American Airlines, Southwest Lifted by Recovering Demand and Government Aid
The two carriers were among the hardest-hit by cancellations and delays last month as they moved to restore operations amid a rebound in air travel
The travel recovery airlines had hoped for has arrived. Now the question is whether the industry can keep it going.
Throngs of vacation travelers and an infusion of government aid have restored Southwest Airlines Co. and American Airlines Group Inc. to profitability. Delta Air Lines Inc. also reported its first pandemic-era profit last week.
Appetite for leisure travel this summer is as strong----or stronger----than it was before the pandemic, airline executives say.
Airlines are scrambling to hire new workers and rebuild their networks to meet the surge in demand, a turnaround for an industry that lost billions of dollars last year as travel all but disappeared at the height of the coronavirus pandemic.
"Things aren't back to normal yet. But clearly, they have stabilized and are much improved," Southwest Chief Executive Gary Kelly said during a conference call with analysts and media.
American and Southwest each notched a small profit during the second quarter when including government assistance aimed at covering the cost of paying employees. Southwest reported a $348 million profit during the quarter. American reported a profit of $19 million.
Excluding the government assistance, both airlines reported losses during the quarter: Southwest lost $206 million, and American lost $1.09 billion. The rise of leisure traffic in June, however, helped Southwest and American turn their first monthly profits without government assistance since the start of the pandemic.
The strength of the air travel rebound this summer outpaced what many airline executives had anticipated. Roughly two million people have passed through U.S. airports each day recently, according to the Transportation Security Administration.
That has helped lift airline revenues, but it also brought unanticipated challenges for carriers.
A confluence of technical hiccups and chaotic weather have thrown operations into disarray on some days. Those problems have been compounded by the constraints of an industry that hasn't returned to full force, including staffing shortages and a dearth of spare seats and aircraft to reaccommodate people.
American and Southwest, which opted to fly busier schedules than some rivals, each have had particularly rocky periods.
The rapid rise in travel in June stabilized Southwest's finances, but it sometimes strained operations, Mr. Kelly said Thursday. While the airline flew more than some rivals, it had fewer flights than normal, making it harder to absorb setbacks like a technical glitch or sudden storms, executives said.
"Getting the airline back on the tracks, obviously, is job one," Mr. Kelly said. "I blame it on the pandemic, it's messy. It's messy coming in, it is certainly messy coming out."
Hiring has been a challenge in some parts of the country, particularly for ramp workers and other ground staff. Competition for these workers has been fierce: Mr. Kelly said Thursday that "effort" per hire is double what it typically would be.
Ben Minicucci, chief executive of Alaska Air Group Inc., said Thursday that it also has struggled to hire ramp workers at its Seattle hub, where flying is essentially back to 2019 levels. "The staffing pressure, along with record-breaking heat waves during the quarter have put stress on our operations," he said.
American President Robert Isom said the company had added the equivalent of an entire airline to its schedule over the last few months. But he said the problems the carrier had experienced with shortfalls at vendors that cater and refuel planes have eased.
"We're running the airline we need to right now," he said.
Carriers have also flagged rising costs in the coming months, as they expect to spend more on fuel and other items, such as labor. American shares fell 1.1% to $21.16 on Thursday. Southwest dropped 3.5% to $51.29.
The most pressing question airlines face is whether the momentum will continue beyond summer. Passenger volumes remain roughly 20% below pre-pandemic levels, according to TSA figures.
Limits on international travel still remain, including restrictions barring non-Americans from most European countries from entering the U.S. Those rules have been a source of ongoing frustrations for airlines like American, Delta Air Lines Inc, and United Airlines Holdings Inc., which rely heavily on international travel.
High-paying business travelers have also been slower to return. Major carriers have said corporate customers started traveling again, and they expect more once companies call workers back into offices after Labor Day.
American said its revenue from domestic business travel has climbed to about 45% of 2019 levels, and it is starting to see the first sparks of demand for long-haul international trips. The airline said it expects domestic business travel to fully recover next year.
But the spread of the Covid-19 Delta variant has made airline investors anxious and raised questions about that trajectory. Apple Inc. this week said it would delay its planned return to the office in September by at least a month.
There have been other signs that the fast-spreading strain could prompt renewed restrictions. Los Angeles County said last week it will once again require masks indoors after a sharp rise in coronavirus infections there.
Last year similar reversals derailed early signs of travel rebounds, but U.S. airline executives say they have seen no impact on new bookings so far.
United Chief Executive Scott Kirby said this week a temporary pullback in the reopening is possible, but "we think the most likely outcome is that the continued recovery in demand continues largely unabated."