American Airlines and Southwest trim losses but still lose billions of dollars

American Airlines and Southwest trim losses but still lose billions of dollars

American Airlines and Southwest Airlines both reported billions of dollars in losses Thursday, but that’s what passes for an improvement in the battered industry these days.

American, the world’s largest airline, reported it lost $2.8 billion in the third quarter excluding special items. That’s down from the $3.4 billion it lost in the second quarter and was roughly in line with Wall Street expectations.

Southwest reported it lost $1.2 billion, also an improvement from the $1.5 billion it lost in the second quarter — and was better than forecasts.

The US airlines went into the quarter forecast to lose a combined $10 billion, as the Covid-19 pandemic has hammered air travel. Delta and United had both previously reported billions of dollars in in third-quarter losses, but as with American and Southwest they trimmed their losses from the second quarter.

US airlines lost a combined $12 billion in the second quarter. The situation isn’t turning around fast at any of the airlines. Both Southwest and American said they expect to continue to burn through millions of dollars in cash every day into 2021. Southwest said it will need to double the sales it achieved in the third quarter to match the cash it is spending.

Southwest said it has been selling only two-thirds of the seats on its planes to allow passengers to leave the middle seats open for social distancing. But it said it will end that practice and begin selling all seats as of December 1.

United and American were already selling all seats, leaving Delta as the only major US airline still leaving the middle seat unsold. But Delta announced last week that it will probably end that practice sometime in 2021.

American said its daily average cash burn hit $44 million in the quarter. After cutting 19,000 jobs on October 1, the airline expects to trim that daily burn to a range of $25 million to $35 million in the fourth quarter.

Southwest trimmed its average daily cash burn to $16 million in the third quarter and expects to get that down to $11 million with a modest increase in leisure travel later this year.

Southwest, which has never had an involuntary furlough or layoff of staff, has yet to announce any such staff cuts. But it said it is in negotiations with its unions on labor-cost savings. It said if it doesn’t reach new deals, it will have to institute job cuts sometime in 2021.

But the real problem for the industry remains continued weak demand.

“Until we have widely available vaccines and achieve herd immunity, we expect passenger traffic and booking trends to remain fragile,” said Southwest CEO Gary Kelly.

Because of that uncertainty, neither airline would give a timeframe for when they expect to break even once again.

“Those [cash burn] numbers are getting better, primarily because more people are flying. We’ve done virtually everything we can as it relates to costs,” said American CEO Doug Parker in an interview Thursday on CNBC. “That number will get to a positive number when more people are flying. That will happen at some point in 2021, I’m certain. I don’t know exactly when.”

While there was some improvement in leisure travel during the summer, corporate travel — which is more lucrative for airlines — remains exceptionally weak. But Parker said business travel is beginning to show signs of a slow restart.

“Really the difference is going to be when business travelers start hitting the airways again, something that is modestly starting up, but is nowhere close to what we need,” he said.

Both airlines made new pleas for Congress to approve another round of financial help for the airlines. The industry has received $50 billion in grants and loans already, which kept the airlines from laying off staff through the end of September as that was one of the conditions of that first round of help.

Another round of aid would allow American to recall furloughed staff and let Southwest prevent furloughs altogether, according to the airlines. But so far the Trump administration and Congress are still deadlocked on a new financial stimulus package.