Profits are returning to US airlines, and they are banking that the emergence of the Delta strain of the coronavirus will not derail a domestic travel recovery, even as it clouds the prognosis for an international recovery.
Three of the four largest US carriers reported second-quarter profits over the previous week, and while overall travel remains below pre-pandemic levels, it significantly outpaces the abysmal volumes of a year ago.
“To put it simply, people are ready to travel again,” American CEO Doug Parker and President Robert Isom said in a memo to workers on Thursday.
“The green flag has fallen, and we are well on our way to recovery,” they declared after reporting the company’s first profit since the Covid-19 pandemic began.
The favorable earnings figures come amid fears that the United States is on the verge of another outbreak of the deadly illness.
Officials in the United States are warning of a “pandemic of the unvaccinated” as the Delta strain causes substantial rises in infections in areas with low vaccination rates.
However, airline officials are confident that the rising number of instances would not detract from the booming domestic travel market. However, they are concerned that a labor scarcity in the United States may stymie their ambitions to recruit and expand operations.
“We haven’t seen any decline or drop in demand going out one to 90 days, which is about as far as our crystal ball can go right now,” Delta Air Lines CEO Ed Bastian said last week. “We know our customers are mostly immunized.”
United Airlines CEO Scott Kirby stated that bookings “continue to get stronger and stronger every week.”
“We believe that the sustained rebound in demand will continue substantially uninterrupted,” he said.
Less certain is the timeline for the restoration of normal international travel, which is still tightly restricted by governments, particularly the United States, which has yet to open up to European passengers.
“Airlines warned in April that the summer travel season to Europe was doubtful,” said Peter McNally, an analyst with Third Bridge. “What’s going on in Europe with the Delta variant is complicated.”
American made a $19 million profit in the third quarter, a significant improvement from the $2.1 billion deficit in the same period previous year. The results were enhanced by $1.4 billion in government assistance used to keep airline personnel employed.
Revenues increased to $7.5 billion, nearly five times what they were a year ago, as the carrier carried 44 million passengers in the most recent three months.
Domestic leisure travel has led the recovery, but the airline is beginning to see more business travel bookings, a particularly lucrative area.
According to Parker, business travel increased to 44 percent of 2019 levels in the second quarter, up from 22 percent in the first quarter.
American anticipates a complete return to domestic business travel in 2022, with an international resumption following.
The airline has already returned 3,000 staff from leave, with thousands more expected to return this fall. Over the next year, American aims to hire 3,500 new personnel across its businesses, as well as 1,350 new pilots and 800 new flight attendants.
Following an exodus of experienced staff who were given incentives to leave the airlines while they were in belt-tightening mode during the pandemic’s deadliest days, other large US carriers observed similar revenue trends and are bringing back workers and hiring new employees.
However, Southwest Airlines CEO Gary Kelly stressed that recruiting personnel is not easy right now.
“My main concern right now is future hiring and staffing,” Kelly told CNBC. “The labor market is quite tight.”
Southwest, which announced second-quarter profits of $348 million on Thursday, may also require more new jets after announcing intentions to buy 100 Boeing planes in March.
United announced this month the largest new plane order since the epidemic, agreeing to buy 270 new planes from Boeing and Airbus – the largest order in the carrier’s history.
“The previous 12 to 15 months had been spent raising capital, maintaining liquidity, and burning cash. Companies are now truly investing “McNally stated.
However, labor shortages are a concern.
“There are numerous bottlenecks, some of which are temporary and some of which may be more chronic, such as pilots and maintenance,” McNally explained. “That might stymie the recovery.”
American Airlines shares slid 1.1 percent to $21.16, while Southwest sank 3.5 percent to $51.29.