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A Southwest Airlines 737-700 pushing back at Pittsburgh. (Photo: AirlineGeeks | William Derrickson)

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

Last week, the first two of the four major U.S. airlines reported their first-quarter earnings. Atlanta-based Delta Air Lines announced a loss of $607 million and United Airlines announced a whopping $2.1 billion loss for the same time period.

Originally, Southwest Airlines and American Airlines — the two Dallas/Fort-Worth-headquartered competitors — had been slated to announce on April 23 and 24. But owing to the extraordinary circumstances present in the industry today, they pushed back to April 28 and 30, respectively.

Looking first at the effective outlier of the four largest U.S. carriers, Southwest lost approximately $94 million in the first three months of 2020 as year-over-year revenues fell 17.8 percent to $4.2 billion. That drop-off is steep and was the largest of the three airlines to report by Tuesday, coming behind Delta’s 13 percent and United’s 17 percent.

Again, the airline pointed to the second half of March as the most impactful time in the quarter, which is also a warning of the difficulties that lie ahead. Southwest flights at the end of March had an average load factor of around 20 percent, even as the airline began to cancel some of its flights in response to the drop in demand.

Looking into the second quarter, the theme for the airline was very similar to United and Delta’s message: cost minimization. Just like its competitors, Southwest said it expects revenue in April — and possibly beyond — to settle between five and 10 percent of April 2019’s figure on the back of a projected six percent load factor. Through extending its flight cancelations and cuts in executive compensation, it’s hoping to minimize the damage in the months ahead.

But after receiving approximately $3.3 billion from airline-related provisions in the CARES Act, the airline continues to have some of the more healthy finances in the industry. The $94 million loss — in comparison to $607 million and $2.1 billion — is just one piece of that, as the airline announced and equity and debt issuance on the same day in hopes of bringing more available cash into May.

“We entered this crisis prepared with the U.S. airline industry’s strongest balance sheet and most successful business model,” Southwest Airlines CEO Gary Kelly said in a statement. “While the impact of the pandemic is unprecedented, we believe demand for air travel will rebound. And, we intend to emerge with ample liquidity and an unwavering focus on our enduring Purpose—to connect People to what is important in their lives through friendly, reliable, and low-cost air travel.”

American Airlines became the final carrier to release its earnings for the quarter, announcing on April 30 the largest loss of all four major U.S. carriers, in its case totaling $2.2 billion. In line with United’s similarly-sized figure, the total net loss excluding “special figures” sat around $1.1 billion.

That comes as the airline lost nearly 20 percent of its revenue — more than any of its three major competitors — while decreasing available seat miles by an average of 8.8 percent over the three-month period.

In a similar fashion to the three carriers to come before it, American tried to turn heads toward the strength of its balance sheet and liquidity going forward, emphasizing the $5.8 billion in aid it received from the CARES Act. Also along the same line, the airline also said it has cut capacity by 80 percent for April and would do the same in May before bringing 10 percent back in June.

The airline also made special note of the ways it continues to encourage travel on American, in particular, lowering requirements for elite status qualification, extending 2020 elite status through early 2022 and introducing travel waivers and name changes for travelers on corporate contracts.

“We have a lot of difficult work ahead of us. And while there is still uncertainty in what’s to come, we are confident that through the dedication of the American Airlines team and our swift actions, we will get through this for our team, our customers and our shareholders,” CEO Doug Parker said in a statement released with the company’s earnings.

With first-quarter earnings now in the books, the eyes of investors and consumers are now completely on the second. With only a few weeks of rock-bottom demand in March, it’s likely the second quarter will be far worse across the board. While some airlines have been more forthcoming with their projections than others, the figures released in July will certainly be ones to watch.

Parker Davis
Parker Davis
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