The coronavirus pandemic has taken its toll on airlines around the world and those in America are no exception. But as of early August, 58.1 per cent of the of the eligible US population is fully vaccinated (according to the CDC) and these increased inoculation rates have brought greater numbers of leisure travelers back to the skies. This has spelled some long-awaited good news for the beleaguered carriers and was reflected in their recent second quarter earnings announcements. Let’s take a more detailed look.
American Airlines reported a second quarter net profit of $19 million. However, excluding special items, had a second quarter loss of $1.1 billion. (That's because the company recognized $1.4 billion in special credits principally related to the financial assistance received from the US Government’s Payroll Support Program Agreements.) This actually beat analysts’ expectations because the airline reported an adjusted loss per share that was narrower than expected. While it was the sixth straight quarter of losses, the loss was the smallest as travel demand begins to recover from the COVID-19 catastrophe. Second-quarter revenue reached $7.5 billion, up 87 per cent sequentially from the first quarter of 2021, the carrier announced. Revenue also surpassed forecasts, rising 361 per cent from the year-earlier quarter’s pandemic-depressed low, still below the revenue American was generating before the virus hit. The company also expects third quarter revenue to be down about 20 per cent compared with its revenue in the third quarter of 2019.
The airline’s load factor also came in above expectations at 77 per cent in the second quarter, well above the 42.3 per cent reported one year ago. Load factor is a key metric used in the industry to indicate the percentage of a carrier’s available seats that are filled with paying passengers. Because the costs of sending an aircraft into flight are relatively the same whether there are 50 people aboard or 100, airlines have a strong incentive to fill as many seats as possible by selling more tickets. Higher load factors mean that a company’s fixed costs are spread across a greater number of passengers, making the airline more profitable. Prior to the pandemic in 2019, American’s load factor in each quarter ranged between 82 and 87 per cent.
Earlier this month, Delta Air Lines stated it “achieved significant milestones” in the recent quarter. These included a solid pre-tax profit in the month of June as well as positive free cash flow for the quarter. The company also reported their people and their brand were recognized with the top spot in the J.D. Power 2021 Airline Study. Delta reported adjusted operating revenue of $6.3 billion, a figure that excludes refinery sales and marked a decline of 49 per cent on 39 per cent lower sellable capacity compared with the June quarter of 2019. The company also confirmed an adjusted pre-tax loss of $81 million, excluding $1.5 billion of benefits related to the first and second Government Payroll Support Program extensions as well as market-to-market adjustments on its investments.
Net income fell to $652 million, or $1.02 per share, from $1.44 billion, or $2.21 per share in the same period in pre-pandemic 2019. Excluding non-recurring items, the airline swung to a per-share loss of $1.07 from earnings per share of $2.35 in 2019 but beat the FactSet loss consensus of $1.38. “Domestic leisure travel is fully recovered to 2019 levels and there are encouraging signs of improvement in business and international travel,” said Delta CEO Ed Bastian. “With the recovery picking up steam, we are making investments to support our industry-leading operation. We are also opportunistically acquiring aircraft and creating upside flexibility to accelerate our capacity restoration in 2022 and beyond in a capital-disciplined manner.” This is “corporate speak”for Delta‘s plans to purchase 29 used B737-900ERs and to lease seven used Airbus A350-900s to begin replenishing their fleet after retiring about 200 aircraft when the pandemic all but killed travel demand.
Southwest Airlines said recently it had net income of $348 million, or 57 cents per share, in the 2021 second quarter, after a loss of $915 million, or $1.63 per share, in the year-earlier period, when travel stalled during the global pandemic. The profit was driven by a $724 million offset of salaries and other benefits related to the receipt of proceeds from the US Payroll Support Program for airlines. Excluding that offset, the carrier had an adjusted loss of 35 cents per share, wider than the 23 cents loss consensus estimate of FactSet analysts. Revenue rose to $4.08 billion from $1.08 billion one year ago, topping the $3.93 billion FactSet consensus.
"Second quarter 2021 marked an important milestone in the pandemic recovery as leisure travel demand surged," current Chief Executive Gary C. Kelly said in a statement. The company generated net income in June, to mark its first monthly profit without the benefit of temporary salary and benefit relief since the start of the pandemic. The rapid ramp-up in travel demand has proved a challenge and the airline is now focused on bringing back workers and improving operations."To support the return of flight activity, we expect to recall the vast majority of our employees early from voluntary time-off by the end of this year’s third quarter, which is expected to reduce our prior forecasted savings from voluntary leave programs beyond second quarter 2021," said Kelly. The company's load factor stood at 82.9 per cent in the second quarter, while available seat miles were up 86.8 per cent.
United Airlines recently reported higher second quarter revenue and a narrower loss, thanks to a resurgence in air travel, the latest company to issue a brightening outlook for one of the COVID pandemic’s most battered sectors. The Chicago-based airline said it expects to generate positive pretax income for the third and fourth quarters and plans to ramp up flying in response to higher demand. Domestic leisure travel has led the recovery, but United said even international long-haul and business travel bounced back faster than expected in the second quarter. CEO Scott Kirby told CNBC’s Squawk Box that he hasn’t seen a decline in bookings because of the fast-spreading COVID-19 delta variant and predicted the rebound in travel would likely continue “unabated.” United and other airlines have repeatedly pressed the Biden Administration to lift an entry ban on most non-US citizens arriving from the UK and the European Union that has been in place since the early days of the pandemic. The White House said government officials from the US, Mexico, Canada, the EU and UK are continuing to meet but has yet to provide any timeline on a decision.
United’s revenue of $5.47 billion for the three months ended June 30 was down by more than 50 per cent from the same quarter of 2019 but up nearly 70 per cent from the first quarter of the year as US officials rolled out COVID vaccines broadly this spring, attractions reopened and more customers returned to air travel. However, the carrier still posted a net los of $434 million, its sixth consecutive quarterly loss. In the first three months of 2021, the airline had a loss of nearly $1.4 billion and a loss of $1.63 billion in the second quarter of 2020. The company said it recorded $1.1 billion in income from a Federal Payroll Grant, part of the $54 billion Congress set aside for US airlines since March 2020. United reported its capacity for the current quarter will be down 26 per cent from 2019 levels. But the company, more so than other airlines, has been very upbeat about the demand recovery. United announced last month that it plans to buy 270 Boeing and Airbus narrow-body jets, its largest aircraft order of all time, in order to replace many of its smallest planes and some of its oldest and expand the fleet over the next several years.
Domestic carriers needed billions to stay afloat last year but are starting to see blue sky through the pandemic clouds. The number of people flying in the US now tops 2 million on many days, not quite back to 2019 levels, but a turnaround from the days of fewer than 100,00 daily flyers in April 2020. Let's hope these positive trends continue.
Until next time...safe travels.
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