Airlines are on the verge of finally making money again
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After a year of burning through as much as $100 million in cash daily, airlines are finally on the verge of a much-awaited goal: actually making money.
US airlines have seen a dramatic uptick in forward bookings over the past several weeks, with a further surge in domestic leisure travel expected as the COVID-19 vaccine rollout continues to accelerate.
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United Airlines wrote in an SEC filing that it expects to reach positive cash flow for the month of March 2021, assuming that “the current trajectory of booking improvement is sustained.”
“If the current rate of improvement in bookings continues, the Company expects core cash flow to be positive moving forward,” the airline wrote in the filing.
Should things continue as United expects, it will earn money for the first time since March 2020, when the airline burned through as much as $80 million per day.
United is not the only airline to see itself approaching the crucial cash-positive mark, although it was the first to say it would meet the milestone.
Delta Air Lines CEO Ed Bastian, speaking at the JP Morgan Industrials Conference, said that he was “cautiously optimistic” that the airline could reverse its cash burn this spring, saying he had seen “real glimmers of hope.”
Doug Parker, American Airlines’ CEO, said at the same conference that demand for domestic leisure travel was rising swiftly.
There’s “huge pent-up demand for domestic leisure travel,” Parker said. “And that demand is coming back quickly as vaccines are distributed.”
Southwest also forecasted reduced cash burn, citing an increase in travel and forward bookings, though still expects to spend $10-12 million per day through the first quarter.
“It feels like the beginning of the end,” Gary Kelly, Southwest’s CEO, said during a Washington Post Live forum. “Our hope is that by the time we get to June, where you’ve had most of the population have access to vaccinations, that we’ve got a chance of breaking even at least.” Kelly said that he’s hopeful for positive cash flow within the year.
It’s not just forward bookings that are increasing; air travel has steadily increased over the past several weeks. More than 1.3 million passengers passed through security at U.S. airports on this past Friday and Sunday, the first time those numbers had been reached since the pandemic began (although those numbers were as high as 2.5 million on the same days in 2019). Passenger counts are expected to climb as more Americans receive the vaccine and feel safe to travel, hence the increase in forward bookings.
Notably, the current demand is almost entirely for leisure travel and is almost entirely for domestic or short-haul international flights. Business and long-haul travel — which are generally more lucrative — are only showing “grass shoots” of returning, Parker said. Before the pandemic, as much as 50% of airline revenue came from road warriors, despite those travelers making up just 15-20% of the airline’s overall annual customers, according to Cowen, although those numbers vary significantly by airline.
Nevertheless, the airlines have reason to be optimistic for the first time in more than a year.
“These last three weeks have been the best three weeks since the pandemic hit, and each week has been better than the prior one,” Parker said. “And that appears to be continuing here, in this fourth week.”
Featured image courtesy of United Airlines
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