American Airlines: Lack Of Business Travel Will Crush Fall Demand

Relatively speaking, business started to look up for American Airlines, the company said during its Q2 earnings call Thursday. But don’t expect it to last.

As the COVID-19 pandemic obliterated air travel in April, American Airlines burned nearly $100 million per day. With demand rebounding slightly in June, cash burn inched up closer to $30 million.

But the resurgence of COVID-19 outbreaks in the southern and western United States means American Airlines expects Q3 capacity to be down 60% year over year. The airline declined to provide revenue guidance.

“As several states began to reopen, we began to see demand increase,” said CEO Doug Parker on the earnings call. “We flew a little bit more in July, but we think we’re going to pull down August and September.”

As with competitor Delta, the loss of business travel, which seems unlikely to come back any time soon, continues to be a major hit. Forty percent of American Airlines revenue comes from business travel in the fall, and the airline doesn’t expect that demand to return until a vaccine is developed and widely distributed.

“We see really a minimal … amount of business travel out there,” said Vasu Raja, chief revenue officer at American Airlines, “and not a lot of indicators that that’s likely to improve.”

Overall, American Airlines’ suffered a net loss of $2.1 billion in Q2. The company plans to conserve $15 billion in capital expenditures this year, primarily from cost savings related to reduced flights. It also eliminating 5,100 positions and implemented a voluntary leave program taken up by 41,000 employees.

Despite these adjustments, Q2 cash burn rate was an average of $55 million per day. The company has sent warnings letters to an additional 25,000 employees about potential layoffs.

“We know we will be a smaller airline going forward,” Parker said. “We’ll come through it more efficiently.”

To juice demand, American Airlines has partnered with JetBlue to broaden its domestic travel network and compete with larger airlines while reducing the number of flights it operates. The company has reduced its active fleet count by 150 airplanes. Still, net bookings are down 75% to 80%, with international travel set for a much slower recovery than domestic.

Like other airlines, American is focusing on rebuilding consumer confidence in air travel as the pandemic rages on. The company has established a Health Advisory Panel to oversee cleaning and health protocols and is working with the Bio Risk Advisory Council to get accredited for its cleaning and disinfection procedures. American is also extending its change fee waivers and rebooking opportunities.

American hopes to reduce its daily cash burn rate to zero by 2021, but “the timing of reaching this goal will be greatly impacted by the demand recovery timeline,” said EVP and Chief Financial Officer Derek Kerr.

“I don’t think any of us believe that we’re going to get anything close to … the old demand until there is a vaccine, [and] it’s widely spread,” Parker added. “This [is less about] people’s concern about flying and much more about having a reason to travel, having business open and moving and having places to go.”

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