October 25, 2021

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Bailed-Out Airlines May Be Allowed to Cut Even More Flights

(Bloomberg) — U.S. passenger airlines would be required to maintain minimum service levels to American cities in exchange for taxpayer financial support, but could dramatically cut their flights under a plan proposed by the Transportation Department on Tuesday.

Airlines would be permitted to consolidate flights to a single airport in cities with more than one under the proposal. In addition, airlines that fly to one city from multiple hubs would be allowed to fly to that city from a single hub under the plan.

The document outlines how the DOT would approach the tricky task of ensuring airlines continue flying to American cities in exchange for a share of $50 billion in taxpayer aid even as they slash flights to cope with plummeting demand. The department has asked for public comments by April 2.

While airlines will have significant leeway to continue operations if they choose, it appears to give wide latitude to dramatic cuts in service. Carriers wouldn’t be able to coordinate in a way that would run afoul of antitrust laws, however.

In one example, the DOT said a carrier flying to a city 49 times a week — seven times a day, seven days a week — could fulfill its requirement with just five flights per week. That would be a 90% drop in service, which is close to the decrease in passenger traffic.

Airlines flying to cities once or more daily for at least five days a week must maintain at least one daily flight, five days per week under the proposal.

The DOT would allow an airline serving multiple airports in the same city, such as the three surrounding New York City, to cease operations to all but one.

One of the possible outcomes could be more connecting flights. As long as an airline can connect to a point in its network through one of its hubs, it will be considered to be fulfilling the DOT proposal.

The Covid-19 pandemic has led to an unprecedented decrease in people flying. On Monday, only 154,080 people went through airport security screening in the U.S., a drop of 93% compared to the equivalent day a year ago when 2.4 million flew, according to the Transportation Security Administration.

American Airlines Group Inc., United Airlines Holdings Inc. and JetBlue Airways Corp. have cut their schedules on Tuesday by more than half, according to the FlightAware website. Southwest Airlines Co. will cut more than 40% of its scheduled flights starting in early May and will “evaluate further reductions” due to the drop in travel demand, the Dallas-based carrier said Tuesday. The carrier is maintaining service to every city it currently serves, Southwest said.

U.S. airlines rallied on optimism for an eventual turnaround, outperforming the broader market Tuesday. United led gains among the biggest carrierswith a jump of as much as 11%.

Following language of the stimulus legislation passed last week, the DOT intends to give carriers the opportunity to seek waivers to service requirements if they believe flying to a community isn’t “reasonable and practicable.”“The department recognizes that even with these reduced service levels, it may not be practicable for covered carriers to serve all points previously served in the prevailing operating environment,” the DOT said in the order.Airlines should be able to request an exemption at any time, the order proposed.

Regional airlines, which had been performing about 40% of all U.S. flights, will generally be bound by the schedules of the major carriers if they accept government aid, the DOT said. The largest airlines mostly sell tickets and arrange schedules, even when flights are performed by regionals.

The minimum service levels would apply to each airline individually, even if multiple carriers fly to the same city, according to DOT.

The plan stems from a provision in the $2 trillion stimulus plan signed by President Donald Trump on Friday that gave Transportation Secretary Elaine Chao the authority to force airlines accepting aid to continue flying to destinations they served as of March 1.

(Updates with detail from order, background from fourth paragraph.)

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