By Alison Sider 

U.S. airlines retooled their businesses over the past decade in ways they said would generate profits even during an economic shock.

The coronavirus epidemic rippling around the world is providing the biggest test yet of those efforts.

The biggest operational impact for U.S. carriers has been mass cancellations into April of flights to and from Asia. American Airlines Group Inc. and Delta Air Lines Inc. suspended flights to Milan after the U.S. State Department issued its highest-level warning against travel there on Saturday.

Now there are mounting signs of softening travel demand in the U.S., as people skip trips and businesses instruct employees to stay put. American Airlines, JetBlue Airways Corp. and Alaska Air Group Inc. have all suspended flight-change and cancellation fees to accommodate travelers who may be anxious about making firm plans amid uncertainty about the outbreak.

Pete Erickson, whose company organizes events for big tech companies, said some employees had backed away from plans to attend a staff meeting on Monday in Washington DC. "They don't want to get on a plane -- domestically," Mr. Erickson said. The company decided not to hold the meeting in-person, and on Sunday told everyone to stay put.

The financial toll from the epidemic is already expected to far surpass the $7 billion sales hit to the global airline industry during the SARS outbreak in 2003. Some analysts have estimated $100 billion in lost revenue to airlines and related industries if traffic growth that was already slowing turns negative for the first time in a decade.

"I've never seen anything like this -- it's unprecedented," said John Grant, an analyst at OAG, which publishes airline schedules and data.

Hunter Keay at Wolfe Research LLC on Friday cut his 2019 profit forecast for U.S. airlines by 23% despite a tailwind from lower fuel prices, which have fallen by a fifth since the start of the year. U.S. carriers have reported annual profits in each of the last 10 years -- a record streak for an industry long been characterized by booms and busts.

The NYSE Arca Airline Index fell 23% last week, outpacing the broader market's 11.5% decline. Airlines with a lot of debt and more exposure to international routes have fallen even more. Shares in American Airlines Group., for instance, dropped 31.5% last week, making the airline the worst performer in the S&P 500.

United Airlines Holdings Inc., the biggest U.S. carrier on trans-Pacific routes, has cut back on flying to parts of Asia. The airline postponed an investor day scheduled in New York this week, saying discussion of the epidemic would have overwhelmed any other topics. United is postponing training to bring on some new pilots, and is offering some of its pilots the option to take April off with partial pay as a result of its diminished flying to Asia.

Carriers have redeployed wide-body jets from Asian routes into the domestic market. That could put pressure on fares as they offer discounts to fill the bigger planes, analysts said.

Airline executives have told investors for years that they have fortified their businesses against economic downturns by taking steps like bolstering credit-card partnerships that encourage customer loyalty and bring in revenue even when consumers cut back on travel, as well as segmenting their most price-sensitive customers in basic economy.

Delta Chief Executive Ed Bastian said last year that the airline has more tools available to manage periods of weak demand, and has focused on strengthening its balance sheet.

"We spent years doing that in an effort to, as I frequently say, study for this final exam that is a recession, whenever it might happen," he said.

Travel-agency ticket sales for domestic trips declined 1.3% in dollar terms last week from a year ago. That drop wasn't as steep as the 16% drop for international sales, but it reversed weeks of annual growth, according to data analyzed by Vertical Research Partners analyst Darryl Genovesi. Those figures don't include tickets that airlines sell through their own websites.

Some executives are concerned the epidemic could affect the peak travel season this summer.

Willie Walsh, CEO of British Airways' parent International Consolidated Airlines Group SA, said last week that summer bookings started deviating from expected levels on Feb. 24. Mr. Walsh said airlines' response to this crisis would differ from the SARS outbreak and the 2008 recession, when carriers made big capacity cuts that left them struggling to catch up when demand returned.

"We're not going to repeat the mistakes we made," he said.

Doug Cameron and Sebastian Herrera contributed to this article.

Write to Alison Sider at


(END) Dow Jones Newswires

March 02, 2020 09:11 ET (14:11 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.
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