American, Southwest add to parade of airline losses in 3Q
DALLAS - Airlines are piling up billions of dollars in losses as the pandemic causes a massive drop in air travel.
The two major North Texas airlines showed a bleak report, again confirming the need for more money.
Fort Worth-based American Airlines on Thursday reported a loss of $2.4 billion and Dallas-based Southwest Airlines lost $1.16 billion in the third quarter, typically a very strong period of air travel that includes most of the summer vacation season.
Revenue tumbled 73% at American and 68% at Southwest, compared with a year earlier, before the global spread of COVID-19.
Combined with earlier losses reported by Delta and United, the four largest U.S. airlines have lost at least $10 billion in each of the last two quarters. It's an unprecedented nosedive that has caused the once highly profitable airlines to forage for billions of dollars in government aid and private borrowing to hang on until travelers return.
A Southwest Airlines aircraft lining up at La Guardia Airport. (Photo by John Nacion/SOPA Images/LightRocket via Getty Images)
Southwest CEO Gary Kelly urged Washington to approve more pandemic relief including a six-month extension of $25 billion in aid to airlines. Without it, he said, "we simply cannot afford to continue with the conditions required to maintain full pay and employment."
Southwest plans to cut pay for nonunion workers by 10% in January and has demanded unions accept lower pay or risk furloughs.
Air travel in the U.S. has recovered slowly in recent months and topped 1 million passengers on Sunday for the first time since March. However, air travel in October remains down 65% from a year ago. Business travelers, who fly more often and pay higher fares, are still mostly absent.
American says revenue is down 73%year-to-year. The airline is taking 200 planes, which is 15% of its fleet, out of service.
"Really the difference is going to be when business travelers start hitting the airways again, something that is modestly starting up but is nothing close to what we need," American CEO Doug Parker told CNBC.
The airlines have been cutting workforces by convincing thousands of employees to leave, and in the case of American, by furloughing 19,000 workers this month. The airlines are still hoping for another $25 billion lifeline from Congress and the White House that American said would allow it to recall the furloughed workers.
American said its loss after one-time gains and losses were $5.54 per share. That was better than Wall Street feared, as analysts surveyed by Zacks Investment Research forecast a loss of $5.62 per share. Revenue tumbled to $3.17 billion, above the analysts' prediction of $2.8 billion.
Southwest's adjusted loss came to $1.99 per share, also better than expected. Analysts had forecast a loss of $2.44 per share for the Dallas carrier. Revenue fell to $1.79 billion; analysts predicted $1.68 billion.
“Until the virus problem gets fixed and even after that until we find out if people are going to start flying again, the airlines are going to be losing money,” said SMU economist Mike Davis.
In an effort to boost revenue, Southwest is adding nine new routes in the coming months. The airline will also begin selling middle seats again come Dec. 1, which means 50% more seats will be available for sale.
Both Southwest and American are banking on a return to business travel, which is historically the biggest revenue booster.
“We also have to wonder is this a shift in the way we do business? Is there going to be a lot more Zoom calls and video conferences and a lot less business travel?” Davis said. “I don't know the answer to that and unfortunately nobody does.”
Davis says worst-case scenario is both airlines end up filing for bankruptcy and restructure. Either way, he says Southwest and American will survive this recession. Both airlines expecting a slight bump in revenue over the upcoming holiday season.