Losses reach $4B at American, United
DALLAS — American Airlines and United Airlines lost a combined $4 billion in the first quarter as the coronavirus pandemic triggered a sharp drop in air travel and the airlines are busy borrowing enough money to survive until passengers return in large numbers.
Thursday’s reports from two of the nation’s four biggest airlines captured only the first weeks of the pandemic’s impact in the U.S. The situation facing the airline industry has grown more dire since the first quarter ended: Air travel in the U.S. during April was down 95 percent from a year ago, judging by the number of people screened at the nation’s airports.
“Never before has our airline, or our industry, faced such a significant challenge,” American Airlines Chairman and CEO Doug Parker said.
With little money coming in from ticket sales, and unsure when the public will feel like flying again, airlines are hunkering down. They are raising money on private credit markets and borrowing from the federal government. They are slashing flight schedules, parking planes and urging employees to retire early or take leaves of absence.
American reported a loss of $2.24 billion, the biggest loss since it came out of bankruptcy and merged with US Airways in 2013. The Fort Worth-based airline has cut its flight schedule by 80 percent in April and May and 70 percent in June. Fewer passengers will mean fewer employees.
“We’re going to be somewhat smaller than we intended to be” a year from now, Parker said. “Because we’re going to need to be smaller, we’re going to need to do something with the number of employees we have.”
American began the year with more than 133,000 employees. About 4,500 workers have taken early retirement, and about 34,000 have accepted partially paid leave for three to 12 months or fewer hours of work. Some of those taking leave couldn’t find child care.
Under the terms of federal aid they accepted, American and other U.S. airlines can’t lay off workers until October. Parker said he thinks he can avoid layoffs after that but that it depends on how quickly air travel recovers.
Chicago-based United posted a $1.7 billion loss, its biggest since 2008. The loss was expected because United said last week that it suffered a pretax loss of $2.1 billion.
The airline is shrinking its flight schedule by 90 percent in May and probably a similar amount in June.
United CEO Oscar Munoz said deep schedule cuts and borrowing to boost liquidity would help United bounce back when demand returns. He did not offer a prediction for when that might happen.
Both airlines stressed efforts to bolster liquidity — building up enough cash, they hope, to ride out the pandemic. They were recently approved for federal payroll help: $5.8 billion for American and $5 billion for United.
American estimated that it ended March with $6.8 billion in cash and other liquidity and will have $11 billion at the end of June. United said it had $9.6 billion in liquidity this week.
American has applied for another $4.75 billion in loans from the Treasury Department at around 4 percent interest, and United is leaning toward applying, although executives say they might not draw down the money if they can get better terms on the private markets.
The borrowing produces cash but does nothing to sell seats on planes.
Parker said there has been a recent uptick in bookings — mostly for trips at least three months away — but that it has been modest.
American’s first quarter loss compared with a profit of $185 million in the same period last year. American said that adjusted for nonrecurring items, it lost $2.65 per share. That was worse than the average forecast of a $2.08-pershare loss from 15 analysts surveyed by FactSet. Revenue dropped 19 percent.
Similarly, United swung to a loss after earning $292 million in the first quarter of 2019. The adjusted loss of $2.57 per share was not as bad as the $2.85-a-share loss that analysts had expected. Revenue fell 17 percent.