American and Southwest Airways define a ‘tough street forward’ from file losses
North Texas airlines are parking more planes, negotiating wage cuts, and planning a smaller future, possibly for years to come.
Dallas-based Southwest Airlines and Fort Worth-based American Airlines reported historic financial losses on Thursday as the COVID-19 pandemic continues to affect the aviation industry.
The quarterly losses – $ 2.4 billion in the US and $ 1.2 billion in the Southwest – add to the multi-billion dollar losses in the first half of 2020, and airlines are warning that the last three months of the year also become bleak.
Those record losses and warnings that the rest of the year won’t get much better are leading airline executives to look for ways to increase revenue and reduce costs, sometimes permanently.
“We still have a long way to go,” said Doug Parker, CEO of American Airlines, in an interview with investors.
The financial situation is not sustainable at the present time in the travel industry. United Airlines lost $ 1.8 billion and Delta Air Lines lost $ 5.7 billion in the second quarter. Every airline consumes more money than it makes every day.
American staff costs of $ 2.7 billion exceeded passenger revenue of $ 2.5 billion for the quarter.
Both American and Southwest expect planes to average only about half full for the remainder of the year, even after thousands of flights have been canceled to meet reduced demand.
American Airlines announced Thursday that an additional 15 aircraft would be retired, the last of its Airbus A330-200 aircraft. The company has retired around 110 jets since the beginning of the pandemic, including many of its wide-body jets that were mainly used on long-haul international flights. This segment is unlikely to be recovering anytime soon.
The airline has also pushed back shipments of up to 18 of its Boeing 737 Max aircraft in 2021 and 2022.
American Airlines suspended or laid off 19,000 employees on October 1, which were subsidized with federal government grants of $ 4.1 billion. These included around 1,500 administration and support employees and around 3,500 employees who had already made acquisitions.
Parker believes that going forward, American Airlines will be a smaller, leaner airline that needs to work more efficiently.
“For example, we’ve cut our management by 30%,” said Parker. “We’re not going to bring this back.”
However, Parker said American cut costs so much this year that there isn’t much room to trim.
To break even, Southwest will need to double the amount of money the company raised in the three-month period ending September 30, said CEO Gary Kelly.
“Right now you have way too many seats to chase too few customers,” said Kelly.
Southwest took a step to cut costs by lifting the 65% limit on seat sales on every flight starting December 1st and opening medium seats for the first time since June.
Business travelers, a major spending segment in the industry, will still decline 50% to 60% by the end of next year, Kelly said. These travelers have historically booked more expensive flights closer to their travel dates and spent more on upgrades.
“There could very well be a structural 10-20% reduction in business travel from COVID that could take several years to rebuild,” said Tom Nealon, president of Southwest Airlines.
Staff are also ready to cut back if the pandemic drags on.
Southwest’s unionized workers are already taking 10% wage cuts and Kelly has cut his wages to zero for the remainder of 2020 and next year. Southwest has no plans to take employees off this year, but is warning unions that it may be necessary if workers do not voluntarily agree to a wage cut. The unions have resisted the idea of wage cuts.
“Very raw numbers, we’re about 20% overstaffed,” said Kelly. “Ten percent is a lot to ask, but it’s much less than what airlines have traditionally done in terms of the sacrifices they have made of their employees. We have locations where we have twice as many people as we need. “
Kelly said shrinking the airline significantly could be painful and inefficient. One reason Southwest doesn’t have as many employees is because fewer planes can fly on fewer routes.
Southwest Airlines has already postponed delivery of 67 of its Boeing 737 Max jets for several years. And while the 737 Max is slated to fly when it’s approved by federal regulators after nearly two years of grounding, it won’t take nearly as many as it ordered.
“In the absence of any improvement in the environment, it’s safe to say that we won’t need 48 planes next year,” said Tammy Romo, Southwest’s chief financial officer.
Still, American and Southwestern leaders are planning ways to get out of the pandemic in a better position than they were when the health crisis began.
A third of all US airline passengers flew on the airline this summer, according to a letter to Parker employees and President Robert Isom.
Meanwhile, Southwest continues its vacation travel endeavor by expanding to three new destinations after adding six new airports in the past few months. On Thursday, Southwest announced that it was expanding to airports in Jackson, Miss. And Colorado Springs as well as airports in Savannah, Georgia and Hilton Head, SC