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US airlines lay out COVID-19 damage and renew calls for aid

US airlines lay out COVID-19 damage and renew calls for aid

A number of grounded Southwest Airlines Boeing 737 MAX 8 aircraft are shown parked at Victorville Airport in Victorville, California, on Mar 26, 2019. (Photo: REUTERS/Mike Blake)

NEW YORK: American Airlines and Southwest Airlines signalled on Thursday (Oct 22) that they would continue to haemorrhage cash into next year as revenues hover around a third of 2019's levels due to a collapse in demand from the coronavirus.

Still, both said they had enough liquidity to ride out the crisis, even while renewing calls for another round of government aid after an initial US$25 billion to protect jobs through September expired.

US House Speaker Nancy Pelosi said negotiators were making progress in talks with the Trump administration for another COVID-19 economic stimulus package and that legislation could be hammered out "pretty soon."

Shares of Southwest, which is expanding its network while others have retrenched, were up 4 per cent on Thursday afternoon. The airline said it would stop blocking middle seats in December, enabling it to tap more revenue on each flight.

Shares of American were flat after it said it would issue up to US$1 billion of equity to further bolster liquidity, which reached US$13.6 billion in September.

British Airways owner IAG warned on Thursday the travel slump from the coronavirus pandemic had deepened in Europe, leading to a larger-than-forecast quarterly loss.

US domestic leisure demand has shown signs of improvement but passenger traffic will remain fragile until a COVID-19 vaccine is widely available, Southwest said, while highlighting recent studies showing that in-flight COVID-19 risk is low.

The World Health Organization (WHO) told Reuters that the risk of COVID-19 spreading on flights indeed appears "very low" but cannot be ruled out, despite studies showing only a small number of cases.

Alaska Airlines , which also posted quarterly results on Thursday, said it is blocking middle seats through early January, like Delta Air Lines .

American and United Airlines sell all available seats.

EYES ON CASH

American Airlines said it expects its cash burn rate to fall to about US$25 million to US$30 million a day in the fourth quarter from about US$44 million per day in the third quarter and US$58 million per day in the second.

To halt the bleed entirely, it would need about 65 per cent to 70 per cent of the US$11 billion in revenue it reported in 2019. It drew in just US$3.19 billion of revenue in the third quarter, down 73 per cent from a year ago.

American also said it will tap US$7.5 billion in federal loans, more than initially forecast.

Southwest said it would need to roughly double the US$1.79 billion in revenue it booked in the third quarter to reach cash burn break-even, though CEO Gary Kelly told investors its US$15.6 billion in liquidity is enough to last at least three years.

The airline, whose debt position is among the best in the industry, forecast fourth-quarter average core cash burn of about US$11 million per day, compared with US$16 million per day in the third quarter and US$23 million per day in the second.

DEFERRED DELIVERIES

With little need for new jets, American said it had agreed with Boeing Co to defer deliveries of 18 737 MAX aircraft scheduled to be delivered between 2021 and 2024, and said it was discussing delivery delays with Airbus.

Southwest, which flies only Boeing 737s and had already agreed to take no more than 48 MAX aircraft through 2021, said it was also discussing additional delays.

The MAX has been grounded since March 2019 after two fatal crashes. American has said it could return the jets to service this year pending approval for software and training changes, while Southwest said on Thursday it probably will not fly the jets until at least the second quarter of 2021.

The airlines have also parked jets and retired aircraft due to depressed demand.

Source: Reuters

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