mean bankruptcy for some airlines, whose only play left may be to sell shares to the government.

Last month, six U.S. unions representing aviation workers told top lawmakers that another $32 billion in payroll aid is needed. Under the CARES Act passed earlier this year, Congress gave the aviation sector $32 billion to cover six months of payroll through late September.

Both the government and industry hoped air travel would regain some lost momentum by October, but an ongoing resurgence is not comforting. 

Major U.S. airlines are offering voluntary exit packages in an effort to slim their workforces before October, and tens of thousands of employees are already taking temporary leaves.

Related: Are Gold Stocks Still Undervalued?

As it stands, over 60,000 airline workers at American Airlines and United Airlines alone are facing furlough warnings, while Delta Air Lines is hoping to avoid furloughs after about 17,000 employees volunteered for buyouts. Southwest Airlines, which has so far managed to avoid layoffs, has also warned job losses will be hard to avoid.

Despite the early July excitement, then, passengers may not give airlines enough of a boost. 

According to a study on travel behaviors during the pandemic by The University of South Florida, some 63% of the travelers surveyed plan to reduce their travel plans in the next 12 months. More than half canceled their business travel immediately due to the coronavirus.

Another study by Longwoods International found that 82% of travelers polled had changed their travel plans for the next six months. Prior to the pandemic, some 87% of Americans were planning trips this year.

According to travel experts, for the next 12 months Americans will travel mostly locally. Longwoods International found that 22% of Americans had switched to driving from flying.

The IATA says that passenger revenue for airlines is expected to shed some $314 billion (55%) from 2019. The number of passengers passing through TSA checkpoints at airports in April and May was down 93% over last year.

By Tom Kool for Safehaven.com

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