Airlines prepare for uncertainty after European travel ban

Texas-based airlines and carriers with a large presence in the state, like American Airlines and United Airlines, already battered by the coronavirus pandemic that has prompted people across the globe to stop traveling, could find themselves reeling further until President Donald Trump's European travel ban is lifted and normal travel resumes.

But the steps toward normalcy are largely out of the industry’s hands.

“So much of what we’re seeing is how the government and the public choose to respond at a time of fear, or in the creation of fear,” said Samuel Engel, senior vice president of the aviation division at the global consulting firm ICF. “So that has nothing to do with airline expertise.”

Several Texas industries — and individual businesses throughout the state — are already feeling the economic impact of the virus. Oil and gas prices have cratered. Event closures and social distancing have Texas business owners worried that the worst may be yet to come.

Demand for airline travel rebounded quickly after outbreaks of swine flu, SARS and MERS. But COVID-19, so far, is less predictable — and much different. The International Air Transport Association estimated that the new coronavirus' disruption could erase $113 billion in revenue.

“On the localized outbreaks of SARS and MERS and swine flu, we saw demand return very quickly, but this seems to be a different category,” Engel said.

The travel ban, which takes effect at the end of the day Friday, includes more than two dozen countries from the Schengen region of Europe, including France, Germany, Spain and Italy.

Airlines are already taking a hit after the travel ban from China that was announced earlier this month. And although the latest order doesn’t apply to the entire European continent (England is excluded), the results will be staggering, according to IATA's estimates, which did not include impacts of Trump's ban and other governments' restrictions.

It’s unclear how employees will be affected, but Engel said a large majority of airline employees belong to unions that require furloughs and not immediate termination.

"The vast majority are unionized, the terms are carefully negotiated and stipulated, but typically the airline is able to furlough crew and maintenance staff, and they do hold their jobs, basically, indefinitely,” he said. “What we saw after 9/11, there were people who were on furlough for a very long time. By the time they were called back up, they had taken another job somewhere."

Ray Perryman, an economist with the Waco-based Perryman Group, said the ban will only add to the economic uncertainty the domestic airline industry has already dealt with. That includes Dallas-based Southwest Airlines, whose first-quarter revenue he said will be $200 million to $300 million less than what the company previously expected.

“Every day is bringing a new wave of event cancelations and warnings, and clearly a high-profile announcement banning travel will have ripple effects through domestic travel as well,” Perryman said in an email. “The situation could well grow worse before it gets better.”

If there is a silver lining, it’s that most of Texas’ foreign visitors come from Mexico, which has confirmed less than a dozen cases of COVID-19. But the impact of banning Europeans from visiting can’t be underestimated, Perryman added.

“Approximately 12% to 13% of foreign visitors to the U.S. each year are typically from Europe,” Perryman said. “Given that we likely have a larger percentage from Mexico than other states, our proportion from Europe is likely somewhat lower. It is apparent, however, that the state receives hundreds of millions of dollars in direct spending from European travelers, as well as the associated spillover effects.”

When the virus is contained and airlines are operating normally, Engel said, airlines aren’t likely to increase prices to make up for lost revenue. Prices might actually drop from normal levels to ensure maximum capacity, at least initially.

“You have light loads when you rev back up, so it is natural to discount to sell those flights,” Engel said.

Disclosure: Southwest Airlines has been a financial supporter of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune's journalism. Find a complete list of them here.