March 26, 2020

Heartland Travel Hubs Face Economic Fall-out from COVID-19

Dave Shideler

The Heartland is home to a significant portion of the United State’s airlines and aerospace manufacturing. Given the huge drop-off in airline travel and the significant role that travel, tourism, airlines, and aerospace manufacturing play in the Heartland's economy, we wanted to dive into this area further.

Heartland Travel Hubs Face Economic Fall-out from COVID-19




Dave Shideler
Last week, we released a brief analyzing how COVID-19 will impact communities in the Heartland and beyond. Given the huge drop-off in airline travel and the significant role that travel, tourism, airlines, and aerospace manufacturing play in the Heartland's economy, we wanted to dive into this area further.

The Heartland is home to a significant portion of the United State’s airlines and aerospace manufacturing. This makes sense, given that the central locations of Dallas (home to American and Southwest Airlines) and Chicago (location of United Airlines headquarters and maintenance facilities) as airport hubs afford easy access to both coasts and international routes. Aerospace manufacturing benefits from the concentration of military installations, open airspace and land, historic investments in manufacturing throughout the region, as well as the centralized location.

The larger impact on the Heartland will come due to the reduction in airline transportation and related tourism. Over 6.3 million are employed in the travel and tourism industry in the Heartland, representing 12.9% of regional employment. One-third of U.S. employment in air transportation is located within the Heartland. In addition to the airline headquarters, American, Southwest and United operate passenger hubs and maintenance facilities in the region. There are also regional air carriers that operate under the United Express, Delta Connection and American Eagle brands headquartered in the region, such as Air Wisconsin Airlines, Express Jet Air, GoJet Airlines, Republic Airways, PSA Airlines and Envoy Air. These also operate maintenance facilities in the region. The industry is projected to lose $252 billion in revenue, compared to last year’s revenue.

The Transportation Safety Administration (TSA) reported on Sunday, March 22, that the number of passengers at security checkpoints was down 80% compared to one year ago. Such dramatic declines in passengers, due to federal travel restrictions and social distancing measures, has led airlines to cancel most international and more than 40% of domestic flights, as of March 23, 2020.
But airlines are not the only victims related to travel impacts. Hotels, restaurants, event venues and attractions, already impacted by locally imposed social distancing measures, are further hurt by the lack of travelers brought by the airlines. These impacts, not surprisingly, will be concentrated in the Dallas-Fort Worth-Arlington, TX, Chicago-Naperville-Elgin, IL-IN-WI, and Houston-The Woodlands-Sugar Land, TX metropolitan areas, the Heartland’s 3 largest employers in travel and tourism. (These also correspond to airline hubs and maintenance facility locations.)

An additional threat to the travel industry stems from concerns over the air traffic control system. The number of controllers with COVID-19 is rising, and more than a dozen traffic control towers have been temporarily closed for cleaning as a result. The Federal Aviation Administration is concerned that, between illnesses and quarantines, there will not be enough controllers to maintain safety. They could decide to ground all aircraft as a result, which would not only affect passengers, but U.S. mail and cargo delivery as well.

Reductions in air transportation also impacts another key industry in the Heartland: aerospace manufacturing. Aerospace manufacturing employs nearly 171,800. As noted in “Coronavirus Regional Economic Impacts and Policy Responses,” Wichita, KS, has the most concentrated workforce in this sector, representing 9.7% of employment in the Wichita metropolitan area. (Seattle-Tacoma-Bellevue, WA metro is second with only 4.1% of regional employment in this sector.) Among the 30 metropolitan regions that have employment concentrations greater than the U.S. as a whole, half are in the Heartland. Layoffs in aerospace manufacturing are already being realized, as orders for aircraft parts and maintenance decline.

Boeing announced on Monday, March 23, a temporary shutdown for its Everett, Washington production facility due to concerns over the coronavirus, and the ripple effects are felt in the Heartland. Spirit AeroSystems, headquartered in Wichita, KS and employer to 10,000, also announced a two-week shutdown of its production line supporting Boeing. (In addition, 2,800 previously laid-off employees supporting Boeing’s 737 Max aircraft were due to return to work this month, but this milestone will also be pushed back. ) Anecdotal reports of other, smaller manufacturers and machine shops supporting the aerospace industry also indicate layoffs are occurring.

On Wednesday, March 25, the Senate passed the 3rd economic stimulus package to reduce the recessionary effects associated with the coronavirus outbreak. In addition to direct payments to households and small business loans to maintain payrolls, this package including $50 billion in guaranteed loans for the airline industry. In addition, American, Delta and United are experimenting with using some of their larger aircraft exclusively for cargo delivery; initial trials seem promising, though they report that uncertainty in the economy could derail this option for revenue replacement. Additionally, hotels are exploring alternative revenue streams by offering their rooms as temporary office space, as well as quarantine and overflow health care facilities.

Endnotes

  1. Travel and tourism industry is defined as the sum of: air, water, transit and ground passenger, and scenic and sightseeing transportation sectors; travel arrangement services; accommodations and food services; and arts, entertainment and recreation.

  2. https://www.nytimes.com/2020/03/24/business/stock-market-today-coronavirus.html

  3. https://www.wsj.com/articles/u-s-domestic-passenger-flights-could-virtually-shut-down-voluntarily-or-by-government-order-11585013673

  4. Ibid.

  5. Aerospace manufacturing is defined as NAICS 3364, which includes aircraft, aircraft engine and engine parts, other aircraft parts and auxiliary equipment, guided missile and space vehicle, guided missile and space vehicle propulsion unit parts, and other guided missile and space vehicle parts and auxiliary equipment manufacturing.

  6. It’s other production lines, such as defense applications, Airbus and aftermarket parts, will remain operational.

  7. http://www.kake.com/story/41932162/spirit-to-shut-down-majority-of-wichita-production-for-2-weeks

  8. https://www.washingtonpost.com/politics/2020/03/25/coronavirus-relief-stimulus-bill/

  9. https://www.nytimes.com/2020/03/24/business/stock-market-today-coronavirus.html

  10. https://www.facebook.com/HolidayInnTulsa.CityCenter/photos/a.134373169984300/2828999007188356/?type=3&theater