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(Reuters) – American Airlines (O:AAL) and Southwest Airlines (N:LUV) signaled on Thursday that they would continue to hemorrhage 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, boosting shares, even while renewing calls for another round of government aid after an initial $25 billion to protect jobs through September expired.
U.S. House Speaker Nancy Pelosi said negotiators were making progress in talks with the Trump administration for another round of financial aid amid the COVID-19 pandemic and that legislation could be hammered out “pretty soon.”
Shares of Southwest were up nearly 5% at midday on Friday, boosted by the airline’s plans to stop blocking middle seats in December and delay more jet deliveries.
Shares of American reversed earlier losses fueled by the company’s plans to issue up to $1 billion of equity to further bolster liquidity.
British Airways owner IAG (L:ICAG) warned on Thursday the travel slump from the coronavirus pandemic had deepened in Europe, leading to a larger-than-forecast quarterly loss.
U.S. 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.
EYES ON CASH
American Airlines said it expects its cash burn rate to fall to about $25 million to $30 million a day in the fourth quarter from about $44 million per day in the third quarter and $58 million per day in the second.
To halt the bleed entirely, it would need about 65% to 70% of the $11 billion in revenue it reported in 2019. It drew in just $3.19 billion of revenue in the third quarter, down 73% from a year ago.
American ended the quarter with $13.6 billion in liquidity. but this could rise after it said it will tap $7.5 billion in federal loans, more than initially forecast.
Low-cost carrier Southwest, with a better debt position, did not tap the federal loan fund. It ended the quarter with $15.6 billion in liquidity.
Still, Southwest said it would need to roughly double the $1.79 billion in revenue it booked in the third quarter to reach cash burn break-even.
It forecast fourth-quarter average core cash burn of about $11 million per day, compared with $16 million per day in the third quarter and $23 million per day in the second.
DEFERRED DELIVERIES
With little need for new jets, American said it had agreed with Boeing Co (N:BA) 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 the timing of Federal Aviation Administration (FAA) 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.
