Northwest Arkansas Democrat-Gazette
American, Southwest post losses
Red ink takes 2Q total above $10B for four largest airlines
DALLAS — Southwest Airlines and American Airlines reported huge secondquarter losses Thursday and warned that the recovery in air travel seen in April has stalled as coronavirus cases surge in the U.S.
Separately, both carriers said they will tighten their rules on face masks by ending exceptions for medical reasons.
American posted a loss of more than $2 billion, and Southwest lost $915 million. That pushed the combined loss of the nation’s four biggest airlines to more than $10 billion in just three months.
Between them, American and Southwest carried 15.4 million passengers from April through June. A year earlier, more than 98 million people packed their planes.
With all those lost ticket sales, airlines have turned to cutting costs and hoarding cash in a desperate bid to hang on until the shadow of covid-19 passes.
Southwest Chief Executive Officer Gary Kelly said he was encouraged by a pickup in leisure travel during May and June after the dark days of March and April.
“However, the improving trends in revenue and bookings have recently stalled in July with the rise in covid-19 cases,” he said. “We expect air travel demand to remain depressed until a vaccine or therapeutics are available to combat the infection and spread of covid-19.”
American — with hub air
ports in Texas, North Carolina and Arizona and a big operation in Miami — benefited when Sun Belt states eased health restrictions in the spring to boost their economies. Bookings by small and medium businesses in Texas rose from 10,000 in April to 45,000 in June even while corporate bookings were nearly zero, executives said.
The airline added flights in June and July, hoping to capture an increase in summer leisure travel. The gambit apparently worked. However, after Labor Day about 40% of American’s revenue typically comes from business travel.
“It’s pretty unreasonable at this point to think that we’ll be anywhere close to that” this fall, said Vasu Raja, the airline’s chief revenue officer. He said American still plans to increase flying from Dallas-Fort Worth and Charlotte but will trim routes that depend on business travelers.
With little money coming in from ticket sales — American and Southwest said secondquarter revenue fell 86% and 83%, respectively — airlines are left to fixate on slashing costs and raising available cash by mortgaging more planes and hocking their frequent-flyer programs.
LAYOFFS, BUYOUTS
Some airlines are likely to lay off workers in October, when federal payroll help runs out. American has sent layoff warnings to 25,000 employees, United sent them to 36,000, and Delta warned more than 2,500 pilots. At Southwest, which has never furloughed employees, Kelly said he doesn’t expect any layoffs this year because roughly 4,400 employees took buyouts and more than 12,000 will take temporary leaves of absence.
American, based in Fort Worth, reported a loss of $2.07 billion, compared with a yearago profit of $662 million. Excluding special items, the loss equaled $7.82 per share, nearly matching the average forecast of 17 analysts polled by FactSet for a loss of $7.84 per share.
Revenue plummeted to $1.62 billion but still beat the analysts’ prediction of $1.44 billion.
CEO Doug Parker called it “one of the most challenging quarters in American’s history.” He said there is “much uncertainty ahead,” but expressed confidence that American — the most heavily indebted among U.S. airlines — will pull through.
Revenue plunged to $1.01 billion. Analysts expected $948 million.
Seattle-based Alaska Airlines said it lost $214 million compared with a $262 million profit a year earlier. Revenue fell 82%.
The airlines had hoped to see stronger demand for travel by late summer. Instead, they have scaled back plans for more flights since U.S. coronavirus cases began surging in June. American said it will operate at 40% capacity from July through September.
“Airlines are starved for cash and profits right now, and they will be quick to add capacity once there is demand,” said Cowen analyst Helane Becker.
United CEO Scott Kirby said this week he expects prices to fall in the short run as airlines fight for passengers. That is already happening — Southwest said its average one-way fare during the second quarter was $134, down from $157 in the same period of 2019.
STRICTER MASK RULES
Southwest and American both said Thursday they will ban passengers who claim that a medical condition prevents them from wearing a mask. The airlines said only children younger than 2 will be exempt from the requirement.
“We’re simply seeing too many exceptions to the [mask] policy; it has put our flight crews in a really tough spot and also made our customers pretty uncomfortable,” Southwest President Tom Nealon said.
Those moves come as airlines try to reassure passengers and their own employees about safety during a pandemic that has made many people afraid to fly.
“Customers and team members have been clear that they feel more safe when everyone is wearing a face covering,” said Alison Taylor, American’s chief customer officer.
Both airlines said passengers will still be allowed to remove masks to eat or drink. Southwest said it expects passengers to put their face covering back on as soon as possible.
Some people have complained that fellow passengers flout the rules and airlines don’t enforce them.
Major U.S. airlines have extended their mask rules to ticket counters, baggage claim and other areas in airports, and they threaten to ban violators from future flights. Ed Bastian, CEO of Delta, said his company has taken action against more than 100 passengers.