Airlines Add June Capacity As Bookings Return

Airlines are beginning to show small signs that they've escaped the market's rock bottom and are attracting more customers as states begin easing coronavirus stay-home orders. 

The flickers of returning passenger demand are leading them to add back some capacity into their networks. The additional flights also will help shippers that need air transport for their goods.

United Airlines on Tuesday said it has seen a reduction in customer cancellation rates and a moderate improvement in demand in the U.S. market and certain international destinations for the second quarter. In April bookings were down more than 95% compared to April 2019 with an unprecedented number of cancellations. 

In a U.S. Securities and Exchange Commission filing, the airline said it expects to increase passenger capacity in July to 25% of its 2019 level, compared to the 10% available in May and June. It will evaluate and cancel flights on a rolling 60-day basis until demand recovers.

The Chicago-based carrier reiterated that it expects total adjusted capital expenditures for the year to be less than $4.5 billion and about $2 billion next year as it only takes delivery of aircraft that are fully financed. The investment figure will drop to $500 million or less in 2022 because it is not required to take delivery of any new aircraft.

Southwest Airlines also reported a "modest improvement" in passenger demand in May versus March and April, with bookings finally outpacing trip cancellations. It upgraded its May outlook, saying it expects operating revenues for May to be up to 90% lower than a year ago, with flight capacity at 30% to 40% of the prior level and planes flying about a quarter full. 

Previously, the Dallas-based carrier projected year-over-year operating revenues to decrease up to 95% and load factors of 5% to 10% with similar capacity levels.

The improvement continues in June, with estimated operating revenues down 85% from 2019, airline capacity at 45% to 55% and load factors ranging from 35% to 45%. 

Southwest said it will burn $25 million in cash a day in the second quarter, with overall spending reaching the low-$20 million a day range in June. 

The company said it has about 20 months of liquidity, with $13 billion in cash reserves after raising almost $14 billion since the beginning of the year. That includes $10 billion in financing and the sale and leaseback of aircraft, $2.2 billion raised in a stock offering, and $1.6 billion in federal emergency aid for preventing involuntary furloughs of employees. 

Southwest expects $205 million in proceeds from its sale-leaseback deal and an additional $1.6 billion from the government's payroll funding in June and by July, respectively.

The United and Southwest traffic figures are consistent with Transportation Security Administration data showing that the number of screened passengers at airports bottomed out in late April at about 100,000 per day and now exceeds 200,000 per day.

Nonetheless, airlines have said 2020 will be a financial disaster. They aren't planning for revenues to return to 2019 levels for at least three years and analysts say passenger traffic could take even longer to equalize pre-COVID volumes.

Meanwhile, Delta is adding about 100 flights to its June flying schedule compared to May, but that is still far behind last year. On Monday, the airline announced it will resume flying several major domestic and international routes that were suspended because of the COVID outbreak.

Domestic flight increases are primarily in Atlanta, New York, and between hubs. The proposed restart of passenger flights to China and Nigeria are subject to government approval, Delta said.

Overall, Delta's second-quarter schedule is 85% lighter than in 2019, but Delta's stock increased 14% on expectations of greater revenue.

American Airlines is the first domestic carrier to specifically describe how it intends to gradually relaunch passenger operations.

American will bring back all of its parked Embraer 145 and 175 regional aircraft flown by its Envoy subsidiary under the American Eagle brand by June 3, according to an announcement in the "View from the Wing" blog. Plus, 20 Embraer 175s previously operated by now-defunct Compass Air will be absorbed by Envoy during the next few months.

American has not announced a return for its other regional partners, PSA, Piedmont, Republic and SkyWest.

Analysts say using the smaller aircraft in test markets is a good way to see if they can stimulate demand without having to fill planes with 130 seats or more. 

The 50-seat Embraer 145s, however, lack the HEPA air filtration systems of larger planes, which might factor in some passenger decisions on whether to take a flight.

International airlines such as Lufthansa, IAG Group, Emirates and others have also said they are carefully bringing back capacity this summer, assuming the easing of global travel restrictions.

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