US aid lifts Southwest to Q1 profit, American loses $1.25B

With a strong push from taxpayers, Southwest Airlines is the first major U.S. airline to report a profit since the pandemic started, and airlines executives say that the industry is on course to recover from a financial crisis caused by the pandemic.

Southwest Chairman and CEO Gary Kelly said Thursday that his airline has seen steady improvement in U.S. leisure-travel sales since mid-February. He credited rising vaccinations and falling new cases of COVID-19.

“We believe the worst is now finally behind us,” Kelly said.

Southwest reported net income of $116 million in the first quarter, although it would have lost $1 billion without federal aid to help cover labor costs.

American Airlines posted another large loss, $1.25 billion, but its CEO also sounded upbeat heading into the peak summer-travel season, when airlines usually earn most of their money. The airline is aggressively expanding its schedule for summer and recalling employees from leave.

“We are starting to see light at the end of this very dark tunnel,” Doug Parker said on American’s call with analysts.

About 1.4 million people are passing through U.S. airport checkpoints each day this month, double the number of air travelers in January. Still, the April figure remains about 40% below the pace of April 2019. Lucrative business travel and long-haul international flying remain much more deeply depressed, down around 80% from 2019.

Previous travel bursts have fizzled after COVID-19 infections surged, but the rollout of vaccines has airline leaders cautiously optimistic this time.

Airlines have been offering rock-bottom fares to attract passengers, and vacationers are responding: Leisure travel in the United States is already nearly back to pre-pandemic levels.

However, leisure customers typically pay the lowest fares, so American aims to raise prices on vacationers until business travelers return.

American’s chief revenue officer, Vasu Raja, said fares on a per-mile basis started the year at around half their 2019 levels, but summer flights are selling for about 90% of where they stood two years ago.

The reason: supply and demand.

American has added about 25% to available seats for popular leisure destinations such as Las Vegas and Orlando, Florida, but bookings are running about double their year-ago levels, Raja said. He suggested that the airline is now more concerned with maximizing profit on each flight rather than simply filling seats.

But Kelly, the Southwest CEO, suggested it is too soon to hike fares.

“The industry has more seats than it does passengers,” Kelly told reporters. “What we will be prepared for is a very low-fare environment for a long time.”

Kelly said that at the end of this year, business travel will still be 50%-60% lower than it was before the pandemic. He repeated his longstanding prediction that it could take 10 years for business travel to return to 2019 levels, partly because people have grown accustomed to working remotely and meeting online.

Southwest Airlines Co., the fourth-largest U.S. airline, is benefitting more from the pickup in U.S. leisure travel because it is less dependent than its biggest rivals — American, Delta and United — on business travelers, and it doesn’t fly to Europe or Asia, which are mostly closed to American visitors.

Southwest received $1.45 billion in federal aid to help cover labor costs, and without that and other temporary items, the Dallas-based carrier would have lost $1.82 per share. The results were 3 cents per share better than Wall Street expectations. Revenue fell 52% to $2.05 billion.

At Fort Worth, Texas-based American Airlines Group Inc., the reported loss did not include $3.1 billion in taxpayer funds approved by Congress and the Trump and Biden administrations.

Without the federal payroll help and other temporary gains and expenses, American would have lost $2.7 billion, or $4.32 per share. That was 2 cents per share worse than forecast by analysts surveyed by FactSet. Revenue dropped 53% from a year ago, to $4.01 billion.

Alaska Airlines’ parent reported a loss of $131 million, or $3.51 per share, after excluding federal relief and other temporary items. Revenue fell 51% to $797 million.

Airline stocks fell in trading Thursday afternoon. American was down 4%, Alaska Air Group Inc. dipped 2%, and Southwest was off less than 1%.

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David Koenig can be reached at www.twitter.com/airlinewriter

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