Airlines’ Forced Attempts At Optimism Ring Hollow Amid Gusher Of Third-Quarter Losses

The big U.S. airlines spilled massive amounts of red ink as they reported their results from the third quarter. On top of the combined nearly $4 billion in losses reported last week by Delta and United, on Thursday three of the nation’s five largest airlines reported a combined net loss of nearly $3 billion.

  • American posted a loss of $2.8 billion in the quarter ended Sept. 30, excluding special items. That was down from the $3.4 billion it lost in the second quarter on the same basis
  • Southwest lost almost $1.2 billion excluding special items, down from a loss of $1.5 billion in the second quarter
  • Alaska Airlines posted a net loss before special items of $339 million, excluding special items.
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All of those losses are excluding special charges related to grounding planes (temporarily or permanently), cutting jobs, refunding advance purchase money to travelers who’ve since canceled travel plans. They also include lots of other non-operating costs related to the industry’s rapid shrinkage in response to the Covid-19 pandemic and the unprecedented extended collapse of air travel demand this year. Added together, the industry’s total third-quarter losses are expected to top the $11 billion the U.S. airline industry combined to lose in the second quarter and could reach as high as $15 billion.

Leaders at all three carriers today tried to project some degree of positivity about the future. And they all said their carriers have done well at cutting nearly all the costs out of their operations that can be cut without compromising their carriers’ abilities to respond positively to the market when – or if – travel demand begins to pick up significantly.

Still, they had to concede that despite the very slow rise in the number of people traveling, the industry remains a long, long way from merely breaking even on a cash basis.

Southwest CEO Gary Kelly said his airline would have to double the number of passengers it’s carrying these days just to reach that break-even point. And neither he nor his competitors would offer a real prediction for when traffic might recover to even that minimally acceptable level. Instead, they spoke vaguely of hopes that a recovery could begin before the end of 2021.

Most of the modest improvement in demand for domestic travel has come from leisure travelers, who tepidly have begun returning to the air in what are still historically very weak numbers. In October, U.S. carriers are scheduled to operate less than 50% of the capacity they operated in the same month last year, yet they also are expected to fill only about 40% of the seats they still offer. But few of those passengers filling those seats will be business travelers, who tend to buy much higher-priced tickets.

American CEO Doug Parker said that there are faint signs of growth in business travel demand. Neither American nor its competitors will begin to see a meaningful rebound in their businesses until “business travelers start hitting the airways again, something that is modestly starting up, but is nowhere close to what we need.”

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

Both airline CEOs, like their counterparts at United and Delta, urged Congress to pass an extension of the CARES Act to help keep the nation’s “air infrastructure” in place until March, when they hope their airlines can do that without further government aid. The CARES Act, passed last spring, gave U.S. carriers $25 billion in grants aimed at keeping airline employees employed during the downturn, plus access to up to another $25 billion in government loans to bolster carriers’ sagging liquidity. The airlines agreed not to layoff workers until Oct. 1, figuring the crisis would be largely over by then. It wasn’t, so earlier this month when carriers laid off more than 32,000 on Oct. 1, on top of the tens of thousands of employees who previously accepted financial incentives to retire early, take indefinite long-term furloughs, or simply to quit.

Now the nation’s airlines, having failed in last-minute efforts to get government aid that would have stopped them from laying off so many people this month, are now pleading for belated financial air from the government that they say would allow them to recall those recently laid off workers. But despite spasmatic signs that progress is being made in talks between the Democrat-controlled House, the Republican-controlled Senate and the Trump Administration, chances of such a relief package being enacted before the Nov. 3 elections are growing dim. Nor is it clear that such relief will be approved after the election.


The Fort Worth-based airline’s third quarter revenue of $3.2 billion was a 73% drop from the third quarter of 2019. That its capacity, measured in available seat miles, was down “only” 59% year-over-year, clearly points to the near-total collapse in business travel demand and to the discounting airlines are having to do just to attract what leisure travelers they’re getting to fly. Vasu Raja, American’s chief revenue officer, said today that roughly half of American’s available flights today are “under some form of revenue management.” That means American managers believe demand is strong enough for at least some of its flights to resumed the standard practice of yield management, which involves holding back some available seats for sale at higher fare prices until just days before departure. Airlines do that because they believe business travelers, who tend not to plan their travel until just shortly before departure, will pay significantly higher prices than leisure travelers.

American lost $5.54 per share based on its $2.4 billion loss excluding special items. With special items (mostly credits related to federal aid it received) its loss totaled $3.1 billion on a pretax basis.  Excluding those special items its net loss was $3.6 billon.

American lost about $44 million a day in the third quarter, and expects modest further cost cutting and improved revenues to reduce its fourth quarter cash burn rate to around $36 million a day.

The carrier ended the third quarter with about $13.6 billion in available liquidity and since has received the additional proceeds from government loans of $2 billion, pushing its current liquidity level to around $15.6 billion. The airline today also announced that is authorized to begin selling an additional $1 billion in stock at market prices, boosting its liquidity to $16.6 billion. It did not say when it will begin selling those new shares.

In addition to the 19,000 employees it laid off on Oct. 1, American benefitted in the third quarter from the departure of more than 20,000 additional employees who accepted incentives to retire, to take indefinite long-term furloughs, or to quit.

American also announced that effective today its remaining 15 A300 widebody jets have been retired. All 15 already had been placed in long-term storage but were available for potential recall until today’s decision.


The Dallas-based airline currently ranks as the world’s largest airline in terms of available seats because it has shrunk less than other big airlines. It nevertheless reported third quarter operating revenue of $1.6 billion, down 68.2% from the third quarter last year. It’s $1.2 billion net loss excluding special items equaled a loss of $1.96 on a per share basis.

Though it’s no surprise, Southwest’s third quarter loss, combined with its big second quarter loss and near-certain loss in the fourth quarter means that it will report only its second annual loss in its 49-year history. Its only other annual loss came in its first year of operations.

Southwest’s daily cash burn rate in the third quarter was about $16 million a day. But in September that dropped to around $12 million a day, thanks to the impact of cost reductions that took effect largely in September. The company projects its cash burn rate will fall a bit more in the fourth quarter, to around $11 million a day.

While Southwest’s fleet total of 734 Boeing 737s is changed by only a few planes from the second quarter, the company said it is keeping between 150 and 200 of its planes in storage because of weak demand. One hundred of those planes are in long-term storage. Southwest is bringing back a handful of those planes to fly to several new destinations like Colorado Springs, CO, and Savannah, GA, both known as a popular tourist destinations that cater to well-heeled vacationing business people, plus Jackson, MS. Southwest also has no more than 48 additional Boeing 737 MAX planes set for delivery by the end of 2021 but it is in talks with Boeing to determine the final number of timing of those deliveries plus the entire restructuring of its Boeing order book.

Southwest ended the fourth quarter with $14.6 billion in cash. It also has raised $18.9 billion in additional cash and debt so far this year. It also retains the industry’s only Investment Grade debt rating by managing its debt effectively and retaining lots of unencumbered asset value. It has, by far, the best balance sheet in the industry.

The company also announced today that effective Dec. 1 it will begin selling all the seats on its flights. Since the pandemic began Southwest has been selling only two thirds of its available. Though Southwest does not assign seats, the policy typically meant its middle seats went unused unless members of the same family or others traveling together chose to occupy a middle seat. President Tom Nealon noted that the policy was never seen by Southwest as safety measure, but rather as a way ensuring that passengers would feel more comfortable with the middle seat next to them – or at least a third of all seats onboard – being empty. Southwest’s change means that only Delta among the big U.S. airlines will be keeping middle seats open, unless as some analysts now expect, it too decides to begin selling middle seats, too.


Excluding special items, the Seattle-based carrier lost $399 million or $3.23 a share. A year ago the same basis it had a $226 million profit equal to $2.63 per share.

Including special items Alaska’s $431 million net loss was equal to $3.49 a share. Last year in the third quarter it earned $322 million, or $3.49 a share. It ended the quarter with $3.8 billion in cash and marketable securities. It’s cash burn in the third quarter fell to $4 million a day from $5 million a day in the second quarter.

The airline saw more than 4,000 of its employees accept incentivized offers to leave. That allowed Alaska to limit the number of layoffs it issued earlier this month to around 400. It also noted that during the third quarter it announced, and in most cases, launched new service aimed at travelers who live in the West Coast region to high-end leisure destinations like Jackson Hole, WY, and Fort Myers, FL.

CEO Brad Tilden today said, “We are gaining momentum as we climb our way out of this crisis.”

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