Airline losses mount but the worst appears to be over
The red ink continued to flow at US airlines in the first quarter. But after a year of massive losses, airlines are showing signs that better times lie ahead.
“While the pandemic is not over, we believe the worst is behind us, in terms of the severity of the negative impact on travel demand,” said Southwest CEO Gary Kelly, whose airline reported a loss of $1 billion in the quarter, excluding special items, including another round of financial assistance from the US government.
Kelly said with vaccination rates rising and the pent-up demand for travel, “We are experiencing steady weekly improvements in domestic leisure bookings, which began in mid-February 2021.”
The story and the outlook was much the same at American Airlines, which reported a loss of $2.7 billion in the first quarter, excluding special items.
“We’ve gotten through the worst of this for certain,” said CEO Doug Parker in an interview on CNBC. “We’re still going through tough times. We don’t like losing that much money. The story of the quarter was accelerating at the tail end.”
Although revenue throughout the quarter was down 62% compared to the first quarter of 2019 (a year before the pandemic) that comparison showed a 70% decline in January, and a 50% decline in March.
Southwest actually reported a positive net income with the help of the latest round of federal help. It also reported a slightly smaller than loss excluding items. American reported a net loss even with the federal help. But the good news there was American had stopped burning through cash in March, although that cash burn rate doesn’t include severance or debt payments.
Rivals Delta and United had previously reported they stopped burning through cash in March. Southwest said it expects to achieve positive cash flow later this quarter.
Even with the improved outlook, Parker warned that the recovery ahead could be bumpy.
“What we certainly learned in the last year is we have to be flexible,” he said in the CNBC interview. “This has gone on longer than we thought when it started. There have been stops and starts along the way, and there will probably be stops and starts in the future. We’re prepared for that.”
Shares of both Southwest and American rose about 2% in premarket trading on the news.
