If the airline industry thought the summer was a downer just wait for this year’s fourth quarter, says economist and former Spirit Airlines CEO Ben Baldanza who argues that a second wave of COVID-19 could be awful for the airlines.
“Another wave of COVID would be really terrible for the whole economy, and that includes the airline industry,” said Baldanza, speaking on CNBC’s Squawk Box last Thursday .
“The fourth quarter which we’re just about to enter starting in October is traditionally a relatively weak quarter for airline leisure travel with the exception of the holiday periods at Thanksgiving and end of December. It’s more dominated by business travel, so are businesses going to send their people out to do sales calls, audit plans, have meetings and things like that or are they not going to do that?” Baldanza said. “And the question whether or not they feel confident and the people feel safe doing that.”
“I don't think we're going to see any kind of recovery on the leisure side until we get into next spring or summer,” Baldanza said.
Already reeling from the virtual shutdown of the industry, airline companies delivered bleak news in their second quarter earnings over the summer, prolonging the recovery in share prices.
Air Canada remains at less than half of its value from pre-COVID days, as Canada’s largest airline continues to struggle amid growing losses.
For Air Canada’s second quarter, revenue fell by 90 per cent from a year earlier and the company showed a loss of $1.55 billion. The company has done well to bring in extra resources, having raised $5.5 billion in financings in recent months, but the prospect that passengers won’t be returning anytime soon is of serious concern.
Baldanza says much of next year could be a write-off, too.
“If there’s another wave and we’re all shuttered back in our homes again and people are saying that gathering, which today is already a risky thing, is even a riskier thing, then I think we’re going to be looking at a very weak 2021 for airline demand,” Baldanza said.
“Let’s hope that's not the case,” he added.
The news is even worse for plane-maker Boeing which last week bore the brunt of a Congressional investigation into the two crashes of Boeing’s 737 Max airlines, with the new report saying a lack of action on the part of Boeing as well as the Federal Aviation Administration into known design flaws was to blame for the deadly crashes in 2018 and 2019.
Baldanza said along with the engineering issues at Boeing, getting the Max 737 back in the air will entail more pilot training and potentially a rebranding.
“A lot of people were buying the Max 737 before the crashes because it represented really good economics for the airlines,” Baldanza said. “Obviously, Boeing needs to fix the engineering problem that helped cause those crashes but the other important thing is that pilots are going to need to be trained differently than when the plane was first sold.”
“Boeing had pressure on it to put out a new plane that didn’t need a lot of pilot training because their competitor, the Airbus A320 Neo didn’t require that,” Baldanza said. “I think if they remove the Max name that would be a good thing for them — call it the 737 900 or just go with their other naming conventions. I think the Max has a taint to it now.”