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U.S. Airlines Report Stinging Losses. Recovery to Take Time

By Kelly Hoggan

It hasn't been a good morning for U.S. airlines since at least March of 2020.

Publicly traded US airlines have recently begun reporting their quarterly earnings and so far, the picture hasn’t been pretty, with losses in the billions of dollars being the norm due to the coronavirus pandemic. What’s worse is that such earnings shortfalls are projected to be the norm for the immediate future, with a traditionally slow fall travel season effect intensified by COVID-19 restrictions and a generalized fear of being infected while flying. How each US airline -- especially the largest of them, which includes Delta, United, and American -- is handling such deep losses varies, but all are feeling the pressure in ways big and small.

Delta Air Lines

Delta Airlines reported a third quarter loss of $5.4 billion, which is a tremendous amount of money for an airline to lose during the historically busy summer travel period. The airline says it expects to be at least cash flow neutral or even positive by the spring of 2021. Experts remain a bit leery of such a prediction, however, with many not expecting Delta and its two major legacy competitors, United Airlines and American Airlines, to see positive cash flow until the second half of 2021 at the earliest.

United Airlines

Third quarter losses at United Airlines came in at $2.5 billion, down 78% year over year. Though United did well in cargo transport earnings that was nowhere near enough to offset the drop in passenger transportation revenue, which came in at an 84% decline combined with a 32% drop in other revenue. Like its major US competitors, United has been making steep cost cuts to reduce its operating expenses, which have also declined because of a 70% capacity reduction resulting from the carrier idling many of its planes.

American Airlines

American Airlines won’t report third quarter earnings until later this month, but analysts expect revenue declines resembling Delta’s and United’s, with a loss of about $5.62 per share from a $3.89 loss in the previous quarter. Overall, industry analysts see a 79.1% decline in passenger revenues from the figure American reported for the third quarter of 2019. American Airlines planes flew at barely half-capacity (52%), with the picture no better at most US and global air carriers.

Business and Leisure Travelers

Airlines make most of their profits from business as well as international travel, and the former still appears to be down from 85% to 90% when compared to 2019 numbers. International travel is even worse, with industry experts saying it remains down 95% year over year.

Leisure travel has largely returned, analysts say, with such passengers flying at around 85% to 90% of what they did in 2019. However, air carriers make scant profits from leisure travel tickets which are often steeply discounted relative to what it costs an airline to fly such a passenger from departure to destination.

Why Business Travel Matters

Because they often book premium tickets, and with little notice to boot, business travelers flying ‘up front’ in first and business class sections on a plane typically pay much more per ticket than do leisure travelers flying in the main cabin or even-cheaper economy sections. In essence, business travelers on your flight are covering its costs plus returning a profit to your airline while the same can’t be said for main cabin or economy class passengers. So, without business passengers returning in a big way and without a rebound in international travel there’s little chance of an airline raising prices on domestic leisure travelers enough to turn a profit. Those flyers are notoriously sensitive to prices and tend to forego air travel when airline ticket prices climb too high, with many either driving or finding alternative means of getting to their destinations.

Predicting an End

It’s easy to feel some sympathy for airlines in 2020, because they’re largely being slammed by forces beyond their control. The coronavirus pandemic is still steeply reducing business travel as companies keep managers and other employees at home and using conference calling and other technologies. International travel is also being greatly affected by quarantines in various regions, especially in Europe at present because many countries there are reporting a rise in COVID-19 cases. Domestic travel is being negatively affected by lockdowns and quarantines in several popular cities and regions as well, where local and state governments continue to impose heavy anti-coronavirus restrictions.

Given the above gloomy conditions it’s tough to say just when US airlines may finally experience smooth air and far less turbulence than they’re currently flying through. Delta Air Lines is predicting an end to tough times in the spring of 2021, but most analysts feel an industry rebound likely won’t occur until the second half of next year at the earliest. The most pessimistic of such experts are even saying it could be 24 months or more before a general recovery gains strength. Right now, US airlines are basically reduced to hanging on as best they can and hoping for a renewal in the federal aid they’d been receiving until it expired at the end of September, which isn’t a good position to be in, unfortunately for them.

Kelly Hoggan, Founder and CEO of H4 Solutions, previously served as assistant administrator for operations at the Transportation Security Administration. In that role, he was responsible for aircraft and checkpoint security operations at the nation's 450-plus commercial airports.

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