Airlines' Woes Rise as CDC Warns Against Thanksgiving Travel

The recent surge in coronavirus cases in the United States has dampened hopes of U.S airlines, which were seeing a gradual recovery in air-travel demand, especially leisure travel, thanks to relaxation in coronavirus-led restrictions.

United States recorded more than 1 million coronavirus cases in the last seven days. According to a CNN report, data released by Johns Hopkins University shows that on Thursday, the nation had 187,833 new COVID-19 cases, the highest since the start of the pandemic.

US Airlines Witness Softness in Demand

With the rapid rise in coronavirus infections, U.S. airlinesare seeing softness in bookings ahead of the Thanksgiving travel period, usually a very busy time for airlines.

In an investor update earlier this month, Southwest Airlines LUV stated that it has witnessed a slowdown in revenue trends for November and December in the recent weeks. The company, which has seen an uptick in leisure-travel demand over the past few months, is uncertain about the reason behind this softness in bookings but had “expected the election to impact trends”. Management also feels that it could be related to the recent spike in coronavirus cases.

In a SEC filing on Nov 19, United Airlines UAL revealed that “there has been a deceleration in system bookings and an uptick in cancellations as a result of the recent spike in COVID-19 cases” in the week-ended Nov 18, 2020. As a result of this, the carrier anticipates its fourth-quarter capacity to decrease at least 55% year over year, compared with a decline of approximately 55% expected previously. For total revenues, United Airlines maintains its projection of a decline of approximately 67% year over year in the fourth quarter. It continues to expect average daily cash burn of approximately $15 million-$20 million in the ongoing quarter.

Alaska Air Group ALK is also seeing softening demand environment of late. In an investor update, dated Nov 19, the airline stated, “We believe that renewed restrictions by many state and local governments have negatively impacted demand in the immediate term.” Thanks to this deceleration in demand, the carrier anticipates revenue passengers to weaken in November from October. Revenue passengers are estimated to drop 65-70% year over year in November compared with the October decline of 64%. Total revenues, which fell 62% year over year in October, are predicted to decline approximately 60-65% in November.

Meanwhile, capacity or available seat miles (ASMs), which plunged 45% in October is forecast to decrease approximately 40% in November. Load factor (percentage of seats filled with passengers) is expected to decline to approximately 40-45% in November from 49% in October. The airline anticipates fourth-quarter capacity to be down approximately 40% year over year. Due to softening demand, the carrier expects its November cash burn to rise to approximately $125 million-$150 million from the October cash burn of around $97 million. October cash burn was lower than that in September due to “improved ticket sales”.

According to a CNBC report, at the Skift Aviation Forum held on Thursday, American Airlines AAL President Robert Isom stated, “Certainly with the increase in infection rates really throughout the country we’ve seen a dampening of demand.”

CDC Warnings Add to Airlines’ Concerns

Given the rapidly increasing COVID-19 cases in the United States, the Centers for Disease Control and Prevention (CDC) has warned people to avoid Thanksgiving travel. In an already suppressed demand scenario, this only adds to the worries of U.S. airlines.

Dr. Henry Walke, CDC’s COVID-19 incident manager, stated that the “strong recommendation” is because the agency doubts the virus might spread at the country’s “transportation hubs” due to lack of physical distancing.

Concluding Comments

While Thanksgiving this year would not be as boisterous as other years, the airlines did expect an increase from the usual demand trend and had accordingly planned flight expansions to cater to the surge in demand. Earlier this month, United Airlines announced plans to add more than 1,400 domestic flights to cater to the anticipated increase in demand for Thanksgiving travel. Moreover, JetBlue Airways JBLU, carrying a Zacks Rank #3 (Hold), planned to add 25 new services, running from Nov 20-Nov 30, the peak Thanksgiving travel period. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The spike in coronavirus cases and the CDC warnings might negate the airlines’ expectations related to Thanksgiving travel.With demand already suppressed, this is a further dampener. Amid coronavirus concerns, passenger demand is hovering at only a third of last year’s levels, according to federal data.

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Southwest Airlines Co. (LUV): Free Stock Analysis Report
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