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Airlines Say Ticket Cancellations Slowing; Business Models May Change

Published on May 20 2020 11:22 AM in General Industry tagged: Trending Posts / Delta Air Lines / American Airlines / United airlines / Air Canada / Southwest Airlines

Airlines Say Ticket Cancellations Slowing; Business Models May Change

Top US airlines and Air Canada have reported slower ticket cancellations and an improvement in bookings on some routes, though executives said that overall demand remains weak and changes to travel rules may force new business models.

From face masks to social distancing, the global airline industry is scrambling to implement measures to protect travelers and revive demand decimated by the coronavirus pandemic.

"We may have to change things in our business plan from top to bottom," United Airlines CFO Gerry Laderman said at a Wolfe Research industry conference, which was held virtually.

Air Canada, Delta Air Lines Inc and American Airlines Group Inc executives also spoke at the conference.

Pre-pandemic passenger levels will be slow to return, they said, depending on development of a vaccine and the broader re-opening of businesses, restaurants, hotels and theme parks.

US domestic load factors will likely remain below 75% next year, they said.

Delta CFO Paul Jacobson said that it could be three years before the sector sees "normalised demand" and questioned whether customers will want to fly on full planes before a vaccine.

That does not mean that airlines are considering changing airplanes' seating configuration, which would be a multi-year certification process, United executives said.

"I'm confident we'll be on the other side of this situation by the time we could do anything even close to that," United chief commercial officer Andrew Nocella said.

US airline shares rose on Tuesday May 19.

Rebuilding Balance Sheets

Executives said that they are now focused on reducing daily cash burns to become cash flow positive in 2021.

Delta thinks that it will reach cash flow break-even by the end of this year, said Jacobson, who sees daily cash burn slowing to approximately $40 million by the end of June as the airline restores approximately 100 flights to its schedule.

Jacobson said that he expects any necessary headcount changes at Delta can be done through voluntary programs.

American Airlines CFO Derek Kerr told the conference that his company will need to "right-size" to ensure positive cash flow next year, with all excess cash used to pay off debt for the next five years. American, which invested heavily in renovating its fleet, has the highest debt load of the US majors.

Air Canada CFO Mike Rousseau said that he cannot predict when his airline's cash burn will go to zero, noting it will depend on revenue performance in the coming months.

Separately, Southwest Airlines Co said that its June capacity will be roughly half its schedule a year ago - an improvement from a 60% to 70% reduction in May. It projected that its daily cash burn will slow to the low-$20 million range in June.

United, with more international exposure, said earlier that its June capacity will still be down by approximately 90% year-on-year, and 75% in July. Its total adjusted capital expenditure for 2021 will be close to $2 billion versus approximately 4.5 billion this year, it said, falling to below $500 million in 2022 when it does not expect to take delivery of any new aircraft. It is taking fully financed jet deliveries this year and next.

News by Reuters, edited by Hospitality Ireland. Click subscribe to sign up for the Hospitality Ireland print edition.

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