Airlines see signs of higher demand but pandemic clouds outlook
Ground operations employees load baggage onto a Southwest Airlines Boeing 737 aircraft on the tarmac at John Wayne Airport (SNA) in Santa Ana, California.
Patrick T. Fallon | Bloomberg | Getty Images
U.S. airlines are starting to see an uptick in demand as the summer vacation season approaches, but a full recovery appears far off.
The Dallas-based carrier has logged a “modest improvement” in demand and new bookings for next month. Southwest plans reduce its capacity by up to 55% next month from June 2019 and said that those flights will likely be between 35% and 45% full.
“The revenue environment remains uncertain and may require additional capacity reductions depending on passenger demand,” it said in a filing. Southwest shares were up more than 3% in afternoon trading.
The uptick is showing up at airports, too, but demand is still far from last year’s levels for this time of year, when it generally rises. In the first 18 days of May, 3,419,717 people passed through security checkpoints at U.S. airports, according to the Transportation Security Administration, down 92% from a year ago but better than last month. The first 18 days of April showed a more than 95% decline on the year, TSA data shows.
Southwest forecast a drop of up to 90% in May revenue compared with 2019. The carrier previously expected a decline of up to 95%. Next month it expects its revenue to fall 80% to 85%.
United, for its part, said Tuesday that it has logged “a moderate improvement in demand” for trips within the United States and some international destinations the rest of the second quarter. The airline is cutting capacity by 75% in July from a year ago, compared with a 90% year-over-year reduction planned for May and June.
United “plans to continue to proactively evaluate and cancel flights on a rolling 60-day basis until it sees signs of a recovery in demand.”
It is also planning to more than halve its capital expenditures to around $2 billion next year. United’s shares were down modestly in afternoon trading.
Getting travelers comfortable
The pandemic has presented airlines with a major challenge: How to get passengers who are worried about the virus comfortable with flying again?
U.S. airlines now require that passengers wear masks on board and say they will make them available for travelers. But there are limits to what will be enforced. Airlines have told crews they don’t have to force passengers to do so.
But some planes are more packed than travelers expect, sparking worries about social distancing onboard. After a photo of a packed United flight went viral earlier this month, the airline said it would start informing travelers if their flights are near capacity and allow them to change their trips or receive a credit.
Airline executives say worries about the virus aren’t the only obstacle to getting many travelers back onboard. Tourist attractions like Disney World as well as restaurants and hotels also need to be open.
Delta’s CFO, Paul Jacobson, said during a Wolfe Research conference on Tuesday that the airline is adding 100 flights in June so planes are no more than 100% full.
Net sales are up “modestly versus our conservative forecast,” Jacobson said, thanks to a rise in domestic leisure bookings in June and July.
Jacobson said the airline is cautious until it has a better sense about what travelers are able to do once they get to their destinations.