ANALYSIS: Previous US government shutdown indicates limited airline impact

Washington DC
Source: Flightglobal.com
This story is sourced from Flightglobal.com

Updated with comments from Delta chief executive Richard Anderson

The impact of the US federal government shutdown on airlines could be limited, based on their experience during the previous shutdown nearly two decades ago.

A review of airline results for the fourth quarter of 1995 and first quarter of 1996 by Flightglobal shows that major US carriers felt little or no direct financial impact from the previous shutdowns, which occurred from 14 to 19 November 1995 and again from 16 December 1995 to 6 January 1996.

US Airways, then USAir, chief financial officer John Harper said in January 1996 that the federal government shutdown negatively impacted revenue by about $10 million that month. However, he made no comments on the impact of the shutdown during the previous months, even though it lasted for nine days not including weekends and holidays in December compared to just four days in January.

The carrier then, as now, was the largest airline at Ronald Reagan Washington National airport and also operated a since dismantled hub at Baltimore/Washington International airport.

United Airlines, which operated a hub at Washington Dulles International airport, reported a 1.3% year-on-year increase in traffic and a 5.2% increase in revenue per passenger mile during the fourth quarter of 1995.

American Airlines, Delta Air Lines and Continental Airlines did not mention the shutdown in their comments on the period, though they reported mixed results related to various restructurings at the time.

This shutdown, which began at midnight on 30 September, could be different.

The 1995-1996 US government shutdown occurred over the Christmas holiday, when there was typically little government travel to begin with. Furloughed federal employees likely continued with their Christmas and New Year travel plans, resulting in little impact to airlines until the first week of January – shortly before the shutdown ended.

The current shutdown is different. It is occurring outside of the holiday season when most employees are at work and during a period that has no federal holidays until Columbus Day on 14 October.

However, travel by federal employees has already been cut back due to the sequester budget cuts on 1 March. This potentially limits the impact of the shutdown, which is restricted to just non-essential employees.

US Airways saw government-related revenues fall 37% as a result of the sequester during the second quarter, and Delta said that its unit revenues were partially down as a result during March and April.

“We are not seeing any impact,” says industry organisation Airlines for America (A4A). “At this point, we do not expect airline operations to be impacted as we have been advised by the FAA [Federal Aviation Administration], TSA [Transportation Security Administration] and CBP [Customs and Border Protection] that front-line employees would not be subject to shutdown-related furloughs that would affect the travelling and shipping public.”

The organisation does note that the shutdown harms the economy and business, which includes airlines.

Jamie Baker, an airline analyst at JP Morgan, notably does not mention the government shutdown in a US airlines research note today. Third quarter earnings guidance from Delta and US Airways is better than expected, he says in the note.

"We're all frustrated with it regardless of political affiliation," says Richard Anderson, chairman and chief executive of Delta, at a conference in New York on 4 October. "It's like groundhog day," he adds referring to the movie.

Delta has not experienced any drop in travel demand as a result of the shutdown, says Anderson.

Southwest Airlines says that it does not expect any impact on operations and notes that it is too early to see any impact on bookings. It is the largest airline at Baltimore/Washington International today but had a very limited operation from the airport during the previous shutdowns.

US Airways echoes Southwest, saying: “It’s just too early to tell.”

American and United did not immediately comment on the impact of the shutdown.