You're probably very aware that things are looking grim for airlines right now, but their situation might get much, much worse. When the coronavirus pandemic began in March, air traffic dropped 96 percent in the United States, crippling the aviation business.
"Unfortunately, nearly six months later, COVID-19 continues to wreak havoc on our industry, and demand for air travel has not recovered," Nicholas E. Calio, president and CEO of advocacy group Airlines for America, told TripSavvy. "Passenger volumes are down 70 percent worldwide, a third of the U.S. fleet remains idled, and U.S. carriers continue to collectively burn more than $5 billion in cash per month."
On March 27, Congress approved a wide-reaching economic stimulus package called the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, to mitigate the pandemic's financial impact on the country. You, as an individual, might've received a $1,200 check as part of the deal, or perhaps you received some of the enhanced unemployment benefits. Airlines also received billions of dollars worth of aid—but that money is about to run out on Oct. 1. Here's what you need to know.
How Does the CARES Act Help Airlines?
The primary benefit airlines received from the CARES Act was payment protection for employees, which allowed airlines to avoid significant layoffs.
"With the precipitous drop in demand for air travel caused by the COVID-19 pandemic, the CARES Act was successful in providing most of the commercial airlines the financial capability to protect the vast majority of their employees," said Jeff Potter, the former CEO of Frontier Airlines. "And, as importantly, it provided the needed time to develop the necessary tactical and strategic changes to their respective business models—which are substantial when described over the last several months."
But from the beginning, the funding was intended to be a stop-gap rather than a long-term solution, which is why aid runs out Oct. 1. "The hope was that there'd be a V-shaped recovery and that the funds would help them bridge the gap until travel was back on solid footing," added Ben Mutzabaugh, senior aviation editor at The Points Guy. "We know now that the recovery will likely take years."
What Will Happen If Funding Runs Out?
"Currently, it appears that a new aid package is not likely to be passed," Potter said. "While there continues to be pressure politically and by aviation industry groups, the political climate has caused discourse hindering any progress."
So come Oct. 1, involuntary furloughs and layoffs will be the biggest threat. American Airlines says 19,000 employees are at risk; United has 16,000 employees in danger. Beyond that, you can expect a continuation of fleet downsizing and schedule reductions.
Routes will also begin to disappear. "The CARES Act required that airlines receiving funds must keep flying to all of the cities, with a few exceptions, that they flew to previously," explained Mutzabaugh. "But on Oct. 1, airlines will be free to pull out of cities that they feel like they can no longer profitably serve. American has already said it will end service to 15 cities this fall if there's no extension. Expect smaller cities to be hit hardest."
In essence, airlines will become much smaller, providing less service than in the past.
How Can Airlines Avoid This?
Well, it’s really not up to the airlines, which have pretty much done everything possible to cut costs already. “Many of the major airlines have been successful in offering early retirements, extended time off, and working with their respective workgroups—pilots, flight attendants, mechanics, etc.—to help reduce the need for long-term layoffs,” Potter said.
Ultimately, it comes down to negotiating a new aid package with the government. “We urgently need for Congress to act now. We are encouraged by the strong bipartisan, bicameral support to help the airlines; however, now we need action, not just talk,” said Calio. “We need congressional leaders to get back to the negotiating table and identify a vehicle. Congress needs to get something meaningful done—and it needs to get done now.
U.S. Department of the Treasury. "The CARES Act Works for All Americans."