Coronavirus leads to cheap airfare but not enough to shield airlines
Fears over the spread of the coronavirus are leading to emptier planes, sending airline shares down to fresh multiyear lows and handing carriers their biggest challenge in a generation.
Some airlines are pausing hiring, offering unpaid leave and cutting flights to reduce costs as the virus spreads. U.S. airlines, which analysts consider among the best in the world to weather a crisis, have dropped more sharply than the broader market.
One side effect of the decline in air travel demand: bargain fares.
A round-trip ticket between the New York area and Miami around the Passover and Easter holidays, when New York City public school students are on vacation, ranges between $142 and $177, for the cheapest, basic-economy fares on airlines including Delta, American and United, a Kayak search on Monday showed. On discount carrier Frontier, a ticket search showed seats for that route around $137.
The popular leisure route isn’t the only deal. Boston to San Francisco, a popular business-class route, showed fares below $1,100.
“We would expect to see prices much higher,” said Gary Leff, a travel expert who writes the View from the Wing blog. “The lowest fares aren’t being snatched up, and that’s scary.”
Some airline executives have said that they are not necessarily lowering fares, but that there aren’t many takers for the lowest ones.
Many would-be travelers are “fearful at any price,” Leff said.
Airline bookings in North America were down about 8% in the last week of February and by “mid-teen” percentage points in the first week of March, according to a Credit Suisse note published Monday.
“As the number of infections rises, major events are postponed or canceled, and companies implement further travel restrictions, bookings and cancellations will decline further,” Credit Suisse airline analyst Joe Caiado wrote. “And this is not a demand shortfall that can be stimulated with lower fares (or Fed rate cuts), given that it pertains to consumer psychology around health & safety.”
The second quarter could be “disastrous” he said, adding that the severity is not yet clear.
Still, some travelers are jumping on the deals.
Roshanda Johnson, a 32-year-old marketing specialist, said last week that she paid $175 for a round-trip ticket between San Francisco and New Orleans to attend a sorority sister’s wedding there later this month.
“It was $400-$500” earlier in the week before booking, she said. “I’m not worried about the virus at this point in time but I know everything is changing day by day.”
Cecilia Love, 52, a retired police investigator who lives in New Jersey, said she paid around $370 a ticket with tax for nonstop flights to Sacramento, California, from the Newark, New Jersey, for her niece’s high school graduation in June.
“The airfare is crazy right now,” she said.
U.S. carriers are waiving change fees for new bookings as a way to encourage travelers to book, but that may not be enough.
“It was a very noticeable precipitous decline,” Southwest Airlines CEO Gary Kelly told CNBC’s Phil LeBeau last week about a drop in bookings. When asked whether lower fares could help spur demand, Kelly said: “People have money, they have the means to travel and spend. This is they don’t want to fly for the obvious reason.”
United has offered some employees up to six months of unpaid, voluntary leave and has halted new hiring until at least June 30, the carrier said last week. New pilot training is on hold. United last week announced it was cutting its international flights in April by 20% and domestically by 10%.
JetBlue offered flight attendants unpaid leave next month, when it plans to cut its capacity by 5%. Flight attendants who take the voluntary unpaid leave will retain their health benefits and travel privileges, the airline said. Other airlines are expected to follow suit with similar measures.
While U.S. airlines have largely offered customers the ability to cancel new tickets, it applied largely to new bookings. Delta Air Lines on Monday extended its change fee waivers to tickets booked before March 9 for travel through April 30.