We reviewed first quarter financial results for the major US carriers here in a May 2 post titled “Airline Earnings Evaporate.” They were dismal, of course, primarily because of the sharp downturn in travel occurring in March, the last month of that quarter. The airlines recently reported results for the second quarter and they’re even worse. This shouldn’t come as a surprise to anyone since the pandemic's been raging the entire time and travel demand has all but dried up. There was a brief travel surge in May and June but recent reports of reduced bookings follow government data showing the number of travelers has declined. Bracing for bad news then, let's take a look at how the country's largest airlines fared during the most recent reporting period.
#AmericanAir posted a staggering net loss of $2.1 billion in the second quarter while revenue dropped more than 86 per cent to $1.6 billion compared with close to $12 billion just one year earlier. On an adjusted per share basis, American racked up a loss of $7.82, slightly more than analysts were expecting. The Fort Worth, Texas-based airline did slash its daily cash burn from $100 million a day in April to $30 million a day in June after it cut flights and idled planes and thousands of employees took voluntary time off. They ended June with $10.2 billion of available liquidity, including $3.6 billion raised in the quarter through offerings of common stock, convertible and secured bonds.
As in the past, despite the poor performance, the company always manages to put a spin on their results. “We have moved swiftly to improve our liquidity, conserve cash and ensure customers are safe when they travel,” CEO Doug Parker said. “There is much uncertainty ahead but we remain confident we will emerge from this crisis more agile and more efficient than ever before.” American warned that demand has softened due to a spike in coronavirus cases, travel restrictions abroad and quarantine orders at home. They expect capacity in the third quarter to be down 60 per cent from last year. This is particularly painful because a resurgence in cases comes during what is normally the most lucrative time of year - the summer travel season. “The current environment is more unpredictable and more volatile than anything we ever could have imagined,” Parker and AA President Robert Isom said in a recent employee memo.
Over the last 3 months, #Delta posted a whopping $3.9 billion adjusted pre-tax quarterly loss, its biggest since 2008.They also reported a loss of $4.33 per share during the second quarter, worse than the $4.06 analysts expected. Revenue tumbled 88 per cent to $1.47 billion, a bit better than the $1.4 billion forecast but more than $11 billion less than last year. The carrier flew 93 per cent fewer passengers than it did in the same period of 2019. Delta's cash burn was about $100 million a day at the start of the quarter versus $27 million per day at its close. That's impressive. The airline ended the first half of the year with $15.7 billion in liquidity, raising nearly $15 billion of it since early March at a blended average interest rate of 5.5 per cent.
The company is not expecting skies to brighten any time soon. “Given the combined effects of the pandemic and associated financial impact on the global economy, we continue to believe that it will be more than two years before we see a sustainable recovery.” said Ed Bastion, Delta’s Chief Executive Officer. They’ve vigorously sought to reduce labor costs. While the airline reported nearly half its 90,000 employees had taken voluntary unpaid leaves they’ve not ruled out the possibility of furloughs going forward after September 30. During the recent earnings call, Delta also said its policy of keeping the middle seats empty through at least September 30 and providing more space onboard their aircraft is the “numb one reason why customers are choosing” to fly on the airline. New survey data from Atmosphere Research, a travel industry analytics and consulting firm, indicates that passengers are willing to pay 16 to 17 per cent more on average to fly on an airline that blocks the middle seat.
#SouthwestAir reported a loss of $915 million in the second quarter compared with $741 million in net income a year earlier. Revenue dropped nearly 83 per cent to just over $1 billion from $5.9 billion last year although sales in the quarter were higher than analysts had estimated. The carrier posted a per share loss of $2.67 on an adjusted basis and predicted its third quarter capacity would decrease between 20 per cent and 30 per cent compared with the same period a year earlier. Southwest is expected to weather the storm better than the larger US airlines thanks to its domestic focus and lower cost structure. It did report, however, that weakening revenues were increasing its daily cash burn rate to $18 million in July from $16 million a day in June.
“We were encouraged by improvements in May and June leisure passenger traffic trends, compared with March and April, however, the improving trends in revenue and bookings have recently stalled in July with the rise in COVID-19 cases,” CEO Gary Kelly said in their earnings release. “We expect air travel demand to remain depressed until a vaccine or therapeutics are available to combat the infection and spread of COVID-19.” Kelly claimed that the airline will “aggressively and frequently” adjust its flight schedule in “this volatile demand environment.” Nearly 17,000 Southwest employees, more than a quarter of its workforce, have signed up for buyouts and temporary leaves of absence to help avoid job cuts and there is one bright spot amidst all the gloom. Southwest said workers will escape involuntary furloughs this year. The carrier does “not intend to pursue furloughs and layoffs, or pay and benefit cuts" until year end, adding “we will continue to plan for multiple weak scenarios and maintain our preparedness.”
Normally public companies will find something positive to talk about when reporting their earnings but this time #United Airlines didn’t spin the facts, telling investors it just finished “the most difficult financial quarter in its 94-year history.” The airline reported a net loss of $1.6 billion and an adjusted net loss of $2.6 billion. Its revenue for the quarter decreased by nearly $10 billion or 87.8 per cent year over year. Domestic passenger revenue fell almost 92 per cent while international revenue dropped by 96.4 per cent. Cargo income was up 36 per cent but accounted for only $402 million, nowhere near enough to close the enormous revenue gap. United said its daily cash burn averaged $40 million but they expect to reduce that to $25 million a day in the third quarter.
The airline said it will likely reduce capacity by 65 per cent in the third quarter. The carrier also said it will “proactively evaluate and cancel flights on a rolling 60-day basis until it sees signs of a recovery in demand,” which executives expect to be limited until there is a treatment or vaccine for the virus. ”United believes it did the best job of matching actual capacity to demand among its largest network peers,” according to their earnings release. Their payroll costs were $2.17 billion in the second quarter, down 29 per cent from a year ago as some staff worked fewer hours due to the reduced flight schedules and others took voluntary time off. The airline reported it expects to have liquidity of more than $18 billion after raising more than $16 billion since the start of the crisis through debt and stock sales. They also secured a $5 billion loan using their MileagePlus Frequent Flyer Program as collateral, one of their most valuable assets with an estimated worth of nearly $22 billion, according to company officials.
This post only highlighted the latest financial results from the 4 biggest US airlines. But what’s happened to them has happened to every carrier across the country and across the globe. In fact, #IATA, the International Air Transport Association, predicts the world’s airlines are set to lose some $84 billion as this pandemic reduces their revenue by half. If so, it would mark the worst year in the industry’s history. Besides helping all of us, an early and effective vaccine would also help the airlines to mitigate that number.
Until next time…stay safe.
A sad story, but inevitable given the problems in flying for passengers.
The reality is that flights may never get back to pre-Covid levels as we await a vaccine, or herd immunity...
All hopes are on a vaccine. Let’s hope it is not too far away.