Photo by EWY Media/Shutterstock
Photo by Orhan Cam/Shutterstock
Congress’s $2 trillion relief package aims to throw a lifeline to many travel companies.
The $2 trillion CARES Act includes $50 billion for the airlines and additional support for hotels and travel companies of various sizes. But will it be enough?
The travel industry is one of the sectors that’s been hardest hit by the global coronavirus pandemic. Weekly travel spending in early April 2020 in the United States fell 85 percent compared to the previous year and approximately 5.9 million travel-related jobs will be lost by the end of April (or more than a third of the country’s travel industry workforce), according to a recent report published the U.S. Travel Association, a nonprofit that represents the travel sector.
The near shutdown of travel as citizens shelter in place and practice social distancing to mitigate the spread of COVID-19 has had an unprecedented impact on the companies that until recently were still moving and hosting millions of us around the world.
On March 27, the U.S. government swooped in with an equally unprecedented $2 trillion in relief (the largest relief package in our country’s history)—a piece of legislation known as the CARES Act—with a large portion aimed at assisting the millions of people whose livelihoods have been jeopardized almost overnight by the thousands of flights that have been grounded and the millions of businesses that have been forced to temporarily close.
As avid travelers, we have been watching this all unfold with worry—worry about our own future travel plans and worry for the travel companies that get us to where we want to go and make our experiences so memorable when we get there. We know that travel has had to take a backseat to the public health crisis. There appears to be no magic crystal ball about exactly when and in what form travel will return.
Until then, what will become of the airlines, hotels, and countless travel companies big and small that helped us take the 2.3 billion trips that U.S. travelers clocked in 2019? How much will the CARES Act help them survive the monumental challenges they face?
For the past two weeks, the travel industry has been scouring the documentation and figuring out what’s available—and what’s lacking—in the coronavirus relief package. This assistance could in some cases make or break the travel companies we cherish, so here’s a closer look.
In the wake of the global coronavirus pandemic, airlines around the world have cut capacity to historically low levels—and U.S. carriers are no exception.
United Airlines reported that it has cut about 80 percent of its capacity in April and anticipates larger cuts in May. American Airlines said it will cut domestic capacity by between 60 and 70 percent in April and between 70 and 80 percent in May; international capacity will be cut between 80 and 90 percent during those same two months. Globally, the number of scheduled flights was down by 64 percent the week of April 13 compared to the same week last year, according to a recent report by air travel data firm OAG.
“The question I keep hearing from our team is, ‘Are we going to be OK?’ I’m happy to report the answer to that question is yes,’” said American Airlines CEO Doug Parker in a video statement on March 27 about what the CARES Act will mean for the carrier.
Parker said that as the largest airline in the United States, American is eligible to receive about $12 billion in grants and loans of the $50 billion that was made available to the airlines as part of the relief package. This week, American announced that the U.S. Department of the Treasury approved $5.8 billion in financial assistance for American: a direct grant of $4.1 billion, and a low-interest loan of $1.7 billion. American said it expects to separately apply for a $4.75 billion loan from the government as well.
“We are confident those funds along with our relatively high available cash position will allow us to ride through even the worst of potential future scenarios,” Parker stated.
The $50 billion in assistance that’s been set aside for U.S. airlines has been divided into two categories (there is also a separate $10 billion that has been earmarked just for U.S. airports). There is $25 billion available in the form of loans and another $25 billion available in grants or direct payments—money that is often referred to as a “bailout” because it doesn’t need to be paid back. The latter can be obtained as long as the airlines agree to certain stipulations, including retaining some degree of service to every airport in the United States that had commercial air service when the bill was signed into law on March 27, and they have to agree to not involuntarily furlough any employees. Both of those commitments would be in place until September 30, “at which time we all hope and expect that this health crisis will be behind us and Americans will be flying again,” said Parker.
Those restrictions are crucial because they mean that the airlines can’t just do anything with the cash.
“They’re taking the offer and the support but as a consequence perhaps they’re slightly having one hand if not two tied behind their back as to how they would handle their way out of this event,” said John Grant, senior analyst at OAG.
For one, having to retain service to the same domestic airports they were flying to before the coronavirus pandemic took hold could mean having to fly unprofitable routes. “No airline really wants to operate a route for which there is no demand. That is counterproductive,” said Grant.
As for retaining employees, he added, “No company wants to make staff redundant. They’ve invested in training them and human capital is very expensive and in the airline industry is crucial. But the airlines need the ability to furlough the staff or to use the opportunity to retrain them or do something with them that allows them perhaps to have a bit more flexibility as to how they’re being resourced.”
In a March 27 message to employees, United CEO Oscar Munoz together with president Scott Kirby issued a joint statement informing team members that United would not be conducting involuntary furloughs or pay cuts in the United States before September 30 thanks to the CARES Act.
But Munoz and Kirby didn’t paint an entirely rosy picture of the future either. “We don’t expect travel demand to snap back for some time,” they stated. “If the recovery is as slow as we fear, it means our airline and our workforce will have to be smaller than it is today.”
Despite the hardships U.S. airlines face, they are in better shape than many other global carriers, according to Grant.
“The big three U.S. airlines are in a better position than many of the other 800 airlines around the world,” said Grant, referring to United, American, and Delta. Following more than a decade of consolidation, U.S. carriers have been able to better manage capacity in response to demand, have been profitable, and were able to build up their cash reserves, he observed. “That’s a strong starting point, and carriers like Southwest are equally well placed.”
This week, the U.S. Department of Treasury reported that 10 U.S. carriers applied for payroll assistance through the CARES Act: Alaska Airlines, Allegiant Air, American Airlines, Delta Air Lines, Frontier Airlines, Hawaiian Airlines, JetBlue Airways, United Airlines, SkyWest Airlines, and Southwest Airlines.
For the hotel sector, the coronavirus pandemic and the cascade of closures and cancellations it prompted presents a much more complex problem. That’s in large part due to the huge number of hotels and hotel companies and how vastly differently they all operate—there are more than 54,000 hotels across the United States, accounting for more than 5 million rooms.
“Every one of those businesses is run differently, so there’s not an easy remedy for everyone,” said Chip Rogers, president and CEO of the American Hotel and Lodging Association (AHLA).
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The U.S. hotel industry has asked the government for two main things: help to support its employees (75 percent of whom are not working right now, AHLA estimates) and help to protect the underlying businesses so that there will be a job to come back to when travelers are ready to hit the road again. Unlike with the airline industry, there hasn’t been a firm amount of government funding set aside specifically for hotels.
Rogers’s concern is that the way the CARES Act is structured, loans provided through the relief fund are forgivable if you spend at least 75 percent of the money on payroll.
“If you think about the hotel operation and what their expense items are and what are the expense items they absolutely must pay or they don’t have a business anymore, first and foremost they’ve got to pay their debt, right? If they don’t pay that, somebody’s going to come take the property from them. That has to come even before they pay the employees and I think everybody recognizes that. Because if you lose your hotel, there’s no job,” said Rogers.
He added to that list insurance (lenders require they have insurance otherwise owners will be in default of their debt), local taxes, minimal upkeep so that the properties don’t fall into disrepair, and minimal security staff.
“We’re already seeing the writing on the wall for the owners who are saying, ‘I’d love to pay my employees but if I don’t pay my services and my debt, I’m going to go out of business,’” said Rogers. “There are a number of hotels that just won’t reopen their doors for quite some time. I think most hotels that can reopen their doors will do so on a limited basis until we see the full demand come back. What we’re estimating on the demand side is leisure travel, which is your typical vacations; we expect that to be back by midsummer.”
Rogers added that his organization expects to see business travel start coming back some time in the late third quarter or early fourth quarter of 2020 and doesn’t expect to see the conferences, meetings, and conventions business return until 2021.
Regardless of whether it’s a cruise line, tour operator, bus company, travel agency, or restaurant, many U.S.-based travel companies have access to most of the same benefits being offered by the CARES Act to the numerous other businesses that have been adversely affected by the pandemic. They include things such as the Paycheck Protection Program, small business loans and debt relief, and payroll tax relief.
But according to advocates of the travel industry, they are going to need more.
“Congress must move swiftly to correct and supplement the CARES Act with additional rounds of aid,” Roger Dow, president and CEO of the U.S. Travel Association, said in a recent statement this month. “Travel-related small businesses will be vital leaders of an economic recovery, but first they need to survive until the point when travel demand returns. In order to make it, these businesses need to be able to access the resources that will enable them to keep the lights on and retain their employees.”
U.S. Travel is proposing that additional legislation include $600 billion more added to the initial relief package’s Paycheck Protection Program (and that the coverage be extended until December 2020—it currently runs through June 2020) and that eligibility is expanded to small businesses that were previously left out, such as local and regional destination marketing organizations. The group also wants to work to ensure that loan forgiveness would ultimately cover both payroll expenses and other operating expenses that have occurred during the shutdown, not just the former.
Essentially, the travel industry sees the government aid as a multi-step process. It is hoping not only to receive more aid but also to receive assistance with fewer loopholes or more relevance to its needs so businesses can stay afloat given the uncertainty of the pandemic and how it will play out—and its outsized impact specifically on travel. Ultimately, the greatest assistance will come in the form of a return to travel.
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