Wed | Jan 27, 2021

Parade of airline losses for American carriers

Published:Friday | October 23, 2020 | 12:19 AM

Airlines are piling up billions of dollars in additional losses as the pandemic chokes off air travel, but a recent uptick in passengers, however modest, has provided some hope.

American Airlines on Thursday reported a loss of US$2.4 billion and Southwest Airlines lost US$1.16 billion in the third quarter, typically a very strong period of air travel that includes most of the summer vacation season.

Revenue tumbled 73 per cent at American and 68 per cent at Southwest, compared with a year earlier, before the global spread of COVID-19.

Combined with earlier losses reported by Delta and United, the four largest airlines in the United States have lost at least US$10 billion in each of the last two quarters. It’s an unprecedented nosedive that has caused the once highly profitable airlines to forage for billions of dollars in government aid and private borrowing to hang on until travellers return.

The airlines are offering upbeat forecasts about Thanksgiving and Christmas travel, however. Southwest, which had been one of the few remaining airlines blocking middle seats, feels confident enough that it will stop limiting capacity on its planes on December 1. The airline said it will give customers on full flights more flexibility to change planes.

Since the early days of the pandemic, a few airlines, including Southwest and Delta, have blocked most middle seats to reassure passengers who are nervous about packed planes during a pandemic.

Southwest said it was dropping that policy because of “science-based findings from trusted medical and aviation organisations” about how COVID-19 is spread. Airline groups and aircraft manufacturers, relying in part on research by the military, say that strong cabin airflow and high-efficiency filters make planes safer than other indoor settings.

Officials at many airlines believe travel won’t return to normal until the pandemic is under control and a vaccine is widely available. That could mean many more months of depressed revenue for the airlines.

Southwest CEO Gary Kelly on Thursday urged Washington to approve more pandemic relief, including a six-month extension of US$25 billion in aid to airlines. Without it, he said, “we simply cannot afford to continue with the conditions required to maintain full pay and employment”.

Southwest plans to cut pay for non-union workers by 10 per cent in January and has demanded unions accept lower pay or risk furloughs.

Air travel in the US has recovered slowly in recent months, topping one million daily passengers on Sunday for the first time since March. However, air travel in October is still down 65 per cent from a year ago. Business travellers, who fly more often and pay higher fares, are still mostly absent.

“Really, the difference is going to be when business travellers start hitting the airways again, something that is modestly starting up but is nothing close to what we need,” American CEO Doug Parker told CNBC.

Delta CEO Ed Bastian said recently that 90 per cent of his airline’s corporate customers are letting some employees travel, but only a small number, and business travel is down 85 per cent at his airline.

The airlines have been cutting workforces by convincing thousands of employees to leave, and in the case of American, by furloughing 19,000 workers this month. The airlines are still hoping for another US$25 billion lifeline from Congress and the White House that American said would allow it to recall the furloughed workers.

American, based in Fort Worth, Texas, said its loss after one-time gains and losses was US$5.54 per share. That was better than Wall Street feared, as analysts surveyed by Zacks Investment Research forecast a loss of US$5.62 per share. Revenue tumbled to US$3.17 billion, above the analysts’ prediction of US$2.8 billion.

Southwest’s adjusted loss came to US$1.99 per share, also better than expected. Analysts had forecast a loss of US$2.44 per share for the Dallas carrier. Revenue fell to US$1.79 billion; analysts predicted US$1.68 billion.

Alaska Air Group Inc reported a loss of US$431 million. The Seattle company said that removing one-time gains and costs, the loss came to US$3.23 per share, which was wider than the US$2.86 per share loss predicted by analysts. Revenue dropped to US$701 million, slightly better than Wall Street expected.

Earlier this month, Delta Air Lines posted a US$5.4-billion loss and United Airlines lost US$1.8 billion for the third quarter.

Airline shares moved higher in Thursday trading save for American Airlines, which slid about two per cent.

Meanwhile, in the United Kingdom, the parent company of British Airways has cut its fourth-quarter passenger forecast to just 30 per cent of last year’s level as government restrictions imposed to control a new wave of coronavirus infections reduces demand for flights.

International Airlines Group made the announcement Thursday as it posted a third-quarter operating loss of €1.3 billion (US$1.7 billion), compared with a profit of €1.4 billion in the same period last year.

The company said it reduced the fourth-quarter passenger forecast because of additional restrictions, including “an increase in local lockdowns and extension of quarantine requirements to travellers from an increasing number of countries”.

Measures meant to mitigate the disruption, such as pre-departure testing and air corridor arrangements, “have not been adopted by governments as quickly as anticipated,” International Airlines said.