On May 19, two of the biggest carriers in the United States — Southwest Airlines Co. LUV and United Airlines Holdings, Inc. UAL — reported slower ticket cancellations and an uptick in demand for tickets, with the summer vacation season approaching. Also, Delta Air Lines, Inc. DAL said that its cash flow is on track to break even by the end of the year.
The airline industry has been one of the biggest casualties of the ongoing pandemic with governments across the world imposing travel restrictions to contain the spread of the novel coronavirus. However, with economies finally reopening, flyers are getting back confidence and demand for tickets is once again growing. However, most airlines feel that recovery will be slower.
Ticket Demand Grows
Southwest and United Airlines said on May 19 that they are pulling back on the deep cuts in their current schedules because of improved bookings. Southwest Airlines also said that it has recorded more ticket bookings than cancellations so far this month. United Airlines reported reduced cancellation rates and moderate strengthening on U.S. and some international routes. Also, American Airlines Group Inc. AAL said that it saw more passengers through the first 15 days of May than it did in all of April.
Delta Air Lines said it has seen a slight bounce in leisure bookings. This is also for the first time in weeks that flyers are booking more tickets than canceling. Air travel in the United States saw almost zero demand for tickets in March and April as millions stayed indoors on fears of coronavirus. Southwest Airlines, United Airlines and Delta Air Lines each carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Is the Worst Over?
The uptick in bookings coupled with slowing ticket cancellations definitely is a good sign for the ailing airline industry that has already received $25 billion in government payroll aid during the worst crisis in airline history. However, despite that, major airlines believe the recovery will be at a gradual pace. United Airlines, which focuses more on the international market, said that recovery will be slower. The company’s June and July capacity will still be down 90% and 75%, respectively, year over year.
Southwest Airlines, which is more focused on the U.S. domestic market, said that it will add some flights in its June schedule, which will take the month's overall annual capacity decline between 45% and 55%. May's decline was between 60% and 70%. United Airlines expects demand for both domestic flights and certain international destinations to improve for the remainder of the second quarter of 2020.
Rebound to be Slower
U.S. airlines registered losses of over $2 billion in the first quarter, although the decline in traffic started only in the first half of March after the government imposed stay-at-home orders. The second quarter is expected to be even more difficult as they are still losing millions of dollars each day.
Delta's daily cash burn is $50 million, while American Airlines’ daily cash burn for the second quarter is projected be about $70 million. United Airlines expects it to be $40 million and Southwest Airlines estimates its second quarter cash burn at $30-35 million.
However, the worst seems to be over with more people showing confidence in flying again. Also, the number of passengers passing through TSA checkpoints at U.S. airports has also improved this month. TSA screened 250,467 travelers on May 15. It was also the first time the number surpassed 250,000 since Mar 24, according to the daily data on its website. While that is far below 2.66 million passengers screened on the same day last year, it is significantly more than the mid-April low of 87,534.
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