The four major carriers in the United States released their second quarter results this week. Multi-billion dollar losses came as no surprise, even despite significant capacity cuts. Some common trends were visible between airlines, but each report contained interesting information on how airlines are dealing with the effects of the pandemic. Overall, the picture remains grim, especially given the stagnant recovery in demand in recent weeks.
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Traditional carriers had similar revenues, averaging $ 1.5 billion. Operating costs and losses did not differ significantly and averaged around $ 3.0 billion (excluding special costs and credits).
Delta’s revenues have declined at just $ 1.5 billion, 91% lower than the second quarter of last year, resulting in an operating loss of $ 3.9 billion. This loss is the highest of any airline, but it is due to non-cash write-downs in aircraft values and $ 2.4 billion in equity investments. Passenger revenues fell the most across all revenue sources, up to 94%. Freight, MRO and loyalty were less impacted, with revenues down 65%.
American Airlines’ revenue was $ 1.6 billion with an operating loss comparable to that of Delta if we exclude the recognition of the CARES law and restructuring charges. Passenger revenues fell 87%, thanks to a relatively high domestic income of $ 1 billion. AA’s revenue was the highest of the four airlines, but only by a narrow margin.
United reported $ 1.5 billion in revenue and an operating loss of $ 1.6 billion. Like American Airlines, the Chicago-based carrier has benefited from its strong domestic network and capacity reductions. Passenger revenues also fell by 87%.
Southwest’s revenue was $ 1 billion, 83% lower than a year ago. This drop is the smallest among the four airlines. The Dallas-based company posted a net loss of $ 1.5 billion, also the lesser of the Big Four, showing the value of agility and a low base cost.
Reduced consumption of cash, liquidity and debt
Delta’s cash consumption has been reduced to $ 27 million per day, which, although 70% lower than in March, still translates into cash consumption of $ 2.4 billion per quarter. . To date, liquidity stands at $ 15.9 billion. It may sound high, but the airline is currently in debt of $ 5 billion as well as $ 4.7 billion in tickets sold, much of which is likely to be returned to passengers. Even if half of it requires repayment and cash consumption remains unchanged, Delta will run out of cash in less than a year.
Southwest’s liquidity is similar to that of Delta. $ 15.5 billion in cash and cash equivalents gives the carrier a lot of wiggle room. Despite operating at a load factor of 30 to 40 percent, cash consumption in June was $ 18 million per day.
Sud-Ouest’s financial situation stands out from other carriers. It is the only airline among the big four, whose liquidity remains higher than its total debt. This gives Southwest a significant advantage when it comes to securing more debt at lower cost or increasing capital spending once the pandemic is over. These advantages should enable Southwest to gain greater market share than before.
Regarding the numbers
United’s cash amounted to a worrying $ 7.5 billion with daily consumption of $ 25 million per day in June, or $ 2.25 billion per quarter. The operator has one of the highest debts and current liabilities, which could threaten the survival of the airline in the quarters to come. Without additional funds or improved demand, the airline can find itself under significant financial pressure in about six months.
Aircraft abandonment and other losses
The withdrawal of older aircraft and the simplification of the fleet as well as the investment in equity have also resulted in significant losses for carriers. The Chapter 11 bankruptcies of LATAM and Aeromexico, as well as the withdrawals of the MD-90, 777 and 737-700 fleets, resulted in a cumulative loss of $ 4.6 billion for Delta Air Lines.
American Airlines has accelerated the withdrawal of the Boeing 757, Boeing 767, Airbus A330-300 and Embraer 190 fleets as well as some regional aircraft. Meanwhile, Southwest has returned five leased 737-700s and currently has nearly 100 aircraft in stock, including all 34 MAX aircraft. With the MAX still on the ground, the company now expects not to take delivery of more than 48 MAX aircraft until December 31, 2021.
What do you think of the comparison of the four major US carriers? How do you see the situation evolving for the rest of the year? Let us know what you think in the comments section.