Over the past few weeks, a number of airlines around the world have made announcements about their onboard catering offerings.…
American Airlines, Southwest Airlines Report $2.1 Billion, $915 Million Losses
The final two of the U.S.’s four largest airlines to report second quarter earnings released their figures before market open on Thursday. Fort Worth, Texas-based American Airlines announced a $2.1 billion net loss on the back of $1.6 billion in revenue. Southwest Airlines, headquartered at Love Field Airport in neighboring Dallas, posted a $915 million loss as the airline earned $1 billion in revenue for the three-month period extending from April to June.
American Airlines cut capacity by 78.4% in the second quarter compared to the same period last year, measured in available seat miles. Southwest, however, only cut its capacity by 55.3%, even as the total number of passengers carried fell 85%.
Both carrier’s chief executives pointed to the airline’s move to improve liquidity — garnering cash to survive further months with poor expected cash flows — and lower costs. American Airlines said it had dropped daily cash burn from $100 million in April to around $30 million in June, a 70 percent cut that saved it from loss figures that very well could have been far worse. Southwest, in turn, dropped its numbers from around $32 million to $16 million daily over the same period.
“This was one of the most challenging quarters in American’s history,” said American Airlines Chairman and CEO Doug Parker. “COVID-19 and the resulting shutdown of the U.S. economy have caused severe disruptions to global demand for air travel. We have moved swiftly to improve our liquidity, conserve cash and ensure customers are safe when they travel. There is much uncertainty ahead, but we remain confident we will emerge from this crisis more agile and more efficient than ever before.”
Southwest Airlines CEO Gary Kelly painted a bright picture of the second quarter, but he provided a rather grim assessment of what could be ahead in the third quarter.
“We were encouraged by improvements in May and June leisure passenger traffic trends, compared with March and April,” Kelly said in a statement. “However, the improving trends in revenue and bookings have recently stalled in July with the rise in COVID-19 cases. We expect air travel demand to remain depressed until a vaccine or therapeutics are available to combat the infection and spread of COVID-19.”
The airline said that so far in July, daily cash burn has risen to $18 million as a result of those revenue drops as case tallies continue to rise across the southern U.S. — including in Southwest and American’s home state and largest hubs in Texas — and in California.
Kelly’s picture of the industry until a reliable cure for COVID-19 is available is a stark comparison to other executives’ characterizations of their airlines’ performance as relative successes. But in encapsulates a key point that government officials, health experts and business leaders alike have agreed on: there will be no normal again until people are comfortable, and people won’t be comfortable until a vaccine exists and is widely available. Whether that is six or twelve months away or even further away, airlines will certainly have more rough road ahead.
The two airlines’ announcements round out a widely anticipated two weeks of earnings announcements as investors anxiously awaited to hear how airlines had performed when COVID-19-related shutdowns and restrictions were peaking in April. During that time, domestic airline traffic hovered around 4-5% of totals from the same period in 2019, leaving airlines in fairly dire straits.
The figures also cement Delta Air Lines as by far the worst performer of the four largest U.S. carriers. The company lost $5.7 billion from April-June, while United Airlines’s figure — announced Tuesday — came out to $1.6 billion. But Thursday’s results also make it appear as though Delta is more of an outlier for a variety of reasons than suggesting the company fell victim to any single policy or change. As the historical best financial performer of the four competitors, its results proved to be a huge surprise for investors that began to fear the worst for United, American and Southwest after the airline posted its results.
With the second quarter now fully behind them, airlines’ and analysts’ focus will now shift to the third quarter. At the end of the third quarter, a period which runs from July 1 to Sept. 30, airlines that accepted money under CARES Act provisions will then be permitted to furlough or lay off workers, something all four major carriers have said they will do. So while Kelly’s statements don’t bode well for the industry and the hundreds of thousands employed by its companies, they do paint a realistic picture of what the world can expect come Oct. 1.
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