US Airlines’ Q1 Earnings: The beginning of a long story

All major airlines in the United States have now reported their first-quarter results, with the industry losing billions during the first three months of the year and expecting even larger losses in the second quarter. With more than 4,000 aircraft grounded in the country and load factors in the single digits, carriers are facing an uncertain future despite government support. All major U.S. airlines are working hard to reduce their cash burn while sustaining their liquidity in order to break even as soon as possible. But how do earnings compare among them? Figure 1 shows how the pre-tax margin performance of the major U.S. carriers in the first quarter. Figure 1 - US Airline Industry Q1 2020 Pre-tax Margin Performance Summary

American Airlines showed the largest loss of all major U.S. carriers at $2.2 billion, and losing about 20% of its revenue. This is reflected in a stunning negative 17% pre-tax margin, more than any of its three major competitors and significantly more than Alaska and JetBlue. However, American ended the first quarter with $6.8 billion in available liquidity and expects to add more than $10.6 billion from the federal government through the third quarter, which will help the airline survive the crisis. On the other end, Southwest performed the best; this is not a surprise, given their low and historically well-managed operating costs and the fact that it entered the crisis with the strongest balance sheet. The latest figures from the TSA tell us that the worst is over, and May 11 saw the largest number of people at airport checkpoints since March 20, at just over 215,000. One year ago, around 2.5 million people were screened across the country. Although airlines are slowly increasing the number of flights, it is unlikely airports will see seven-figure passenger numbers in the near term. With the first-quarter results in, investors are eyeing at the second quarter with the expectation that it will be far worse across all the carriers. The good news is that the huge daily stock declines at the height of the COVID-19 crisis should be behind, but it will take a long time for the airline stocks to bounce back, especially with the uncertainty surrounding passenger demand and the industry outlook. Figure 2 summarizes the stock price percentage drop across the major carriers since the beginning of the crisis. Figure 2 - Airline Industry Stock Price Performance Summary: Feb 15 – May 12, 2020

The airlines’ efforts in the second quarter to reduce cash burn, increase revenue, preserve cash and access government loans will provide further guidance to investors in the next few weeks. However, the critical nature of the crisis will definitely raise some concerns over the levels of liquidity airlines should aim for in the future. Airlines have come up with a few methods to bring in additional revenue during the crisis, such as operating passenger aircraft in freighter configuration. In a little more than two weeks, the number of aircraft in this configuration has grown significantly, from 650 units to 1,136 according to our latest tally. United is the largest operator in the U.S., with 37 aircraft in a mix of 787-8, 787-9 and 777-300ER types. American is operating 21 aircraft, with the 777-300ER being the preferred choice, and Delta operates a mix of 777s and A350-900s. The interactive map below gives an overview of the different operators and number of aircraft operated on such missions. The pop-up provides additional detail on aircraft types. Interactive Map – Passenger Freighter Operations by Airlines, as of May 12, 2020 (Source: Cargo Facts analysis).

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US Airlines’ Q1 Earnings: The beginning of a long story

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How steep were the PMI declines in April? (updated)

Passenger-freighter ops strive to meet demand

Related Posts

US air trade in 2021 is looking good

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