By Alison Sider and Doug Cameron 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 24, 2020).

American Airlines Group Inc. and Southwest Airlines Co. said they were tempering expectations for an air-travel 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 to discuss results for the latest quarter.

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 or an effective treatment is widely 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 world's largest 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 American reap 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 an earnings call

Southwest's shares fell 1.5% to $32.79, while American's shares rose 3.6% to $11.77.

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. Major airlines have required passengers to wear masks since May, and many have expanded those rules. United recently said it would require its passengers to wear masks in the airport.

Southwest and American said Wednesday that all passengers over 2 years must wear masks on board, removing exemptions for medical conditions that airlines said proved to be too big a loophole. Delta CEO Ed Bastian told employees Thursday that the airline had banned 120 people from future Delta flights because they had refused to wear masks.

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, Mr. Bastian also said.

Southwest said it will test using thermal cameras to scan for passengers with high temperatures at Dallas Love Field Airport, something that Mr. Kelly has urged the Transportation Security Administration to take on. He said Thursday that Southwest is trying to demonstrate to federal officials that temperature checks can work.

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 on Thursday reported a loss of $915 million in the June quarter, compared with a profit of $741 million last year. The carrier said that excluding special items it had a per-share loss of $2.67; analysts polled by FactSet were expecting a loss of $2.73.

American reported a loss of $2.1 billion in the quarter, compared with a profit of $662 million a year earlier. Excluding one-time items such as government aid to cover payroll, it had a loss of $3.4 billion, or $7.82 a share, a slightly smaller loss than analysts were expecting.

Write to Alison Sider at alison.sider@wsj.com and Doug Cameron at doug.cameron@wsj.com

 

(END) Dow Jones Newswires

July 24, 2020 02:47 ET (06:47 GMT)

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