The airline industry is gradually picking up pace after a tough period and even though a full recovery will take time, companies are seeing improvements in travel trends and they remain optimistic that the pent-up demand for travel will drive further momentum over the coming months. Recently, Southwest Airlines (NYSE: LUV), Alaska Air Group (NYSE: ALK) and United Airlines (NASDAQ: UAL) provided updates on their second quarter metrics.
Demand and bookings
All the three aforementioned companies are seeing a healthy pickup in demand for leisure travel while business travel remains pressured. Southwest saw leisure passenger traffic and fares improve sequentially from March to April and the company is seeing improvements in leisure passenger demand and bookings for May and June, with leisure fare levels in June 2021 nearing June 2019 levels. Southwest currently has around 55% and 35% of anticipated bookings in place for June and July as well, respectively.
Alaska is also seeing an improvement in leisure travel demand which has reached 2019 levels. United Airlines said its consolidated yields on tickets issued since the beginning of May for travel in the second quarter of 2021 have reached levels similar to that of 2019, and that domestic leisure yields for the same time period have exceeded 2019 levels. United expects domestic leisure yields for summer travel to surpass 2019 levels.
Although business travel trends remain significantly behind those of leisure travel, there are signs of modest improvements. The trio is seeing a pickup in demand and bookings for business travel. Alaska’s business travel demand is currently at around 25% of 2019 levels.
Southwest’s business revenues in April were down approx. 80% from the same period in 2019, which was better than the 85% drop in March and the 90% drop in February. The company expects the weakness in business travel to negatively impact the close-in demand and average passenger fares in Q2 2021.
Southwest saw operating revenues in April improve sequentially from March and come in line with expectations. April operating revenues are expected to be down around 42% compared to April 2019 levels. Revenues are estimated to drop 35-40% in May and 20-25% in June compared to the same periods in 2019.
Alaska expects total revenues for Q2 2021 to drop 32-37% from the same period in 2019 while revenue passengers are expected to drop 28-33%. United expects total revenue per available seat mile (TRASM) to be down around 12% for Q2 2021 compared to Q2 2019 as opposed to its previous guidance of a decline of approx. 20%.
Southwest expects its capacity for the second quarter of 2021 to increase approx. 87% year-over-year and decrease approx. 16% versus Q2 2019. Alaska expects its capacity in Q2 to drop around 20% compared to the same period in 2019. United expects its Q2 capacity to be down at least 46% compared to Q2 2019.
Cash burn and expenses
Southwest expects operating expenses, excluding fuel and certain items, in Q2 2021 to increase 10-15% year-over-year. The company’s average core cash burn was approx. $6 million per day in April. For Q2, the average core cash burn is expected to be $1-3 million per day.
Alaska expects CASM, ex fuel, to be up around 15-17% in Q2 compared to the same period in 2019. United expects its Q2 2021 adjusted operating expenses to decline 33% from Q2 2019.
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