More than five months into the COVID-19 pandemic in the U.S., air travel demand remains stuck at a fraction of 2019 levels. That's a big problem for airlines and their employees. The short-term payroll support program implemented in late March -- under which the federal government has covered most of airlines' payroll costs since April -- is set to expire at the end of September. And while there is bipartisan support for extending this relief for another six months, Washington gridlock has prevented passage of a new pandemic relief bill.
As a result, airlines are scrambling to find ways to use their otherwise-idle fleets and crews to tap into what little demand does exist. Last week, United Airlines (NASDAQ:UAL) got in on the action, announcing more than a dozen new point-to-point routes to Florida that it will operate temporarily beginning later this year.
United announces new point-to-point flights
United Airlines' first set of new Florida routes will launch on Nov. 6. It will fly from Boston, Cleveland, and New York's LaGuardia Airport to four popular getaway destinations in Florida: Fort Lauderdale, Orlando, Fort Myers, and Tampa.
These new routes will operate only on what the airline considers peak days. Through Dec. 16, United will fly each of these routes up to once a day, with the exception of the routes from Boston and New York to Fort Lauderdale and Orlando. It will operate up to two daily flights on those four routes.
United plans to ramp up its Florida service further on Dec. 17 to meet holiday travel demand. Beginning that day, all of its new Florida routes from Boston, Cleveland, and New York will operate up to twice daily, other than Cleveland-Tampa, which will remain at one daily flight. The airline will also start five additional routes at that time, linking Columbus, Indianapolis, Milwaukee, and Pittsburgh to Fort Myers and Milwaukee to Tampa. It will fly each of those five routes up to once a day.
Most of United's newly added Florida routes will use medium narrow-body planes like the Airbus A320 and Boeing 737-800. Those models have 150 and 166 seats, respectively, in United's configuration. A few lower-demand routes like Pittsburgh-Fort Myers will be operated with regional jets, though. And all of the routes are temporary, with service ending on Jan. 10, 2021.
Don't expect big profits
In recent years, United Airlines has been very deliberate about playing to its strengths. That has meant focusing its growth on routes from its seven hubs. The new point-to-point routes mark a sharp break from that strategy.
United Airlines doesn't have a competitive advantage in the markets where it is adding new Florida routes, with the exception of Cleveland, a former hub city where it still has a large base of frequent flyers. It also lacks a service advantage relative to most airlines it will be competing against. That's particularly true now, as four of United Airlines' biggest competitors are still blocking all middle seats to provide more distance between customers (unlike United).
Thus, the airline will be competing on price in a market where capacity has been outstripping demand. As of Thursday, United was offering basic economy tickets on popular routes like Boston-Orlando for less than $200 roundtrip -- for Thanksgiving weekend, no less. United's lack of a competitive advantage also explains why it will fly these new routes only on peak days, when it is most likely to benefit from spillover traffic ceded by the incumbents.
The least bad option
Last month, United Airlines sent WARN notices to 36,000 U.S.-based employees -- 45% of its domestic workforce -- providing advance notice of layoffs and furloughs that may be implemented this fall. Yet even if United goes through with staff cuts of this magnitude, it still wouldn't match the extent of the demand erosion it is experiencing.
Cutting its labor force even further would be a last resort, as it would make it harder for United to get back to normal once demand starts to recover in earnest. The least bad option is to find places to deploy capacity that will cover its variable costs and make some contribution to covering fixed costs. Routes that wouldn't be profitable based on a fully allocated share of United's fixed costs -- and wouldn't make the cut under normal circumstances -- might still be worth operating in the current environment.
United's new routes fit the bill. Even if Florida remains a coronavirus hotspot, there will probably be a decent number of leisure travelers from the Northeast and Midwest looking to fly south for the Thanksgiving, Christmas, and New Year's holidays. That should create enough peak-day demand for United Airlines to meet what are likely modest financial goals for these limited-time-only routes.