Secrets to Staying Afloat: The American Airline Industry

Despite being the shortest recession on record, the COVID-19 pandemic decimated a multitude of companies and industries. During the peak of the pandemic, 49.8 million people reported being unable to work because their employer closed or went out of business due to the virus. An estimated 60 percent of these closures have been permanent. All of these factors have led to the stagnation of the American economy. But out of all the affected industries, one has received the most media attention.

In recent years, the news has been full of stories of delayed flights, frantically enforced in-flight health measures, and laid off airline workers. It would be fair to say the American airline industry has been going through some… turbulent times. The arrival of international tourists worldwide has fallen 74 percent. There were nearly three million fewer flights in 2020 than in previous years, and 400 thousand airline workers were let go. Health measures to reduce the risk of transmission mean that even now, flights often fly at half of their passenger capacity.

The effects of these emergency measures are still felt today. As the pandemic calms down, 62 percent of flight operations leaders say that a key concern is finding enough qualified pilots. The New York Times recently published an article detailing a flight attendant’s response to agitated airline customers. Kristie Koerbel, a veteran in the industry, explains what post-pandemic travel looks like. Flights are frequently canceled due to a lack of backup crew, leading to frustrated travelers and troubled companies.

On top of various COVID-19 difficulties, jet prices increased by 90 percent in the past year because of the Russia-Ukraine war, taking a toll on airline budgets. To compensate, ticket prices have skyrocketed by 25 percent over the past couple of years, making travel even more inaccessible. Many who wish to travel are forced to rely on travel agents, buy tickets months in advance, or redeem rewards. Overall, in the first quarter of 2021, American airlines reported a net loss of $5.1 billion. General air travel fell by over 90 percent. Many unhappy customers have taken to social media to complain, damaging the reputation of flight travel.

It’s tempting to think that these current events are temporary. In fact, most economists and industry experts seem to agree that the industry will bounce back as consumers itch to indulge in post-pandemic travel. However, airlines have been struggling for a very long time. Even before COVID-19, mandatory retirement, fewer pilots exiting the military, and lack of accessibility, influenced by factors such as expensive training procedures, limited the number of pilots entering the field. Flight delays and cancellations were also a general trend before the pandemic. To say that COVID-19 is the sole cause for a substandard airline reputation would be a lie.

A Columbia University journalist noted in 2011 that the domestic airline industry had a net negative income in 23 out of the past 31 years. With high safety and equipment costs and a massive labor force, airlines are a risky business in nature—unprofitable companies quickly go bankrupt. All three notable U.S. airlines (American, United, and Delta) have filed for bankruptcy at one point.

Yet these airline companies somehow continue to survive. Several factors, namely government subsidies and the flow of liquid assets, help influential airlines make it past all of their financial and employment troubles. Aside from being bailed out by the American government, many airlines rely on mortgaging their airplanes, taking out loans, and selling bonds and stocks. During COVID, the CARES Act authorized the U.S. Treasury to allocate $46 billion in loans to aviation businesses. Out of 267 applicants, 35 loans totalling $21.9 billion were executed. Airlines also rely heavily on laying off employees to save money when budgets are tight. This practice is problematic, as airlines rely on a large workforce to manage their many planes.

These desperate measures have given airlines just enough money to scrape by. In fact, the revival of airlines post-pandemic may be harped as a success story for a heroic industry that persevered through difficult times. But it’s important to remember that airlines have been desperate for years and will likely be desperate for years to come. Analysts also fear that the impacts from COVID-19 will be devastating in the future.

Airlines have a tendency to go through their most tumultuous times years after a financial crisis. Four years after the September 11 attacks, Delta and Northwest filed for bankruptcy due to the expenses of added security measures. Similarly, American Airlines filed for bankruptcy in 2011, long after the Great Recession. Now that the reputations of airlines have fallen with COVID-19, the struggles of airlines may be reflected in the future of the industry.

Thus, “recovery” for airlines is difficult to define. No matter what steps companies take to better their financial position, there will always be people who get the short end of the stick. Workers will be laid off. The government will have to provide funds. The quality of service will decrease. As long as the need for air travel exists, the industry will likely continue to occupy its precarious position in the economy.