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’It’s going to be several years’ before the airline industry rebounds back to 2019 levels: Stifel Managing Director

According to a report from The New York Times, approximately 950,000 workers in travel and tourism industries will lose their jobs without any stimulus. This comes as President Trump reverses his course on stimulus, urging Congress to pass stimulus for the airline industry only, as he holds off on broader stimulus. Joseph DeNardi, Stifel Managing Director, joins The Final Round to discuss what’s happening in the airline industry.

Video Transcript

SEANA SMITH: Welcome back to "The Final Round" here on Yahoo Finance. Airline stocks getting a big boost today after President Trump tweeted that he supports an airline relief bill, calling on Congress to immediately approve $0.5 billion dollars in aid for this sector.

So for more on this, we want to bring in Joe Denardi. He's a managing director at Stifel. And Joe, still not clear whether or not we are going to get some sort of additional aid through the airlines.

We know, of course, that a deal would help prevent thousands of layoffs. But just big picture first, what's your assessment of the airline industry? How is it faring at this point? And what's the risk if it doesn't get more aid?

JOSEPH DENARDI: Yeah, I think it's difficult for any business to operate effectively when volumes are as low as they are. And so I think kind of the health of the industry comes down to the pace at which demand recovers.

And then the nature of that demand, specifically how much corporate demand is replaced in the next cycle by Zoom and other virtual meeting capabilities, I think those are the main questions that kind of longer term investors struggle with right now.

I think it's still, as you mentioned, a little bit of a toss-up in terms of whether the stimulus gets passed. I think the issue is that ultimately, the industry is going to emerge from this smaller because there's going to be less demand. And there's going to be less of a need for pilots. And so there will be a right sizing of headcount that will need to happen at some point. It's just a question of when.

ANDY SERWER: Hey, Joe. Let me ask you. You're a taxpayer, presumably, as I am. How do you feel about a bailout for the airlines, just generally speaking? I mean, why can't they just tap the capital markets?

JOSEPH DENARDI: Yeah, they have extensively. And I think the issue is that many of the airlines would not have as many pilots as they do right now if the government was not effectively paying for those pilots. And so to ask the companies to go out and raise capital specifically to keep well-paid employees on the payroll that they don't really have a use for right now, I think that's hard to do.

And so airlines have raised an enormous amount of capital over the last several months to finance the cash burn that they face once the government assistance comes to an end.

And so, I think it's a fair question you bring up-- not really for me to decide. I think airlines will be able to operate with or without that aid. It's more of a government decision in terms of whether they believe these employees should be kind of uniquely protected.

RICK NEWMAN: Hey, Joe, Rick Newman here. So House Speaker Nancy Pelosi has encouraged airlines to just sit tight, don't make those layoffs permanent because Congress might do something over the next weeks or months.

How is an airline supposed to respond to that? I mean, are they in a position where they can go from permanent layoff to temporary permanent layoff-- I mean, kind of yo-yo these employees? Or do they have to just make a decision and stick with them? What would you do if you were the CEO of an airline?

JOSEPH DENARDI: Yeah, I think there is a little bit of a wiggle room that that's created by the lag in terms of when schedules start to go into effect and the timing at which pilot and flight attendant schedules are implemented. So airlines probably do have some flexibility if stimulus is passed soon to essentially reverse the furloughs that they announced earlier in the week.

But the longer this drags out for, you know, you can't expect companies that are under as much financial duress as airlines are to pay employees that they don't-- that they aren't using. And so if the stimulus isn't passed and passed relatively soon, then, you know, the headcount reductions that airlines have disclosed they've either made or plan to make, they will be implemented, I think.

AKIKO FUJITA: Joe, there is a question of which airline is likely to emerge out of all of this in the strongest position, not just financially, but as a brand as well.

And I'm wondering when you look at names like Delta and JetBlue, they have made a very concerted effort to talk about the safety of passengers, continuing to space out some of the seating, just like what United and American Airlines have done. Has that ultimately been a net positive for these airlines, or has it not made much of a difference?

JOSEPH DENARDI: I think brand quality and certainly consumer confidence in the safety of travel will certainly matter. I think that the biggest variable there is a vaccine and folks feeling that it's safe to fly, and governments lifting restrictions on their ability to travel.

And so I think that's probably the more important factor than whether American Airlines has a lower net promoter score than Southwest. In terms of who emerges from this stronger or weaker, I think that's going to come down to capital structure. And there are very different capital structures across the industry.

Southwest, obviously, has the strongest. It's hard to envision a scenario where they don't emerge from this in a stronger position than which they entered. Allegiant is probably in that category also.

And then, the other dynamic is how aggressive does competition get once demand comes back? That is what long-term investors are worried about, is that all the capital that the industry has raised is going to fund very aggressive competitive behavior and share battles on the other side of this, as the haves try and take share from the have nots.

We're not there yet because there's not much share to be taken. But we may get there in 6 to 12 months.

SEANA SMITH: Joe, I wanted to ask you just about the rebound and when we look at back to those expected output levels, when do you see the industry getting back to the level that we saw last year back in 2019?

JOSEPH DENARDI: Yeah, difficult to say, obviously. And, you know, business traffic and the pace at which that comes back is a huge part of that. That typically accounts for, call it 40% to 50% of revenue for the major airlines.

And so there is a big question in terms of how much virtual capabilities will replace and how much corporate austerity will pressure business travel.

But I think when we model capacity and revenue, we don't have either of those getting back to 2019 levels until probably 2024. Some airlines will, obviously, get back there earlier than others, but I think from an industry standpoint, it's going to be several years,

SEANA SMITH: Quite some time. All right, well, Joe DeNardi, managing director at Stifel, thanks so much for taking the time to talk to us. Great to have you on the program.

JOSEPH DENARDI: Yeah, thank you.