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Airlines Are Hemorrhaging Money—Here’s What That Means for Travelers
To convince us to fly, carriers may actually have to work to woo customers again.
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Welcome to Buy/Sell/Hold, Marker’s weekly newsletter that’s 100% business intelligence and 0% investment advice. Each week, our writers Steve LeVine and Rob Walker make sense of the most important developments in business right now — and give them a Buy for positive trends or clever moves, a Sell for mistakes or missed opportunities, or a Hold if they’re noteworthy but too early to call.
The Unexpected Upside of Airline Losses
The Buy/Sell/Hold Analysis
The airline business has hit a fresh patch of turbulence lately, as carrier after carrier reports dismal financial results: In the last quarter, Delta lost a record $2.8 billion, American lost $2.1 billion, United lost $1.6 billion, and Southwest lost $915 million. The hemorrhaging will likely continue, with Covid-19 cases spiking nationally, and the number of passengers going through its checkpoints continuing to dip.
But lurking beneath these surface trends, an intriguing shift may be underway: Airlines may actually have to work to woo customers again. Instead of shaking us down for every last nickel, they’ll have to compete on a new type of brand experience.
It turns out that business travel accounts for an estimated 60–70% of the sector’s revenue — a revenue stream that will only become less reliable now that Zoom calls are the new normal. That leaves carriers forced to court the leisure traveler. The leisure travel market has been returning — with some consumers willing to embrace vacation travel (even cruises) despite the pandemic — but it’s skittish, still at around 50% of where it stood a year ago, according to The Wall Street Journal.
An interesting branding challenge is emerging: How will airline seating, safety policies, and perhaps other Covid-age “perks” affect traveler demand? According to the New York Times, Delta, Southwest, and Alaska are blocking middle or adjacent seats through the end of September, and JetBlue is sticking to no middle seats through Labor Day. Southwest says it is lately adding “tens of thousands” of flights to keep up this distancing measure while meeting demand. Meanwhile, American and United are doubling down with their apathetic stance — filling as many seats as possible, while offering flyers the inconvenient alternative to switch to a less-crowded flight.
It’s a pretty straightforward (and classic) face-off: customer experience versus economic efficiency.
A Times reader commenting on a negative experience on a “packed” American flight vowed “NEVER again.” But there is famously a mismatch between what people say about their air travel intentions, and what they actually do. As Saturday Night Live’s Colin Jost once said on “Weekend Update” after a passenger was violently dragged from an overbooked flight: “I will never fly United ever again — unless they have a cheap flight to wherever I’m going.” We’ll see if a pandemic actually changes that equation.
— Rob Walker
⚡Lightning Round ⚡
⚡ Tesla Turns a Profit in Q2. Despite the economic recession and the closure of its Fremont plant this spring, Tesla defied the consensus of skeptical analysts by making a $104 million profit from April to June. Along with the announcement that Musk plans to build its largest factory in Texas, news of its fourth profitable quarter in a row spiked its already-surging shares up an additional 5% after-hours on Wednesday, propelling it closer than ever toward entry into the S&P 500. Buy.
⚡Slack Slams Microsoft for Anticompetitive Behavior. If you’re nostalgic for the Microsoft antitrust drama of decades past, Slack’s got your back. The business comms platform announced this Wednesday that it had filed a complaint with the European Commission over Microsoft’s bundling of its Microsoft Teams chat and video software with other Microsoft products. In a statement to the Financial Times, Slack’s general counsel said, “[Microsoft] created a weak, copycat product and tied it to their dominant Office product, force installing it and blocking its removal, a carbon copy of their illegal behaviour during the ‘browser wars’.” And much like during the browser wars, the tech behemoth will continue to test its legal boundaries. Hold.
⚡ Trader Joe’s Will Drop Its Stereotyped Branding: In the mood for Trader Ming’s dim sum or Trader José’s salsa? Not anymore. Two weeks ago, a 17-year old high school student started a petition to get Trader Joe’s to drop its racist branding (now with over 4,000 signatures), and the chain responded this Sunday with a statement that all its products would be repackaged under the Trader Joe’s label “very soon” — a move they claimed to have already been working on. Buy.
⚡ Twitter Explores a Subscription Option. In a year where companies like Walmart and Disney keep succumbing to subscription fever, Twitter is ready to bite the bullet: On Thursday, Jack Dorsey said the company was considering subscription offerings as a means of diversifying its ad-heavy revenue streams. With Q2 ad revenue dropping 23% compared to 2019, it’s a wise move to turn elsewhere for steadier sources of income — but it may also prove difficult to convince users to pay for a platform they’ve long enjoyed for free. Hold.
📈 The Number: 700,000
The number of job applications Chipotle has received for 10,000 openings since May.
Independent restaurateurs say that, short of a government bailout, they will lose 85% of their 500,000 eateries by the end of the year. But not Chipotle: It’s among the fast-casual chains, like Domino’s, that have actually prospered amid Covid-19, as Americans stock up on giant family-size orders sufficient for dinner and leftovers. With U.S. joblessness at 11.1%, a staggering 700,000 people applied to the company’s call for 10,000 workers, according to CNBC. Economic indicators like these sky-high unemployment figures suggest our depression-like recession will probably be with us well into 2021 — and possibly 2022.
— Steve LeVine
📖 Marker’s Weekly Longread: The inside story of how Canadian e-commerce company Shopify managed to save small businesses everywhere from bleeding out in the middle of the shutdowns. Now it’s coming for Silicon Valley.
🔎 Marker’s New Fixation 🔎
Amid international travel restrictions and new waves of lockdowns threatening to keep us indoors, one website offers a tiny virtual vacation: WindowSwap, where strangers upload videos of their views. The site is rather magical — with one click, you’ll suddenly find yourself overlooking a quiet street in Scotland, an oceanside veranda in France, or rain-drenched flowering trees in India. As you stare through someone else’s windowpane, you can hear the soothing ambient noises of the location: chirping birds, muffled traffic sounds, the gentle hum of an air conditioner. After becoming very, very familiar with the view from my own apartment window over several months, there’s something refreshing and serendipitous about being whisked to a different, random location — even if it’s just inside a browser tab.
— Bobbie Gossage, Deputy Editor, Marker
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