The big four carriers in the United States have reported their second-quarter results this week. Multi-billion losses came as no surprise, even despite significant capacity reductions. Some common trends have been visible across the airlines, yet each report included some interesting insights into how the airlines are dealing with the effects of the pandemic. Overall the picture remains bleak, especially given the stagnation of demand recovery in recent weeks.
Ticket revenue in freefall
The traditional carriers had similar revenues, with an average of $1.5 billion. Operating costs and losses have not differed significantly and averaged around $3.0 billion (excluding special costs and credits).
Delta’s revenue declined to just $1.5 billion, 91% less than in the last year’s second quarter, resulting in a $3.9 billion operating loss. That loss is the highest across all airlines, yet it is driven by non-cash writedowns of aircraft value and equity investments of $2.4 billion. Passenger revenue declined the most across all revenue streams, by as much as 94%. Cargo, MRO, and loyalty have been less impacted, with revenues declining by 65%.
American Airlines’ revenue stood at $1.6 billion with a comparable operating loss to that of Delta’s if we exclude the CARES act recognition and restructuring charges. Passenger revenue declined by 87%, thanks to a relatively strong domestic revenue of $1 billion. AA’s revenue was the highest of all four airlines, but only by a small margin.
United recorded a $1.5 billion revenue and an operating loss of $1.6 billion. Similarly to American Airlines, the Chicago-based carrier benefited from its strong domestic network and capacity reductions. Passenger revenue has also declined by 87%.
Southwest’s revenue was $1 billion, 83% less than a year ago. This decline is the smallest across all four airlines. The Dallas-based outfit posted a net loss of $1.5 billion, also the least from the big four, showing the value of agility and a low cost-base.
Reduced cash burn, liquidity, and debt
Delta’s cash burn has been reduced to $27 million daily, which despite being 70% less than in March, still translates to $2.4 billion cash burn per quarter. As of today, the liquidity stands at $15.9 billion. That might seem high, but the airline has $5 billion in current debt as well as $4.7 billion in sold tickets, many of which are likely to be returned to the passengers. Even if half require a refund, and the cash burn remains unchanged, Delta will run out of liquidity in less than a year from now.
Southwests’ liquidity is similar to that of Delta’s. $15.5 billion of cash and cash equivalents give a lot of breathing room to the carrier. In spite of operating at 30 to 40 percent load factor, cash burn in June stood at $18 million per day.
Southwest’s financial situation stands out from the 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 obtaining more debt at a lower cost or increasing capital expenditure once the pandemic ends. These benefits are likely to allow Southwest to gain higher market shares than previously.
United’s liquidity stood at a worrying $7.5 billion with a daily cash burn of $25 million per day in June, or $2.25 billion a quarter. The operator has one of the highest debt and current liabilities, which may threaten the airline’s survival in the quarters to come. Without additional funds or improved demand, the airline can find itself under significant financial pressure in around half a year from now.
Aircraft retirements and other losses
Retiring older aircraft and fleet simplification alongside equity investment also resulted in significant losses for the carriers. Chapter 11 Bankruptcies of LATAM and Aeromexico, together with MD-90, 777, and 737-700 fleet retirements, resulted in a cumulative loss of $4.6 billion for Delta Air Lines.
American Airlines has accelerated the retirement of Boeing 757, Boeing 767, Airbus A330-300, and Embraer 190 fleets as well as certain regional aircraft. Meanwhile, Southwest has returned five leased 737-700’s and currently has nearly 100 aircraft in storage, including the 34 MAX aircraft. With the MAX still grounded, the firm now expects to take delivery of no more than 48 MAX aircraft through December 31, 2021.
What are your thoughts about how the big four US carriers compare? How do you see the situation panning out for the rest of the year? Let us know what you think in the comment section.
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