Southwest Airlines Flight 1117 from St. Louis lands at Boston Logan International Airport on March 13, 2019. (Photo by John Tlumacki / The Boston Globe via Getty Images)
John Tlumacki | The Boston Globe | Getty Images
American Airlines and Southwest Airlines reported record annual losses on Thursday and don’t expect bookings to pick up significantly in the coming months as new travel restrictions and a slow roll-out of Covid vaccines hope for an early recovery.
US airlines combined lost $ 34 billion in 2020. A year in which airline CEOs repeatedly named the most difficult in airline history.
Southwest Airlines reported its first annual loss since 1972, saying that capacity will remain conservative through March as demand is weak. Americans lost a record $ 8.9 billion in 2020.
“We don’t know exactly when to return to previous demand levels,” said Doug Parker, CEO of American Airlines, speaking to analysts. “We know we are ready to withstand the ongoing crisis, no matter how long the recovery takes. We ended the year with over $ 14 billion in total cash available.”
American posted a net loss of $ 2.2 billion in the fourth quarter. Revenue decreased more than 64% to $ 4.03 billion, compared to $ 11.3 billion a year ago. Revenue was $ 3.88 billion for the quarter, above analysts’ forecasts. Stocks rose amid the frenzy of retail buying stocks with large amounts of short-term interest. American has less interest in its stocks than any other US carrier. The share price rose around 9% in afternoon trading.
American expects capacity to decrease 45% in the first quarter of 2021 compared to 2019 before the coronavirus pandemic weighed on demand for travel. For the first quarter, sales are expected to decline by 60% to 65% compared to the previous months of 2019.
New travel restrictions
In addition to new Covid-19 infections, travel restrictions are also affecting the demand for air travel.
International travel has been hit hardest by the pandemic so far. Prior to leaving office, the Trump administration ordered travelers to submit a recent negative Covid-19 test result before boarding the U.S. This measure, which applies to both foreign and US citizens, went into effect on Tuesday.
Andrew Nocella, United Airlines’ chief commercial officer, said last week the new rule had dampened demand, especially for flights to beach destinations in Mexico. The lack of quarantine and testing requirements in the country has been relatively popular for international travel. Doug Parker, American CEO, said the airline has noticed weaker demand for short-haul international since the rule came out.
The Biden government this week extended an entry ban for most non-U.S. Residents who recently visited Europe, the UK and Brazil, adding South Africa to the list as new strains of Covid spread.
The Centers for Disease Control and Prevention this week said they are “actively” weighing whether or not to require Covid testing before domestic flights, a move that could further hamper demand, travel industry members said, referring to the different ones Access to tests across the country.
The airline’s employees have been hired to look for evidence of Covid testing before international flights.
“As we say in Texas, this could be a real goat rodeo,” Southwest President Tom Nealon said on a prize draw about the potential for domestic testing.
The airlines have tried to cut costs and reduce their money consumption. However, executives warn that airlines will continue to bleed money until revenues recover.
Southwest expects an average core cash burn of around $ 17 million per day for the first quarter, “due to persistent weak demand and a seasonally weaker travel period in January and February 2021, as well as rising fuel prices.” That’s more than the $ 12 million a day for the last three months of 2020.
According to Southwest, earnings will need to double from current levels to break even.
Sales are forecast to decrease 65% to 70% in January compared to 2019, slightly better than a 75% decrease previously forecast after cancellations stabilized. Southwest said February revenues are projected to decrease 65% to 75% compared to the same month of 2019.