Brown on Business
August 31 - September 6, 2020
COVID-19’s airline industry downturn may soon trickle down to Arkansas
By Wesley Brown
wesley@dailydata.com
As Arkansas grapples the most unusual “back-to-school” season since the Sept. 11 attacks in 2011, that same unnerving feeling with also pervades the upcoming Labor Day holiday as COVID-19 frustrates the once booming travel industry.
In recent years, travel industry advocates have cheerfully touted record numbers of families taking their annual vacation as a last respite before heading into the fall and winter season and long school year ahead. This time last year, for example, the Airlines for America (A4A) trade association was boasting that it expected a record 17.5 million passengers to travel on U.S. airlines worldwide during the week-long Labor Day travel period, the traditional end of the summer vacation season.
At the time, A4A members, which includes American, Southwest, Delta and United Airlines, had projected U.S. carriers to carry an average of 2.51 million passengers per day.
during the week-long travel period. In past Labor Day periods, the Friday before the long holiday weekend is always one of the busiest travel days of the year, usually on par with Memorial Day, Fourth of July and the Thanksgiving and Christmas holiday seasons.
This year, however, A4A and other travel industry and destination trade groups have been usually silent about the 2020 Labor Day holiday, which this year will officially extend from Thursday, Sept. 3 through Tuesday, Sept. 8. Even with Arkansas and national gas prices more than 40 cents below year ago levels, that still may not be enough to get Americans to leave their COVID-19 virtual lives for a brief vacation.
In testimony before the U.S. Senate Commerce, Science and Transportation Committee in early May, A4A President and CEO Nicolas Calio likened the pre-pandemic period before COVID-19 as the “golden age” of the travel industry.
“In many ways, 2019 seems like a distant memory now. U.S. airlines were seeing an average 2.5 million passengers each day. Air travel between the U.S. and foreign countries reached an all-time high with nearly 80 million foreign visitors coming to the U.S. last year,” Calio testified. “The COVID-19 crisis hit a previously robust airline industry at lightning speed. Unfortunately, recovery from the crisis will not be nearly as swift. We anticipate a long and difficult road ahead.”
Once demand does recover, Calio said it will still take years to retire the newly accumulated debt and to address the sizable interest accrued, thereby limiting carriers’ ability to reinvest in their people and products.
In the past few months, A4A has focused all its lobbying and marketing efforts to get Congress and the Trump administration to throw a lifeline to the once-thriving airline industry, which has seen over a dozen U.S.-based or international commercial carriers file for Chapter 11 restructuring or end operations altogether.
In a Aug. 25 update on the impact of COVID-19 on the industry, A4A reported that weekly passenger volume for U.S. airlines was 70% below year ago levels. At the same time, domestic and international departures for U.S. airlines was also down 47% from the same period of 2019. That downturn – despite billions of dollars in emergency relief from the $2.2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act signed into law in late March – has caused U.S. airlines to ground more than 2000 planes, or 20% of the U.S. fleet.
To most Arkansans, A4A’s concerns may not seem impactful to individuals and families now dealing with how to safety get their kids back in school virtually or onsite. Others are trying to make ends meet after losing unemployment compensation and other expired CARES Act benefits after Congress failed last month to agree on another emergency relief bill as a second wave of COVID-19 cases and death threaten to erase recent economic gains.
Still, data from the U.S. Census Bureau shows that Arkansas’ aviation, aerospace and defense industry is one of the largest industry sectors in the Natural State, behind only the agriculture and the transportation and logistics sector. According to the Arkansas Aerospace and Defense Alliance, the industry is also the state’s number one trade business, generating 15.4% of state’s total exports and more than $1.8 billion in annual revenues.
Altogether, Arkansas’ aviation and aerospace-related companies over 10,000 jobs, the alliance notes. But that could all change as the global fallout from COVID-19 continues to trickle down to states and regional economies, including Central Arkansas.
For example, a recent A4A COVID-19 impact update notes Arkansas is ranked 24th among the 50 states experiencing the greatest impact on air service and air-travel demand due to the virus. That same analysis shows Arkansas airfields, including the Bill and Hillary National Airport and the Northwest Arkansas Regional Airport (XNA) in Bentonville, have seen a 49% decline in departures.
By comparison, the highest ranked states of New York and New Jersey, have seen U.S. and international passenger drop of 71% and 67%, respectively. A4A further noted in the Aug. 13 report that the industry has a long recovery ahead. Air travel took three years to recover from 9/11, and more than seven years after the Great Recession in 2008, the association said.
One of the local aviation companies at the Clinton National Airport impacted by those past two recessions is Paris-based Dassault Falcon Jet, which operates a combined service center and completion facility at Arkansas’ largest airport and aviation complex.
But in early May, the French luxury jet maker announced plans for “rolling furloughs” at the company’s 250,000 square foot completion center. In 2015, the completion facility underwent an expansion and $60 million makeover to allow the company to handle new aircraft projects and upgrade existing facilities, including the Falcon 5x and 8x models. At the time, the company had over 1,850 employees locally.
Dassault did not offer details of how many people were impacted by the recent COVID-19 related layoffs, which are scheduled for one- or two-week intervals. The completion center outfits Dassault Falcon’s line of business jets to customer specifications, including interiors, exterior paint and avionics.
Dassault other aircraft services center at the local airport operates a “one-stop shop” for all inspection, maintenance, modification, completion and repair needs for Dassault corporate jets and product line. Altogether, the French aircraft giant’s combined operations in Little Rock occupy nearly 1,000,000 total square feet, making it the largest Dassault facility in the world.
Another key well-known airline giant at the Clinton National has also been impacted dramatically by COVID-19 travel restrictions. Fort Worth, Texas-based American Airlines, which lost $2.7 billion in the second quarter, has announced plans to cut 19,000 jobs in October once its $5.8 billion in CARES Act funding runs out on Sept. 30.
Under the rules of the earlier $2.2 trillion stimulus, airlines could not cut domestic routes or payroll through the third quarter if it received any of the COVID-19 bailout funds. The Texas airline, which has 140,000 employees worldwide, has said it will move to cut jobs, routes and other services in fourth quarter due to low travel demand.
“This was one of the most challenging quarters in American’s history,” said American Airlines Chairman and CEO Doug Parker. “COVID-19 and the resulting shutdown of the U.S. economy have caused severe disruptions to global demand for air travel.”
What is not known is how this job cut will impact the company’s local commuter airline Envoy, which invested $2 million to build a new aircraft maintenance facility at the former Hawker Beechcraft hanger in 2016 and bring 60 high-paying jobs to Little Rock. Envoy is the former American Eagle feeder airline that operates nearly 200 aircraft on about 1,200 daily regional flights to more than 150 U.S. destinations.
Envoy also operates a maintenance base at XNA that expanded in 2007 to provide maintenance support for the 21 American and American Eagle departures it offers from XNA to Charlotte, Dallas/Fort Worth, Chicago, Los Angeles and New York LaGuardia. That Northwest Arkansas and Little Rock maintenance shops employ about 150 workers, along with dozens more at the airports’ terminals.
So much for the friendly skies this Labor Day.
