Demand for air travel is going from bad to slightly worse, according to
United Airlines Holdings,
which warned investors on Wednesday that its near-term outlook had deteriorated.
United (ticker: UAL) said in a filing that its scheduled flight capacity in the third quarter would be down 70% year over year, compared with the 65% decrease that it previously forecast. The airline expects passenger revenue to be down 85%, compared with previous guidance of an 83% decline. United reiterated that it would burn through $25 million a day in cash in the third quarter and said it would have $18 billion in liquidity at the end of the September.
Shares of United were down 3.6%, at $35.95, in recent trading, while the broader
NYSE Arca Airline
index was off 2.7%. The
was up 1.9%.
United’s warnings weren’t much of a surprise. Airlines have been cutting their flight schedules amid signs that demand for air travel will remain lackluster through the fall. United said it expects “demand to remain suppressed and plateau at levels of around 50%, relative to 2019 levels, until a widely accepted treatment and/or vaccine for Covid-19 is widely available.”
Globally, demand for air travel appears to have stalled. Flights were down 48% in the week ended Sept. 6 compared with last year’s levels, in line with declines over the previous few weeks, according to Citigroup’s global flight tracker.
Domestic flight traffic spiked over the Labor Day holiday weekend, an encouraging sign that leisure travelers, at least, are becoming less reluctant to fly. More than 969,000 people boarded passenger jets on Sept. 4, a pandemic-era high. And since airlines have cut schedules sharply, many flights operated closer to full capacity.
But most airlines are planning flight schedules at about 50% of last year’s levels for October. United is scheduling only 40% of last October’s domestic and international flights. And most leisure-focused carriers have gotten more bearish.
(SAVE) expects October capacity to be 51% of last year’s flights, down from around 80% in July.
(LUV) is one of the few carriers that have added to flight capacity lately.
As Cowen’s Helane Becker notes, “we are heading into a typically slow period for travel as summer vacations wind down and kids go back to school, which should put a ceiling on near-term throughput gains.”
Without business fares to boost revenue, the legacy carriers appear to be targeting the leisure market more aggressively. Citi notes that United has ramped up flights for leisure routes, including a resumption of eight routes to Hawaii, more service to Florida, and increase to resort destinations in Mexico.
Other legacy carriers are also targeting the leisure market more aggressively too.
American Airlines Group
(AAL) said this week that it’s seeing some of the strongest demand in its lowest-price Basic Economy fare tickets, with 60% of its passengers now having no loyalty status with the airline through its mileage program or credit cards, according to a report in The Wall Street Journal.
Stiffer competition for leisure travelers doesn’t appear to be deterring some analysts from recommending leisure-focused carriers, however.
came out with the equivalent of Buy ratings this week on Southwest,
Delta Air Lines
(DAL). (The last a legacy carrier that is in the better shape than United and American.)
The next few weeks are likely to be especially turbulent for the stocks. Hopes for another payroll relief package in Congress appear to have dimmed, and the industry is planning tens of thousands of job cuts in October after federal aid winds down.
Write to Daren Fonda at [email protected]