Southwest and American Airlines report improved quarterly earnings, shares plunge

Southwest and American Airlines reported quarterly earnings with a boost provided by federal aid and a surge in travel demand. Despite the boost, shares of both the airlines were down by 1.12% and 3.46% at market close.

Texas-based American Airlines reported a net income of $19 million, taking into account, $1 billion from the government's Payroll Support Program Agreements. Without factoring in those credits, American had a loss of $1.1 billion.

Despite that, the company reported overall profits after five consecutive quarters of losses. Revenue for the second quarter jumped to $7.48 billion, up from just $1.6 billion a year earlier, beating Wall Street analysts’ forecasts, as air travel increased after lockdown restrictions were lifted.

With an increase in passenger load of 85% on domestic flights, from 44.1% in 2020, American Airlines recorded an improvement. The figure neared the passenger load in the second quarter of 2019 which was 88.2%, suggesting recovery.

Meanwhile, Southwest Airlines reported a 297% rise in sales from a year earlier to $4.01 billion. The jump was still down 32% from $5.9 billion during the same time in 2019. Net income for the second quarter totaled $348 million, compared to a loss of $915 million in 2020.

Southwest reported a free cash flow of $1.9 billion in the second quarter, with positive core cash flow in June after several quarters of heavy daily cash burn. Contrarily American turned daily cash burn into a daily cash build of about $1 million in the second quarter. Last week, the carrier said it expected to report a positive average daily cash build for the first time since the pandemic.

Southwest Airlines has recently grappled with was embroiled in a bitter soup while dealing with staff shortfalls, numerous cancellations, and delays due to bad weather and technical issues. It offered staff members double pay to pick up extra shifts, over the week of the Fourth of July.

Southwest’s operating revenues for June were down 20.7%, compared to pre-pandemic levels, with leisure traffic topping June 2019 levels, with comparable fares. Business travel tends to show gradual improvement despite lagging way below pre-pandemic levels.

American Airlines expects Q3 revenue to be down 20% as compared to Q3 2019. Meanwhile, Southwest forecasted a 10%-15% drop in July operating revenue, compared to July 2019. It reported a 12%-17% decline in August revenue.

The results for American and Southwest Airlines follow those of Delta Air Lines and United Airlines, which were released last week. Both Delta and United beat expectations, but with rising coronavirus cases, especially in states with lower vaccination rates, the jubilations accompanying the recovery seem short-lived.

Picture Credits: AP