Airline CEOs Get Trump Pep Talk Under Shadow of Virus Crisis
(Bloomberg) -- President Donald Trump sought to reassure U.S. airline leaders on Wednesday as the industry confronts a potential collapse of travel demand because of the coronavirus epidemic.
In a meeting with chief executives of American Airlines Group Inc., Southwest Airlines Co., United Airlines Holdings Inc. and other airlines, Trump acknowledged the coronavirus and international travel restrictions erected to contain it have affected their sector. But he said it remains safe to fly to the destinations serviced by the carriers.
“As certain areas get to be more of a problem we may close them up as we have done with numerous areas. At this moment we think we have it very much in hand,” Trump said.
Neither investors nor the industry share Trump’s optimism. U.S. airline stocks are plunging this year, and global air traffic is on pace for the first annual drop in 11 years because of the coronavirus, according to the International Air Transport Association. Last month, the airline trade group predicted lost revenue of about $30 billion because of the outbreak -- and since that forecast, the infection’s spread around the world has only worsened.
A Standard & Poor’s index of major U.S. airlines has tumbled more than 20% since Feb. 21 as anxiety over the coronavirus outbreak has intensified. Shares of United and American Airlines both fell more than 3% before recovering Wednesday, bouyed by a more than 4% jump in the broader S&P 500, of which both are members.
The virus has now claisuemed more than 3,000 victims and the number of cases globally has surpassed 93,000. Officials had confirmed 11 U.S. deaths as of Wednesday afternoon, including one in California, the first outside of Washington state.
Several major companies have curtailed business travel as a precautionary move to protect employees against exposure to the virus. Ford Motor Co. on Tuesday announced it would pause non-essential business travel until March 27 for both international and domestic trips. Other multinationals including Toyota Motor Corp., Fiat Chrysler Automobiles, Nestle SA and L’Oreal SA have also made at least temporary plans to curtail business trips due to the virus.
During the meeting, Trump acknowledged that the U.S. travel restrictions tied to the coronavirus have affected airlines and that “a lot of people are staying in our country” and shopping and staying at U.S. hotels.
“From that standpoint I think probably there’s a positive impact but there’s also an impact on overseas travel which will be fairly substantial,” Trump said.
He later said, “large portions of the world are very safe to fly, so we don’t want to say anything other than that.”
Trump reiterated that the U.S. may impose additional entry restrictions on travelers from areas hard hit by the virus, without naming them.
Joel Szabat, the Transportation Department’s acting under secretary for policy, told a Senate committee later Wednesday that the virus is already causing people to reconsider airline travel. Global airline passenger volumes by fell by 4.7% to 6% on the outbreak, he said, citing industry analysts.
He also said a quick rebound is possible, citing what occurred after the 2003 SARS outbreak.
“The industry is resilient and snaps back quickly,” said Szabat, the Transportation Department’s representative on Trump’s coronavirus task force. “At the peak of SARS, U.S. travel halved. Within two months, it was back to normal.”
Washington Senator Maria Cantwell, the Senate Commerce Committee’s top Democrat, said a recent coronavirus diagnosis of a visitor to her state highlights the aviation sector’s role in the virus’ spread. A North Carolina resident flew home and tested positive for the coronavirus after visiting the nursing home in Cantwell’s state where a cluster of cases have been reported, she said.
“This underscores the importance of making sure the aviation sector is also prepared in how we mitigate the impacts of the virus’ spread,” Cantwell said.
At a press conference in Washington, leaders of several travel industry associations said they could see some cancellations in the coming months and other declines in the travel business, but didn’t anticipate broader long-term disruptions.
“It’s spring time, just ahead of the peak travel season for business and leisure, spring break, family vacations, conventions and trade shows,” Roger Dow, president of the U.S. Travel Association.
He said they are seeing scattered cancellations of meetings and other gatherings, but said the people were “not listening to what the facts are.”
In the U.S., United Airlines withdrew its 2020 profit forecast, citing the financial impact of the coronavirus outbreak in China. United, the U.S. leader in flights across the Pacific, is also nixing change fees for reservations made this month, in a sign that the company is looking to shore up bookings amid shaky demand.
The carrier also disclosed plans to cut back on flights and freeze hiring. The airline plans to cut its U.S. flight schedule by 10& in April and reduce international flights by 20%, the airline said in a message to employees.
The Chicago-based carrier has suspended flights to China, where the virus originated, as have American Airlines and Delta Air Lines Inc. In addition, Delta and United have pared service to other Asian destinations as well.
Despite the warning signs, U.S. travel industry officials downplayed the potential for the widening coronavirus outbreak to disrupt that sector even as major companies impose bans on business travel.
“People still want that experience so even if there’s a small dip here in domestic travel, there’s going to be pent-up demand,” said Chip Rogers, president of the American Hotel & Lodging Association.
Rogers said his industry was still assessing the exact impact from the virus but that “we think domestic travel will remain strong.”
Airline executives were meeting at the White House with U.S. Vice President Mike Pence, where a request by the administration for additional passenger data was expected to be raised.
Transportation Secretary Elaine Chao told a Senate hearing that the Center for Disease Control wants to be able to trace people on a flight if another passenger comes down with the illness.
“They want to be able to have the contact information of every single passenger. Unfortunately airlines currently do not have that capability,” Chao said. “We are now discussing with the airlines how to get this contact information that’s closer to the source of the passenger than currently what they have.”
Several senators at the afternoon hearing pushed officials to consider using an app that could be ready in as few as two weeks to help collect passenger data.
The U.S. Customs and Border Protection agency would be open to an app from a private vendor, “if it’s technologically possible and it meets all of the privacy rules and standard security standards,” William Ferrara, CBP’s Executive Assistant Commissioner for Operations Support, told the senators.
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