Jul 31, 2020

Axios Navigate

By Joann Muller
Joann Muller

Happy Friday! In case you've lost track of time, it's the last day of July.

📺 We're back: "Axios on HBO" returns Monday, Aug. 3, at 11pm ET/PT on HBO. Watch the trailer.

Today's Smart Brevity count is 1,502 words, a 6-minute read.

1 big thing: Airlines pivot to cargo during pandemic

Illustration: Annelise Capossela/Axios

Passenger airlines devastated by the decline in air travel during the pandemic are making up some of their lost revenue by strapping cargo into passenger seats and overhead bins of planes that would otherwise be grounded.

The big picture: It could be several years before passenger air traffic returns to normal, but the global demand for medical supplies, along with disruptions in manufacturing supply chains and increased e-commerce, means airlines have a chance, at least temporarily, to offset some of those losses by transporting more freight.

What's happening: Since the pandemic began, some 150 airlines have been operating cargo-only "ghost flights," using passenger jets to transport freight, according to Logistics Management magazine.

  • Icelandair Group, for example, in a deal with logistics provider DB Schenker, removed the passenger seats from three Boeing 767 aircraft to transport medical equipment from China to Europe and the U.S., even slapping Schenker's name on the side of its planes.
  • Emirates SkyCargo began loading cargo in the overhead bins and seats of its Boeing 777-300ER passenger aircraft in early May in response to growing customer demand.
  • Other airlines, including KLM, SWISS, Qantas, Air Canada and Cathay Pacific, have also modified some passenger aircraft to transport cargo.
  • Lufthansa even has a name for the converted planes: "preighters," per Logistics Management.
"The cargo business is keeping aircraft, which would otherwise be parked, in the air and given us all more hope ... that we will come out of this."
— Dominic Kennedy, Virgin Atlantic's head of cargo operations, told Logistics Management

Zoom in: United Airlines said cargo revenue was a bright spot in an otherwise dismal second quarter.

  • Total revenue plunged 87% in April, May and June, but cargo revenue was up 36% as United flew 3,800 international cargo-only flights during the period.
  • "I mean, who would have ever thought we could do something like that?" CEO Scott Kirby said on an investor call, praising employees' resiliency.

Background: Passenger airlines have always carried commercial cargo — along with luggage and occasional pets — inside the belly holds of their planes. But when passenger traffic collapsed in early March, that airfreight capacity disappeared.

  • Yet as the virus spread, demand soared for personal protective equipment like masks, gloves and gowns, most of which is made in China.
  • Travel restrictions also snarled international shipping, stranding cargo containers in ports worldwide.
  • And as people hunkered down, they did more online shopping, boosting demand for fast goods delivery.
  • "What COVID-19 caused was a huge backlog of shipments because the world stood still for awhile," Aditi Mehta, whose company, PROS, provides revenue management tools for airlines, tells Axios.

For the record: The Federal Aviation Administration in April approved the use of overhead bins, storage closets and under-seat areas in the passenger portion of aircraft for lightweight pieces on cargo-only flights.

  • In May it expanded the rule to allow airlines to place cargo — with restrictions — in passenger seats when no passengers are on board.

What to watch: The cargo business is notoriously erratic — even more so now — and Alexandre de Juniac, CEO of the International Air Transport Association, warns there's more turbulence ahead.

2. U.S. carmakers dodge a bullet

2021 Chevrolet Tahoe High Country. Photo: GM

The pandemic threatened to decimate the American auto industry, but Detroit's three carmakers posted better-than-expected financial results for the second quarter, despite two-month factory shutdowns.

The big picture: The industry burned through cash while its factories were shuttered, piling up billions of dollars in losses between them. But they rebounded fairly quickly in June after restarting production while scrambling to restock dealer lots.

  • The U.S. consumer played a role, too: while they bought 33% fewer vehicles in the second quarter vs. last year, the pandemic's economic impact could have been worse.
  • Despite stay-at-home orders, many consumers embraced new online-ordering processes and took delivery of their new vehicles at home rather than at the dealership.
  • Strong demand for highly profitable trucks and SUVs also helped.

By the numbers: Each of the companies outperformed Wall Street expectations.

  • GM's adjusted operating loss was $500 million in the second quarter.
  • Ford posted an operating loss of $1.9 billion, not counting a $3.5 billion gain on its investment in self-driving tech company, Argo AI.
  • Fiat Chrysler Automobiles' adjusted operating loss was $1.1 billion.
  • Of note: Tesla posted a $327 million operating profit during the period, but that includes $428 million worth of income from selling regulatory credits to other carmakers.

What to watch: While FCA prepares to merge with France's PSA Groupe and Tesla focuses on expanding production capacity, GM and Ford are gearing up for some of their most anticipated — and profitable — models.

  • For GM, these include the redesigned Chevrolet Tahoe and GMC Yukon.
  • For Ford, it's the redesigned F-150 pickup, plug-in Mustang Mach-E, and in 2021, the reborn Ford Bronco family of SUVs.
3. Transit agencies getting squeezed

Bus ridership is way down, leading to budget shortfalls for transit agencies. Photo: Jeenah Moon/Getty Images

Public transportation agencies are getting squeezed by higher costs and lower revenues because of the pandemic, and warning they'll have to furlough employees or cut service without more government assistance.

The big picture: The funding squeeze is not just a big city problem. Transportation agencies in small towns and farming communities where workers depend on public transit are suffering, too. Without a way for people to get to their jobs, shopping and schools, local economies can't recover.

What they're saying: Transit agencies are seeking $32 billion in federal aid to keep buses and trains running, on top of the $25 billion they already received in March under the initial CARES Act.

  • "This pandemic is more protracted than anyone expected, and this comeback will be longer as well, which is why we need that bridge," said Paul Skoutelas, president and CEO of the American Public Transportation Association.
  • It could be years before transit agencies recover, said Andrew Aiello, general manager of the Transit Authority of Northern Kentucky, where ridership is down 50%.
  • "Take transportation away and see what happens to the base economy. You’re not going to like it," Phoenix's Valley Metro system CEO Scott Smith said.

Driving the news: Transportation was left out of the latest $1 trillion stimulus bill proposed by Senate Majority Leader Mitch McConnell (R-Ky.) and other GOP leaders this week.

  • House Democrats' $3 trillion plan includes $16 billion for transit agencies, about half what APTA says the industry needs to survive the crisis.
  • The congressional fight is far from over, with House and Senate leaders expected to keep talking over the weekend after the chambers adjourned Thursday without reaching a deal.

Between the lines: Transit agencies in big cities like Chicago and Houston and smaller communities like Salinas, California, report a double-whammy is straining their finances:

  • Revenues from fare collections and local sales taxes have collapsed because of lower ridership and the virus' economic impact.
  • Meanwhile, operating costs are up because of extra cleaning and other measures needed to keep employees and passengers safe.

The bottom line: Despite the budget issues, most transit agencies are running close to normal schedules to help essential workers and those who don't have other options to get where they need to go during the pandemic.

4. Driving the conversation

Fisker unveils lineup of three additional electric vehicles due by 2025 (Roberto Baldwin — Car and Driver)

  • My thought bubble: Fisker has ambitious plans with the $1 billion it recently raised, but CEO Henrik Fisker should focus on getting its first model, an affordable electric crossover called Ocean, out the door.

London's COVID-safe commute idea: open-air buses (Feargus O'Sullivan — Bloomberg CityLab)

  • Why it matters: Public transit remains a worry for commuters contemplating a return to their offices in many cities. But open-air buses don't seem like a year-round solution in many places.

Honda office staff join the assembly line amid worker shortage (Sophia Cai — Bloomberg)

  • The big picture: Coronavirus-related quarantines are knocking out regular assembly workers, and many employers (not just Honda) say the $600-a-week unemployment benefit the federal government instituted early in the pandemic has made it hard to find temporary workers.
5. What I'm driving

Toyota Highlander hybrid. Photo: Toyota

This week I'm driving the 2020 Toyota Highlander hybrid, a stylish family hauler that also gets great gas mileage — perfect for a summer road trip.

The big picture: While there are plenty of three-row SUV models on the market, only two — the Highlander and the Ford Explorer — are available with a gas-electric hybrid powertrain.

  • While the Explorer is more powerful and better for towing, the Highlander gets much better fuel economy, notes Car and Driver in a head-to-head comparison.

What's new: The Highlander gets a more efficient hybrid system that relies on a 2.5-liter, 4-cylinder engine (instead of the previous V6) and two electric motors.

  • Horsepower falls 20% from the previous version, but you get a 24% improvement in fuel economy (up to 36 mpg) — good for nearly 600 miles between fill-ups.
  • Toyota's bet is that families will prefer that efficiency, and be more than satisfied with the hybrid's 243 hp.

My thought bubble: They're right. For everyday driving, the Highlander hybrid is responsive with plenty of power when needed.

  • As long as you're not towing a boat or trailer, you don't need the extra horsepower.

Yes, but: The Highlander's 4-cylinder engine is rather noisy on acceleration, unpleasant for a hybrid especially.

  • And the truth is, with a lighter foot, you can keep the engine from working so hard while improving your mileage too.
  • I averaged about 30 mpg, well below the EPA's 36-mpg estimate, but still quite good for a vehicle this size.

As with most Toyotas, important safety features are standard.

  • Toyota's Safety Sense 2.o package includes automatic emergency braking with pedestrian detection, adaptive cruise control and technologies that help you stay in your lane.

The bottom line: The Toyota Highlander hybrid will help you stay safe and save on fuel.

Joann Muller