Another huge round of airline losses is coming
US airlines reported combined losses of $12 billion in the second quarter, excluding special items, as revenue plunged 86% from the prior year. And analysts are forecasting that losses will come to about $10 billion in the just-completed third quarter.
Delta Air Lines (DAL) will kick off the flood of red ink on Tuesday when it reports results.
Yet it’s not much better than the previous disastrous quarter: Wall Street analysts forecast industry sales will be down 75% in the third quarter.
Bookings haven’t looked particularly strong for the fall with leisure travel drying up and very little in the way of business travel to take its place.
Meanwhile, many, though not all, of the airlines have recently implemented involuntary job cuts and furloughs that had not been allowed through the end of September under terms of the Congress-approved financial relief for the industry earlier this year. US airlines received $25 billion in direct help to keep workers on payroll through the end of September, along with an additional $25 billion in no-strings loans that did not come with the promise to avoid layoffs.
As soon as the prohibition on involuntary job cuts ended on October 1, American Airlines (AAL) cut 19,000 jobs and United (UAL) cut an additional 13,000. There was bipartisan support for a second package of federal help to prevent those cuts, but hopes for that assistance died when Congress and the Trump administration failed to agree on another Covid stimulus package.
Every US airline lost money in the second quarter. And virtually all are expected to report a full-year loss, including Southwest (LUV), which had reported 47 consecutive years of profitability through 2019.
When will the losses end for the industry? That will depend on the simple but unanswerable question of when people will be ready to fly again.
“We don’t expect six months from now that demand will return to where it was pre-pandemic,” said American Airlines CEO Doug Parker in a CNN interview at the end of last month. But he has said he hopes by next spring there will be a least some clarity about when passengers will feel safe about flying again.
But it’s not just safety concerns keeping passengers off planes. It’s also a matter of the state of the economy keeping both leisure and business travelers at home. While the economy has started to rebound, it will be a long road to recovery. Economists and the Federal Reserve have warned the recovery will be slow and painful unless lawmakers pass additional federal stimulus.