AMERICAN Airlines and Southwest Airlines signaled on Thursday that they would continue to haemorrhage cash into next year as revenues hover around a third of 2019’s levels due to a collapse in demand from the coronavirus.
Still, both said they had enough liquidity to ride out the crisis, even while renewing calls for another round of government aid after an initial US$25 bil to protect jobs through September expired.
U.S. House speaker Nancy Pelosi said negotiators were making progress in talks with the Trump administration for another COVID-19 economic stimulus package and that legislation could be hammered out “pretty soon.”
Shares of Southwest, which is expanding its network while others have retrenched, were up 4% on Thursday afternoon. The airline said it would stop blocking middle seats in December, enabling it to tap more revenue on each flight.
Shares of American were flat after it said it would issue up to US$1 bil of equity to further bolster liquidity, which reached US$13.6 bil in September.
British Airways owner IAG warned on Thursday the travel slump from the coronavirus pandemic had deepened in Europe, leading to a larger-than-forecast quarterly loss.
U.S. domestic leisure demand has shown signs of improvement but passenger traffic will remain fragile until a COVID-19 vaccine is widely available, Southwest said, while highlighting recent studies showing that in-flight COVID-19 risk is low.
The World Health Organisation (WHO) told Reuters that the risk of COVID-19 spreading on flights indeed appears “very low” but cannot be ruled out, despite studies showing only a small number of cases.
Eyes on cash
American Airlines said it expects its cash burn rate to fall to about US$25 mil to US$30 mil a day in the fourth quarter from about US$44 mil per day in the third quarter and US$58 mil per day in the second.
To halt the bleed entirely, it would need about 65% to 70% of the US$11 bil in revenue it reported in 2019. It drew in just US$3.19 bil of revenue in the third quarter, down 73% from a year ago.
American also said it will tap US$7.5 bil in federal loans, more than initially forecast.
Southwest said it would need to roughly double the US$1.79 bil in revenue it booked in the third quarter to reach cash burn break-even, though CEO Gary Kelly told investors its US$15.6 bil in liquidity is enough to last at least three years.
The airline, whose debt position is among the best in the industry, forecast fourth-quarter average core cash burn of about US$11 mil per day, compared with US$16 mil per day in the third quarter and US$23 mil per day in the second.
The airlines have also parked jets and retired aircraft due to depressed demand. – Oct 23, 2020
