LATAM Airlines files for bankruptcy today. But I don’t expect a United States Airline – none of the big 4 to follow suit.
I expect the $58 billion in aid for U.S. airlines to stave off bankruptcies. This said 750,000 pilots, flight attendants, baggage handlers, mechanics and others — will soon be among the most at-risk for losing their jobs even though the bailout barred layoffs, involuntary furloughs or pay cuts for employees. After October 1, many of these jobs will disappear.
In examining the outlook for airlines we pored over a dozen filings. Contrary to intuition, it seems that for this sector, labor is largely a “ fixed” cost (partly given union pressures) and not variable – hence a metric to be managed to for larger legacy carriers.
Scale and prices are key drivers of value. Airlines strive to control costs and capacity to drive operating margin. These are increasingly achieved through alliances that increase mutual inventory sales, while avoiding operational and integration hurdles that come with mergers.
Capacity increases passenger revenue as does increase in passenger fare per mile. Increase in passenger demand relative to available capacity too improves revenue. Ancillary fees increase also improves revenue. Cargo, freight and mail transported, bag fees, change fees, food, services are important revenue contributors
The airlines industry expects fewer flights and slumping demand. The $50 billion bailout provides temporary support. Berkshire Hathaway sells US airline shares. Divests substantial interests amounting to around 11% stake in Delta Air Lines, 10% of American Airlines, 10% of Southwest Airlines, and 9% of United Airlines. Airlines to take major hit from corona crisis. Substantial decrease in fares charged to transport passengers, mail and cargo, sale of in-flight services, alcoholic beverages, and frequent flyer miles.