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Airline Earnings Shock Investors

United Airlines provided a glimpse of how bad the first quarter was for the travel industry

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It’s no secret that investors knew that the first- and second-quarter numbers for the entire travel industry would be below initial expectations. It was still shocking, however, for many to see the preliminary first-quarter results released by United Airlines Holdings.
Today, shares of United fell 8.2% at the open, while shares of American Airlines Group fell 7.3% and shares of Delta Air Lines, Southwest Airlines, Spirit Airlines, JetBlue Airways, Alaska Air Group, Hawaiian Holdings, and Allegiant Travel Co. all fell more than 5%.

 

How Bad the Situation Is for Airlines

Airline stocks have been hard hit by the coronavirus pandemic, with travel demand taking a sharp nose dive. To give you an idea on how few people are flying now, less than 200,000 people flew with United during these past two weeks of April, compared to more than 6 million during the same time in 2019. That’s 97 % less people. Fewer people are expected to fly during the entire month of May than had on a single day in May last year.

 

Federal Financial Aid and Expenses Reduction

Washington passed a vital legislation this month that will provide commercial airlines with a total of $50 billion worth of grants and loans. It seems that airlines in the U.S. will need a helping hand now more than ever as the coronavirus situation continues to evolve.

“The challenge that lies ahead for United is bigger than any we have faced in our proud 94-year history,” states Oscar Munoz, Chief Executive Officer, and J. Scott Kirby, President. “Fixed operating and non-payroll costs like airport rent, supplies and infrastructure are significant and not going away. That’s why we’ve been so aggressive in reducing our schedule, slashing capital expenditures, scaling back our work with vendors and consultants and cutting executive salaries in half.”

 

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What’s Next for Airlines in the U.S.

United is planning to go even further to reduce costs. This past weekend, United introduced a revamped schedule that further reduced the airline’s capacity to about 10% of what had been planned for May at the beginning of this year and is expected to announce similar reductions to the June schedule in the next few weeks. United has now essentially redesigned its network to be down 90 % while complying with the CARES Act to insure the airline’s eligibility for the federal grants and loans.

 

The historically severe economic impact of this crisis means that even when the travel demand starts to inch back, it likely will not bounce back quickly. The health concerns about COVID-19, that are likely to linger even after the travel restrictions are lifted, as well as the fact that a number of people lost their jobs during the virus outbreak, which means that going on vacation won’t be on many people’s to-do list. Life won’t necessarily return to normal on-time to save airlines from falterling. Airlines in America currently expect demand to remain suppressed for the remainder of 2020 and likely into next year.

If you’re among those who still have travel on their mind, check out these recent offers of 45% off resort booking, up to $300 resort credit, seriously discounted JetBlue airfare, and more for trips through the end of this year.

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