Southwest and American Trim More Flying -- 4th Update
July 23 2020 - 3:19PM
Dow Jones News
By Alison Sider and Doug Cameron
American Airlines Group Inc. and Southwest Airlines Co. said
they were tempering expectations for air travel's recovery, as
mounting coronavirus cases have driven down bookings by as much as
80% in some parts of the U.S.
American, which has been flying twice as much as some of its
rivals as part of a plan to capture summer demand, said Thursday
that it will pare some flying. Southwest, which also maintained
more flying this summer than United Airlines Holdings Inc. and
Delta Air Lines Inc., said cancellations are picking up and demand
looks weaker heading into fall.
Executives at American said bookings have started to slide and
business travel. which usually picks up after Labor Day, shows no
signs of resuming. "In short, the crisis continues," Chief
Executive Doug Parker said on a call.
The coronavirus pandemic has plunged airlines into their worst
crisis in memory after a decade of steady profits. Ebbing demand
this summer is the latest sign that the recovery is unlikely to be
quick or straightforward. Airline executives have said that travel
may not return to last year's levels until a vaccine is available.
Tens of thousands of job cuts could happen once federal aid aimed
at paying workers runs out at the end of September.
American's net bookings, or the difference between new
reservations and cancellations, are down 75% to 80%, said Vasu
Raja, the carrier's chief revenue officer. That is a marked
difference from May and June, when Sunbelt states were opening up
and some business travelers were returning. At one point, net
bookings in those states were down just 35% to 40%.
Amid the pandemic, American has maintained that it could adjust
quickly to signs of deteriorating demand and that its goal was to
be nimble. The airline plans to maintain connections to its major
hubs in Dallas and Charlotte, N.C., though it will make cuts in
markets more reliant on business travel that now looks unlikely to
pick up anytime soon, Mr. Raja said.
Mr. Parker said the summer strategy of more flying had helped
capture revenue while demand showed signs of life. Revenue per
passenger flown a mile was six times higher in June than in April,
he said, and the airline reduced the rate at which it was burning
through cash from $100 million a day in April to $30 million at the
end of June.
"That would not have been the case if we had flown only 20% of
our capacity," Mr. Parker said. "We're extremely happy with
it."
American said it expects third-quarter capacity to be down 60%
from last year. The carrier told pilots in a memo this week to
prepare for schedule adjustments. Southwest still plans to keep
August capacity at 70% to 80% of 2019 levels, but with projected
cash burn of $23 million a day in the current quarter -- level with
the three months to June 30 -- said it will adjust as necessary.
Southwest executives said that demand had taken an abrupt downturn
and that the trend looks to be continuing into September.
"It's almost impossible to plan right now," Southwest Chief
Executive Gary Kelly said on a call
Southwest's shares edged down 0.3% to $33.19, and American's
shares rose 4.7% to $11.90.
U.S. carriers are battling to restore passenger confidence about
travel, with increasingly stringent policies on wearing masks and
with contrasting approaches to filling aircraft that are making
perceptions of safety a competitive factor.
Southwest plans to keep the middle seats on aircraft unoccupied
through October, mirroring the policy of Delta. Southwest and
American said Wednesday that all passengers over 2 years old must
wear masks on board, removing exemptions for medical conditions.
United will require its passengers to wear masks in the
airport.
Southwest also said it will test the use of thermal cameras to
scan for passengers with high temperatures at Dallas Love Field
airport, something that Mr. Kelly has called on the Transportation
Security Administration to take on.
Delta will expand its testing program to ensure that all of its
U.S. employees are tested for Covid-19 in the next four weeks,
Chief Executive Ed Bastian wrote in a message to employees on
Thursday.
Airlines also are cutting costs in response to lower demand.
Southwest said 4,400 staff had taken a voluntary separation package
while an additional 12,500 will take extended time off. At the same
time, the carrier pledged to avoid any compulsory furloughs or job
cuts this year.
American earlier this month said that it would be overstaffed by
20,000 employees this fall but that it still hopes to minimize any
forced cuts through early-retirement and leave programs. Other
carriers have issued furlough notices, potentially affecting more
than 50,000 employees.
Southwest reported a loss of $915 million in the June quarter
compared with a profit of $741 million last year. The per-share
loss of $2.73 excluding special items compared with the $2.73
consensus among analysts polled by FactSet.
American reported a loss of $2.1 billion in the second quarter,
compared with a profit of $662 million a year earlier. Excluding
one-time items such as government aid to cover payroll, the airline
reported a loss of $3.4 billion, or $7.82 a share, compared with
the $4.86-a-share consensus among analysts.
Write to Alison Sider at alison.sider@wsj.com and Doug Cameron
at doug.cameron@wsj.com
(END) Dow Jones Newswires
July 23, 2020 15:04 ET (19:04 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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