American Airlines ‘not going away’ because of the coronavirus crisis
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Rumors have swirled about the viability of U.S. airlines since the leader of Boeing told the Today Show earlier this month that a major carrier would “most likely” fail as a result of the coronavirus pandemic.
No U.S. airline is doing well. Combined losses surpassed $5 billion in the first quarter alone, when COVID-19 only really kept would-be travelers home for a one month of the three month period. And even with the federal government’s coronavirus aid package, the CARES Act, Wall Street analysts have repeatedly warned that the industry will need to significantly downsize by the end of the year.
American Airlines is one of the carriers the industry is keeping a close eye on. While it is the largest U.S. carrier by most measures, the airline also had more than double the amount of debt than competitor Delta Air Lines and nearly 40% more than United Airlines at the end of 2019. Those obligations, which must continue to be paid no matter how many flights American cancels or planes it parks, are at the center of concerns over its future.
“Number one, American is not going away,” the Fort Worth, Texas-based carrier’s chief financial officer Derek Kerr said in response to a question over the value of the AAdvantage frequent flyer program during the Wolfe Research Conference on Tuesday.
While Kerr was not speaking specifically to any rumors in the industry, the subtext for his comment was clearly to push back against speculation that American might be in deeper trouble than its peers.
Like most of its major competitors, American has slashed flights and parked hundreds of jets in an effort to slash costs amid the crisis. The airline will operate around 33% of its schedule in June — up from just 28% of flights in May —compared to to last year, according to Cirium schedules.
In addition, American has closed its Flagship Lounges and dining with executives saying Tuesday that they will not reopen until people are buying premium tickets at a level that warrants the reopening of lounges.
And flyers accustomed to enjoying a wide-body Boeing 767 on flights between Miami (MIA) and New York John F. Kennedy (JFK) will be disappointed to know those planes are no more. American has retired its 767s from its fleet, along with at least four other aircraft types. More could be on the way.
American continues to hemorrhage money. The airline is on track to reduce daily losses to just $50 million a day in June, American president Robert Isom assured attendees at the conference. However, the number remains above those at its peers with both Delta and United targeting losses of just $40 million a day during the same period.
Raymond James analysts estimate that American only has about six months of cash on hand to weather the crisis, according to a May 17 report. For comparison, Delta had about 11 months of cash and United roughly 10 months.
The bank’s estimates do not include proceeds from the CARES Act. American has received $5.8 billion in payroll assistance from the government and may receive more loans.
But, airlines are seeing positive signs. Multiple executives have cited a small, if notable, uptick in bookings for the summer. This has prompted Delta to add around 100 domestic flights in June and United to move towards flying about a quarter of its schedule — up from just 10% of flights — in July.
On Tuesday, Southwest Airlines said its flights could be a third full in May, a 20-point improvement over its guidance in April. Flights could be even fuller in June if the trend continues.
American even plans to resume some key international routes to Europe and South America in June, as it begins to slowly build back its schedule.
In addition, American’s fleet changes have accelerated a long-standing effort to simplify its fleet. Simplification will save it money on things like crew training and maintenance resources, but also allow it to reduce traveler disruption when something goes awry.
The airline will now fly a wide-body fleet exclusively made up of Boeing 777 and 787 jets. Prior to COVID-19, American said that it would begin offering an “enhanced” business-class seat on its new 787s beginning this year.
“We are going to go through and right-size this airline from a cost perspective… to make sure we’re a profitable airline next year,” Kerr said Tuesday.
Featured image by DANIEL SLIM/AFP via Getty Images.
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