With major U.S. airlines cutting flight capacity to the bone and the U.S. airline industry thrown into disarray, some on Wall Street are drawing comparisons with the post-Sept. 11, 2001 downfall and even predicting bankruptcies.
United Airlines Holdings Inc. UAL, 5.090% and American Airlines Group Inc. AAL, 1.306% have joined Delta Air Lines Inc. DAL, 1.517% in announcing slashed routes as global air travel grinds to a near-standstill to limit the spread of COVID-19.
On Monday, Alaska Air Group Inc. ALK, 2.436% said it would reduce capacity in April by at least 10% and by 15% in May, in addition to seeking more borrowing and cutting capital expenditures and offering employees unpaid leave, among other measures.
Southwest Airlines Co. LUV, 2.137% joined the chorus of capacity cuts and other measures after the bell on Monday. The airline withdrew its 2020 financial guidance “due to the rapidly changing environment as the COVID-19 pandemic evolves,” it said in a filing late Monday.
It also cut capacity by at least 20% from April 14 to June 5, implemented a hiring freeze and offered voluntary leave, and said it was “aggressively evaluating all capital spending, discretionary spending, and all non-essential costs for near-term cost reductions or deferrals,” it said.
The Wall Street Journal reported Monday that U.S. airlines are in talks with the government to obtain as much as $50 billion in financial assistance, citing two people briefed on the discussions.
“Airlines are in free fall,” Cowen analyst Helane Becker said in a note. Over the weekend, the U.S. government added the U.K. and Ireland to the ongoing temporary travel ban.
“We expect additional airline bankruptcies,” with low-cost Norwegian Air Shuttle ASA NWARF, -4.15% an “airline of interest,” she said.
Top White House economist Larry Kudlow on Monday had opened up the possibility that the government could help airlines.
“We don’t see the airlines failing, but if they get into a cash crunch we’re going to try to help them,” Kudlow said, according to a White House press-pool report. He did not like the term “bailout,” saying it was more of a short-term liquidity issue.
He said the airlines had been in touch seeking aid, “lots of them,” and that “we’re in touch about their balance sheets and their cash flow.”
American said it will reduce international capacity by 75% from March 16 to May 6, although it said it would continue to operate short-haul international flying, which includes flights to Canada, Mexico, the Caribbean, Central America and certain markets in South America as scheduled. American already announced last week reductions in flights to Asia Pacific.
United said its revenue in March, historically its busiest month, will be $1.5 billion lower than last March. “The bad news is that it’s getting worse. We expect both the number of customers and revenue to decline sharply in the days and weeks ahead,” the company said.
United already implemented a hiring freeze and offered unpaid leave and cut its schedule. Over the weekend, it said it will cut executives’ salary by half and cut capacity by about half for April and May, expecting that the reductions will extend to summer travel.
“Even with those cuts, we’re expecting load factors to drop into the 20-30% range -— and that’s if things don’t get worse,” United said.
Delta Air Lines said Friday it will cut capacity by 40% in the next few months, the most in its history, and took other steps to preserve cash amid the crisis, such as cutting $2 billion in expenses, offering unpaid short-term leave to employees and entering a hiring freeze. In a memo to employees about the changes, Chief Executive Ed Bastian said…
Continue reading at MARKETWATCH.com