Losses mount for American and Southwest, but their outlook is brighter
Southwest on July 22 reported a quarterly loss
By Chris Isidore, CNN Business
Financial results are finally getting better at the nation’s major airlines, thanks to a surge of vacation travel this summer.
Southwest on Thursday reported a quarterly loss, excluding special items. The loss was significantly smaller than a year ago, but a bit larger than Wall Street forecasts.
Yet the company said it was profitable in June, its first money-making month of the pandemic. And it said based on its current booking trend, it expects to be profitable in the third and fourth quarters.
“Second quarter 2021 marked an important milestone in the pandemic recovery as leisure travel demand surged,” said Southwest CEO Gary Kelly.
The forecast of a profitable second half of the year does not factor in any slowing of air travel due to the rise of Covid-19 cases from the Delta variant. But Tom Nealon, Southwest’s President, told investors on Thursday that so far “we have not seen any impact from the Delta variant.”
The profit outlook isn’t quite as bright at American, the nation’s largest airline. It reported a quarterly loss, excluding special items, smaller than Wall Street forecasts. But it warned that its third-quarter pre-tax margin, excluding special items, would once again be negative.
Still, American said it stopped burning through cash in the second quarter and is now adding about $1 million in cash a day to its balance sheet. And it said that revenue in the quarter nearly doubled what it reported in the first quarter of this year. During the summer season, American expects to fly more than 90% of its domestic seat capacity and 80% of its international seat capacity, compared to what it flew in the summer of 2019.
Despite the continued losses forecast at American, company executives said they were pleased with the results given the continued limitations on international travel still in place and business travel not yet back to normal.
“We’re building back on our network faster than our largest competitors. We’ve begun the deleveraging of our balance sheet,” said American CEO Doug Parker. “We are in the midst of an unprecedented recovery, and it shows in our results.”
A survey with American business customers shows that the majority expect travel to pick up moving into the fall, said Robert Isom, American’s president.
“We now expect a full business travel recovery in 2022,” he said. And as is the case at Southwest, the rise of the Delta variant has so far not derailed the recovery. We’ve seen no degradation in bookings related to the recent uptick in covid infection rates,” he added.
American said it now expects to pay down $15 billion of its debt by the end of 2025. It announced that Thursday morning it prepaid the entirety of a $950 million spare parts term loan whose final payment was not due until April of 2023. The company added $15.7 billion in additional long-term debt it took on since the end of 2019, just before the pandemic starting hitting results. With $37.2 billion in long-term debt on its books at the end of the quarter, American has the most debt of any US airline.
Its debt level, and forecasts of losses continuing into 2022, has made analysts more bearish on the outlook for its shares than for other airlines.
Both airlines reported a net profit for the quarter, but that was due to a new round of financial assistance from the federal government. Shares of both airlines were slightly lower in premarket trading following the reports.
Delta Air Lines and United had previously said they expect to be profitable in the second half of this year as well after another round of losses for the second quarter. United just announced an order for 270 jets, the largest order in its history, and Delta announced the purchase of used jets. And all the airlines are hiring staff to handle the expected return of demand ahead.
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