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A United 777-300ER emerges from the clouds as it arrives from a test flight. (Photo: AirlineGeeks | Katie Bailey)

Looking At the First Half of Major U.S. Airlines’ Earnings

This week marks one of the first opportunities American investors and the public will have to see just how the airline industry is suffering as a result of the COVID-19 pandemic.

The four largest U.S. carriers are all set to release their first-quarter earnings this week. United Airlines’ numbers first leaked on April 20 and Delta Air Lines announced on April 22. American Airlines is expected to follow on April 24, and Southwest Airlines, originally set to release its financial results on April 23, pushed back the date to April 28.

Though the airline didn’t have an official date set, Reuters originally released that United would report a $2.1 billion pre-tax loss for the first quarter, set in stark contrast to a $300 million profit for the same period in 2019.

According to the airline, it did take a hit of around $1 billion in “special charges,” the majority of which comes from a reserve on a loan made to Latin American carrier Avianca. But during the last two weeks of March, the airline’s revenue was down approximately $100 million per day compared to the year prior. Those numbers led to a 17 percent drop in revenue to around $8 billion in the three months from January to March.

Those two weeks represent the most critical time for the airline, but also the most realistic picture of how the next quarter could look. Passenger traffic in the U.S. only began to take a nosedive in March, meaning the first two-thirds of the quarter were relatively unaffected. But the most recent month proved to be a stark reality check, and April has proved to be a continuation of those low numbers.

Delta reported a $607 million loss — $1.5 billion lower than last year’s $946 million profit — for the first quarter of the year on $8.5 billion of revenue, a 13 percent drop from 2019. Going forward, the Atlanta-based airline also said it expects to see expenses for the second quarter fall 50 percent to $5 billion as it parks aircraft and sees tens of thousands of its employees go on voluntary leave. The airline still expects to “burn through” $50 million per day going forward, a steep drop from the $100 million per day figure in late March.

United has continued to be the most vocal large airline in the U.S. about the potential ramifications of the long-term drop in demand as a result of the worldwide pandemic. The airline has already said it will likely be forced to begin layoffs on Oct. 1, the day after restrictions for current CARES Act grants and loans run out.

The carrier, which was awarded $5 billion in grants from the federal government, also said it would take out $4.5 billion in loans. Those will come in exchange for warrants for the Department of the Treasury to purchase United stock at its April 9 closing price.

Another sign of United’s anticipation for the struggles ahead comes in a new equity offering announced Tuesday. The airline announced it would offer 39.25 million shares on the public market in an effort to earn around $1 billion in new capital. The announcement — in addition to the release that they would be offered at $26.50 per share — caused United’s stock to fall even further. The airline’s shares were trading around $26 in midday trading Wednesday.

The equity offering helps to illustrate the degree to which airlines are trying to lower costs and gain capital in preparation for abysmal revenues in the months ahead. Both United and Delta are expecting to operate less than 10 percent of their route network in the second quarter, and each expects to bring in a similar percentage of normal revenues.

United said it only served three percent of its normal passenger load in the first two weeks of April, and its executives expect more of the same going forward. In a letter to employees, United CEO Oscar Muñoz and President Scott Kirby said they believe health concerns are likely to linger and affect the industry for months on end.

“For example, not all states and cities are expected to re-open at the same time,” the two wrote. “Some international travel restrictions will remain in place. Meeting planners and tour operators will do their best to accommodate people looking to avoid large crowds. So, while we have not yet finalized changes to our schedule for July and August, we expect demand to remain suppressed for the remainder of 2020 and likely into next year.”

Parker Davis
Parker Davis
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