The airline industry is limping into the third month of what insiders have called the biggest crisis in its history.

Travel demand began to fall off in the Asia region in mid- to late-January, and broadly in the rest of the world by mid-March.

As it became evident by late-March that this would be a prolonged crisis, squashing any hope for the type of rapid decline-rapid recovery seen after the 2003 SARS outbreak, experts began to forecast a recovery that would likely extend beyond 2020.

Now, as analysts begin to reach a consensus on when the industry may bounce back, the outlook remains bleak.

Earlier this month, a research report from airline analyst Joseph DeNardi at Stifel indicated air travel demand would likely not return to normal until mid-2021 at the earliest, noting that such a return was a best-case scenario, and that a more bearish course appears to be emerging.

At the time, the estimate seemed conservative. Now, however, analysts and experts including DeNardi are reaching a consensus that it will take at least two full years for travel demand to return to 2019 levels, and possibly as long as five.

Ken Herbert of Canaccord Genuity wrote in late January that the virus posed a "substantial" risk to global air travel and the aerospace sector, while Tourism Economics warned of a $10 billion hit to the US travel industry if visits from China fell substantially.

In the three months since, the outbreak has swept across the globe and decimated the entire global airline sector. What initially looked like a potentially quick rebound Canaccord's Herbert predicted a V-shaped recovery, using other outbreaks like SARS as a framework is now widely believed to be slow, and difficult.

The initial reports worked under the assumption that, like past outbreaks such as SARS and MERS, COVID-19 would be a mainly regional crisis, possibly with flare-ups in other areas, but primarily affecting Asian markets.

During fourth-quarter 2019 earnings calls, which took place in January, airline analysts and executives hardly mentioned the coronavirus outbreak aside from consideration of service to China and Hong Kong.

Now, as the virus has brought much of the world to a standstill, the focus has shifted.

The Alaska Airlines ticket counter at Austin-Bergstrom International Airport. Joey Hadden/Business Insider

Over the past several weeks, travel demand has tanked.

"It certainly feels like we're at the bottom," American Airlines CEO Doug Parker said during a television interview on April 15. "Our revenues are down 90% on a year-over-year basis. And they've been that way now for a few weeks. So, the real question is how long do you stay at the bottom? And when do we begin to recover?"

Analysts across the board agree that even if the recovery begins soon, it will be prolonged.

"We are growing increasingly convinced that industry recovery to 2019 levels of output will be a multi-year affair," analyst Jamie Baker of JPMorgan wrote in early April, "resulting in the material shedding of aircraft and headcount along the way."

"Airline bookings remain at unprecedented lows," Bank of America analyst Andrew Didora wrote in an April 26 research note. "Based on what has transpired in China, volumes could stay at these levels for a few weeks before beginning to recover. Then, we think the recovery could be slow."

"We assume a 2-3 year period for demand to return to 2019 levels," Joseph DeNardi of Stifel wrote in an April 21 note, observing that the reduced supply resulting from airlines temporarily grounding fleets would help make up for a "historically slower return to normal."

During the CNBC interview, American's Parker noted there were perhaps early signs of an impending recovery, noting that the airline had seen a slight uptick in bookings for more than 90 days out, as well as some corporate interest in travel for the fourth quarter.

But Parker (and a spokesperson for the airline, in a follow-up discussion with Business Insider) acknowledged that even if a recovery begins in the coming months, it will take a while before the industry returns to 2019 levels of revenue and demand.

Boeing CEO David Calhoun agreed, making headlines earlier this week when he said, "it will take two to three years for travel to return to 2019 levels and an additional few years beyond that for the industry's long-term growth trend to return."

Calhoun also noted that reduced travel demand means a reduced need for new airplanes.

Helane Becker of Cowen thinks a turnaround could take even longer.

"We expect it to take 2 to 5 years to recover to 2019 levels," she wrote in a lengthy April 13 report titled A Winding Road to Recovery, adding: "our working assumption is 2021 revenues will be back to 2016 levels."

"April and May will be the worst months for the airlines as social distancing and sheltering in place continue," she wrote. "June and July seem to be a targeting timeline for return to work for much of the US economy."

"Unfortunately, return to work might not mean immediate return to the air," she added. "It is highly likely that any recovery won't start until the fourth quarter at the earliest, and then continue slowly through 2021 and into 2022."

Southwest Airlines CEO Gary Kelly agreed with the longer-term assessment. On the airline's first quarter earnings call this week, he said that based on past recessions, he expects business travel to take about five years to return to pre-outbreak trends, possibly even longer.

"Based on history, in a recessionary environment, it is a long recovery period for businesses. And it's intuitive to me on why that would be," Kelly said. "This one feels like it could be worse."

Kevork Djansezian / Getty Images

Analysts and industry leaders are also beginning to agree that leisure travel may recover faster, even if business travel begins its recovery sooner.

"We may see an initial surge in business travel, but nothing we would view as sustainable," Becker wrote. "There is significant liability for companies that push their employees to travel too quickly. Leisure travel, which traditionally comes back first, is likely to be slow to return as well."

"We believe business travel is likely to return ahead of leisure travel," she added, "but given the amount of teleconferencing, the use of Zoom, Skype, WebEx, GoToMeeting and other ways people are staying in touch and conducting meetings, this suggests that while business travel will return, it also will return at a slower pace than prior recoveries."

According to an April 19 note from Bank of America's Didora, leisure bookings declined at a slower rate than corporate, but have reached roughly the same low level.

Regardless, the industry's financial outlook is likely to remain grim for a while.

"For purposes of modeling, we assume the phenomenon of negative net bookings (refunds exceeding sales) continues well into the third quarter," JPMorgan's Baker wrote on April 22.

REUTERS/Thomas Peter

Over the past several years, the airline industry both globally and in the US has been on a rapid and steady expansion, adding capacity, new planes, and new routes.

Almost overnight, that expansion screeched to a halt, and that reversal could continue, even after the pandemic is contained.

"[W]e believe the airlines will end 2020 at least 20% smaller than they ended 2019 and probably closer to 30% smaller," Cowen's Becker wrote.

The downsizing would see airlines cut costs wherever possible, but the two major savings areas will be labor and aircraft.

According to Becker, mainline US airlines employ about 473,000 people. Airlines for America, an industry trade and lobbying organization, puts that number at 750,000 people, when regional carriers are included.

Despite payroll assistance from the federal government, which helps airlines cover employee salaries and prohibits layoffs before October, 2020, Becker wrote that she expects to see the mainline carriers eliminate 95,000-105,000 jobs by the end of this year.

"United and American have said they could be 15-20% smaller in 2021 than they would have otherwise," Stifel's DiNardi wrote.

He also noted that during past recessions, using the 2008 crisis as an example, airlines emerged with more disciplined growth strategies and more deliberate expansions as they focused on profitability. That suggests that the recovery years could see fewer new, interesting, or leisure-focused direct flights launched as airlines focus on more proven measures.

"We believe a return to capacity discipline and lower capex spending could drive a period of strong performance for the group coming out of the pandemic," DeNardi said.

Airlines are likely to retire older aircraft or place them into long-term storage to cut costs.

"Aircraft over 20 years old are unlikely to ever fly again in passenger revenue service," Becker wrote. "They are the first aircraft to go into storage and will be the last to come out."

She added that American Airlines has already begun reevaluating its fleet by retiring the 757, 767, E190, and some A330 planes, as well as some older 737NGs.

The move would eliminate at least three types of plane from the airline's fleet, helping it save money in the long term.

The major US airlines are likely to retire a total of 800-1,000 aircraft during the crisis, Becker wrote, which would inherently come with job cuts. US airlines employ an average of 97 people per aircraft, she said.

Flybe passenger planes are parked at Birmingham Airport in England. Associated Press

In March, the aviation consultancy CAPA saidthat by the end of May, "most airlines in the world will be bankrupt" without coordinated government and industry intervention.

Several have already occurred, including the UK's FlyBe, which ceased operations, and Virgin Australia, which entered voluntary administration a form of bankruptcy restructuring.

Several regional airlines in the US Trans States, Compass Airlines, and RavnAir have also folded.

The risk of a larger-scale consolidation in the industry is likely, several analysts have said.

"As the mainline airlines cut capacity and eliminate routes, we expect them to eliminate or scale back service to smaller cities. As they do that, it is likely to put pressure on the regional airlines," Cowen's Becker wrote. "We expect regional airline consolidation first, as we are already seeing, followed by consolidation among medium-sized airlines."

"Among the larger airlines, we would not be surprised to see the ultra-low cost airlines consider merging to get through the downturn," she added.

According to JPMorgan's Jamie Baker, however, it's possible that major carriers could also be vulnerable.

In an April 6 research note, Baker focused primarily on American, though suggested that the analysis could apply to other airlines.

American is not necessarily "mortally wounded," Baker wrote that the risk of a bankruptcy is, arguably for the first time in the crisis, becoming more pronounced, given the fact that the airline will likely need to significantly downsize its staff and its aircraft fleet.

There are "five, and basically only five, reasons why airlines file for bankruptcy," the report said:

Given those historical reasons for past bankruptcies, the report says, it's theoretically possible that a bankruptcy would be the most effective play for the airlines following the crisis.

The report cautions that this is only one possible scenario: "We don't think management is rushing to file for bankruptcy. We also don't think it's inevitable."

Over at Cowen, while raising the possibility of bankruptcies, Becker wrote that even with new debt, she thinks the major US airlines will be able to avoid considering bankruptcies at least through the end of the year, by which time demand may be recovering.

"Ultimately, we find the airlines have sufficient liquidity to survive through at least July," she wrote. "At this point, we do not have bankruptcy concerns for any of the US airlines we cover for the remainder of 2020, assuming each opts for and receives Phase III stimulus grants."

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Airlines need years to recover from COVID-19, if they avoid bankruptcy - Business Insider