Delta (DAL), JetBlue (JBLU), Southwest (LUV): The pandemic continues to shake the airline industry but all hope is not lost

The airline industry was recovering fairly well from the pandemic when a new set of challenges presented themselves in the form of the Delta variant. The emergence of this virus variant and the associated rise in cases of COVID-19 have put the profitability plans of several leading airline companies in jeopardy. A slew of them provided bearish outlooks for the upcoming quarter last week but perhaps not all hope is lost.

Demand and bookings

Last week, Southwest Airlines (NYSE: LUV), JetBlue Airways (NASDAQ: JBLU), American Airlines (NASDAQ: AAL), United Airlines (NASDAQ: UAL), and Delta Airlines (NYSE: DAL) provided guidance updates for the back half of 2021.

All aforementioned companies witnessed softness in bookings and a rise in cancellations during August due to a rise in COVID-19 cases. This weakness is continuing through September and into the fourth quarter periods as well.

Southwest experienced softness in leisure bookings during August and this trend has continued into September and October. The company also saw higher-than-expected trip cancellations during the Labor Day weekend due to Hurricane Ida.

As for business travel, Southwest’s managed business revenues in August fell around 64% compared to the same month in 2019. In July, business revenues were down 63% versus the 2019 period. Delta had also anticipated an acceleration in business travel through the September quarter but this recovery has slowed down as organizations delay office re-openings.

Revenue outlook

Southwest expects operating revenue in September to be down 25-30% compared to the same month in 2019. For the third quarter of 2021, revenue is estimated to be down 18-20% compared to the third quarter of 2019. JetBlue expects revenue for the third quarter of 2021 to decline 6-9% from the same period in 2019. Its previous outlook was for a decline of 4-9%.  

American now expects Q3 revenues to decrease approx. 24-28% from the 2019 period versus its prior outlook of a decline of approx. 20%. United expects total revenue for Q3 to be down around 33% versus the 2019 period. Delta expects its Q3 adjusted total revenue to be at the lower end of its prior guidance range of down 30-35%.

Silver lining on the cloud

Despite these headwinds, which were expected for the most part, there is a general sense of optimism that travel trends will remain somewhat stable and pick up once the number of cases begin to drop.

Southwest has seen a less severe impact on its operating revenue compared to prior COVID-19 waves and it expects this trend to continue through October. The company is also seeing fairly typical booking patterns for holiday travel periods in Q4 2021. JetBlue currently anticipates leisure demand for peak holiday travel to hold up relatively well.

American Airlines’ booked load factor for peak travel periods, including the fourth quarter holiday periods, remains very strong. United believes that the impact from the current spike in Covid cases will be temporary and the company has seen a lesser impact from this one compared to the previous ones. Delta also expects bookings to recover once the cases decline.

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