Airline Stocks: Airlines are canceling flights, burning through cash as passengers stay home to shelter from coronavirus

Airline Stocks: Airlines are canceling flights, burning through cash as passengers stay home to shelter from coronavirus

3 Apr    Finance News

Major U.S. airlines on Friday painted a bleak picture of air travel across the country as the coronavirus pandemic forced passengers to stay home. United, Delta and American announced they were paring flights and Jet Blue warned it was burning through $10 million a day in cash as its paying customers dropped to 7,000 a day from the usual 120,000.

United Airlines Holdings Inc. UAL, -2.28% shares fell in the extended session after the airline announced huge capacity cuts and expects more to come. United shares fell 6% after hours, following a 2.3% decline to close the regular session at $22.89.

In a filing with the Securities and Exchange Commission, United said it has cut about 80% of its capacity in April with even larger cuts expected in May. In the meantime, United said it will evaluate and cancel flights on a rolling 90-day basis until demand recovers.

The airline said it is losing more than $100 million a day in revenue and that it expects fourth-quarter revenue to be down at least 30% from the year-ago period. Crain’s Chicago Business reported late Friday that United has also filed for a federal grant in order to keep paying employees. United shares are down 74% for the year, while the S&P 500 index spxis down 23%.

Shares of American Airlines Group Inc. AAL, -6.66% tumbled 6.6% to a record low in trading Friday after the air carrier said it would cut international capacity by 60% for the “peak” summer travel season. The stock has now erased all of its late March bounce, in which it rocketed 53% in three days off its previous record low of $10.25 on March 23.

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Since peaking at $15.66 on March 26, the stock has now lost 40% to $9.39 amid a 6-day losing streak. The stock was down an additional 4.4% in after-hours trading.

American’s move to cut international summer capacity comes as analyst Myles Walton at UBS said the first look at June for airlines is “surprisingly awful,” as realized bookings for March, April and May worsen.

Delta Air Lines Inc. stock DAL, -0.88% fell more than 8% in the extended session Friday after the airline said its second quarter will be “even more difficult than the first” and Warren Buffett’s Berkshire Hathaway Inc. BRK.A, -1.29% BRK.B, -0.77% disclosed it sold chunks of Delta stock this week.

Berkshire sold nearly 315 million shares on Wednesday and Thursday priced between $22.96 and $26.04, it said in a filing.

Separately, Chief Executive Ed Bastian urged more employees to take extended leaves and said the company likely hasn’t seen the bottom of the pandemic-related crisis. “This week we closed the books on the first quarter of 2020, and it was unlike any quarter in Delta’s history,” Bastian said in a memo to employees.

The air carrier continued to see passenger volumes and revenues drop; in the past Saturday, it flew about 38,000 people, compared with a normal late-March Saturday around 600,000, he said. “Unfortunately, even as Delta is burning more than $60 million in cash every day, we know we still haven’t seen the bottom,” Bastian said.

The company’s April schedule will be about 80% smaller than planned, with 115,000 flights cancelled, Bastian said. Like other airlines, Delta said it submitted paperwork to benefit from government aid, but the funds alone “are not nearly enough” as Delta expects revenue to be down 90% for the second quarter. Without action, that money would be gone by June, he said.

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Delta asked employers to volunteer for unpaid leaves, including longer-term leave. The company also announced a 25% cut in hours for some employees, “essential to protecting Delta for the long term,” the CEO said.

JetBlue Airways Corp. JBLU, -1.96% is burning through $10 million a day as it grapples with the coronavirus pandemic, company Chief Executive Robin Hayes said in a note to employees Friday. The airline is losing money because only 7,000 customers are “likely to fly us each day in April and possibly May, compared to the 120,000 we would typically expect,” Hayes wrote.

On a typical day in April last year, JetBlue took in about $22 million from bookings and ancillary fees. Today, it’s hauling in only $1 million per day, while $2 million per day is being issued in cash refunds. On Friday, JetBlue submitted an application for payroll support funds to the Treasury Department. JetBlue shares have plunged 55% in the last year. The broader S&P 500 index SPXis down 14% in the last year.

American’s stock was the biggest loser among the Dow Jones Transportation DJT, -1.88% components on Friday. Among other airline components, shares of Southwest Airlines Co. LUV, -3.04% slid 3.0%, while Alaska Air Group Inc. ALK, +0.12% rose 0.1%. However, Southwest was down more than 4% and Alaska Air more than 6% in after-hours trading.

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