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Tuesday, June 16, 2020

Is Air Travel Back? Not For Me

I've only been to the Bahamas once; I didn't like it. The trip was to visit the legendary, now shuttered, Compass Point Studios in Nassau, where one of our bands, the Ocean Blue, was recording Beneath the Rhythm and Sound late in the summer of 1993. It was a difficult time for the band, who came from a very conservative religious fundamentalist background and had been coming to grips with the fact that one of its key members had decided to eschew the closet and embrace his homosexuality. He had written the band's only real hit and was the member most liked by the media. But the other band members-- who had once all given each other copies of the newly released Rush Limbaugh book as Christmas presents-- couldn't come to terms with one of them being gay. They told him he had to stop talking with the media and representing the band. And then they told him that Beneath the Rhythm and Sound would be the last time they would be working together, after having been friends since childhood.

I was unaware of that when I got to Nassau for the album playback. Afterwards the studio managers had a barbeque at the pool as a kind of celebration. Suddenly their 5 year old son was nowhere to be seen. Then he was seen-- at the bottom of the pool. Steve, the Ocean Blue member being thrown out of the band, had been a lifeguard. He dove in, rescued the kid and resuscitated him... tears of joy everywhere. One of the other band members came over to me. He seemed confused. "How," he asked me, seriously, referring to Steve, "could he be doing Satan's work and God's work at the same time?"

The was both the Ocean Blue's last album for Sire Records and my last visit to the Bahamas, forever tainted in my mind by the whole drama. And I'm not a big fan of beach resort places. There have been 103 COVID cases and 11 deaths, just 262 cases per million people, extremely low. The least impacted U.S. states have far more cases per million:
Alaska- 904 per million
Montana- 570 per million
Hawaii- 514 per million
In fact, the Bahamas are doing so well that they're reopening for business July1. The government will allow commercial airlines, hotels and vacation rentals as well as taxis and buses. But... pre-travel requirements include:
COVID-19 RT-PCR negative test result no older than 10 days, ready to be handed to Customs & Immigration officials upon arrival.
Customs & Immigration forms that must be filled out and printed prior to arrival.
A Travel Health Card that must be filled out prior to travel.
There are lots of safety requirements for tourists-- temperature screenings at places such as airports; beach chairs spaced 6 feet apart; and no more buffets at resorts. Incoming travelers are will be advised to adhere to social distancing guidelines and to routinely bring face masks just as they would bring their swimsuits and sunscreen."

According the USA Today, "Bahamians derive the bulk of their income from tourism. Fishing, diving and soaking up the sun reportedly generates $5.7 billion for the economy. In 2018, over 590,000 boaters visited the Bahamas. About 3.2 million tourists were from the U.S., contributing an estimated $1.3 billion to the economy.

The Prime Minister announced the opening will be reversed if cases spike: "It will be adjusted if we see a deterioration of the COVID-19 infection trends or if we’ve determined that the protocols and procedures are not in place sufficiently to warrant this opening."

Badge of Honor by Nancy Ohanian

The airlines were so desperate for customers that they refused to ban traveller who wouldn't wear masks, endangering the other passengers and the staff. This afternoon, the Washington Post reported this might change. "Airlines for America, a trade organization, said a group of major American airlines will begin 'vigorously' enforcing face-covering policies after reports of travelers not being held to the safety standard. Last month, several airlines acknowledged that they had told crew members to avoid escalating any confrontations in the air over mask violations and described various levels of enforcement. Delta, Southwest, United Airlines, American Airlines, JetBlue and others will 'clearly articulate' their face-covering policy to passengers and may require customers to acknowledge the policy at check-in, the association announced Monday on behalf of the member companies. If passengers don’t comply, carriers can implement their own consequences, which could include suspension of flying privileges. 'U.S. airlines are very serious about requiring face coverings on their flights,' Nicholas E. Calio, the group’s president and chief executive, wrote in the statement. That's completely and demonstrably untrue and anyone who catches COVID on a plane would have to be crazy not to sue the airline. Also noteworthy: "The use of face masks at airports has been sporadic, according to reports from across the country."

Anyone thinking about boarding a plane for Tulsa this week to attend the COVID-spreading Trump rally there? I'd advise against it; just drink the bleach. Alan Grayson watches air travel carefully and has been telling me there are just 20% of flights taking off these days compared to last year. Last week he sent me this e-mail: "Down 81% yesterday from a year ago."

He started on March 22 but I couldn't figure out how to take a photo of his chart that was that long. The low point was on my sister's birthday, April 16: 95,085 flights vs. 2,616,158 flights the year before (approximately 3.6%). It's been slowly ticking up since.

Yesterday, Josh Barro, writing for New York Magazine, noted that Air Travel Is Rebounding Strongly-- But Likely To Remain Well Below Pre-COVID Levels. "Air travel," he wrote, "is coming back." Really? I don't recall a summer I haven't been abroad since... 1968. I'm a frequent flyer and I can't imagine getting on a plane, as much as I might want to be in Bali or the Dordogne region of France, where we were planning to spend June.

Barro wrote that last Thursday the TSA "screened 502,000 passengers, the first time travelers throughout have exceeded half a million since March 21. By ordinary measures, this is dismal volume-- on a typical spring day last year, between 2 million and 2.5 million passengers passed through TSA checkpoints-- but it’s way up from the depths of April, when there were several days with fewer than 100,000 travelers, volumes not typically seen since the 1950s.
Airlines have been responding to this trend by beefing up their schedules, especially for domestic travel. American Airlines announced earlier this month that its domestic schedule for July will offer 45 percent less capacity than last July’s-- for comparison, May’s domestic schedule entailed an 80 percent year-over-year reduction. Rising passenger volumes also mean airlines have been losing less money every day than they expected to lose as of April, one of the factors recently pushing up airline stock prices (though they are down Monday morning).

As with so much of the economy, a key question for the airline industry is how long this better-than-expected trend will continue. A fraction of customers are demonstrating their eagerness to resume travel as soon as it is feasible. Forty-four percent of respondents to an ABC–Ipsos poll conducted this week said they were willing to fly at this time-- up from 29 percent in May, but still seriously depressed. And travel volumes are not just a question of willingness, but also of interest. Certain activities that motivate air travel-- conventions, weddings, festivals, nightlife, sporting events, even business meetings-- are unlikely to return in force until there is a widely distributed vaccine or a highly effective therapeutic treatment. And while consumers have been surprisingly eager to spend in certain areas, consumers whose own jobs and businesses are slow to return to normal may be disinclined to spend on leisure travel. Businesses dealing with lost revenues have found cessation of business travel to be one important area of cost reduction and may themselves be slow to resume it.

For this reason, airlines have been signaling to their workers that some fraction of the current service reductions are likely to be persistent-- and will require a permanent shrinking of aircraft fleets and of staffing. CARES Act financial subsidies generally require airlines to maintain staffing levels through September 30, but airlines have been warning of potential layoffs after that and have been offering voluntary buyouts and early retirement packages to workers. One common feature of these offers has been letting workers retain free-flying benefits for extended periods after leaving their jobs-- a benefit that may be more valuable in upcoming years if planes have more unsold seats available for nonrevenue travel.

Airlines are doing their part to lure customers back. American says this will be the “summer of deals,” and there are a lot of low airfares out there. But I can’t stop thinking about something the economist Jason Furman pointed out to me last month about airfares in the time of the coronavirus and “hedonic adjustments.” Hedonic adjustment is the process of accounting for changes in product and service quality when calculating inflation. If the new iPhone has a better battery life than the old iPhone, then part of the phone-price increase should be attributed to improved quality, not inflation. So how should we think about the changing quality of air travel-- if there are no restaurants open in New York, no Broadway shows, nobody willing to take an in-person business meeting with you, doesn’t that all reduce the product quality of a plane ticket to New York? Add the increased difficulty of getting a decent cocktail at the airport and the risk of contracting a deadly disease, and it’s easy to see why it’s so hard to sell airline tickets right now. Just because something is cheap doesn’t mean it’s a deal. And some of those factors reducing the quality of air travel are likely to persist for a year or longer.

The CARES Act was designed to prevent the airlines from shrinking in an undesirable way-- from running out of money this spring or summer, laying off staff and shedding planes for which demand would return by this fall. And as we see, some of that demand is returning pretty robustly. But part of what we are seeing is a longer-run drop in demand that will require a materially smaller airline sector for a period of several years as the economy recovers. Over the rest of the year we will get a better sense of how large a part that is that won’t return soon.


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