Two Big Carriers Report Narrowing Losses, Positive Cash Flow

Southwest Airlines (LUV) on Thursday reported mixed second-quarter earnings, while American Airlines (AAL) topped views, as both carriers reported improving metrics such as cash build. LUV stock fell modestly and AAL stock edged lower.


The results for the two carriers follow those from Delta Air Lines (DAL) and United Airlines (UAL). Both Delta and United Airlines beat expectations, on a recovery in U.S. travel demand. But coronavirus cases are rising, particularly in states with lower vaccination rates.

Southwest Earnings

Estimates: Wall Street expected Southwest Airlines to lose 23 cents per share vs. a loss of $2.67 a share a year ago. Revenue was seen rising 291% to $3.939 billion.

Results: Southwest lost 35 cents a share while revenue swelled 297% to $4.01 billion.

Southwest reported free cash flow of $1.9 billion in the second quarter, with positive core cash flow in June. That follows several quarters of heavy daily cash burn.

June operating revenues were down 20.7% vs. the pre-pandemic June 2019, continuing a steady improvement. Leisure passenger traffic topped June 2019 levels, with comparable fares. Business travel continues to lag well below pre-pandemic levels, though that’s also improving.

Southwest sees July operating revenue down 10%-15% vs. July 2019, vs. its prior target of a 15%-20% drop. It expects August revenue to slide 12%-17%.

LUV stock fell nearly 2% before the open in the stock market today. Shares of the carrier, along with other airline stocks, rallied on Tuesday and Wednesday.

Southwest stock has a weak 19 Composite Rating. Its EPS Rating is 4. IBD’s ratings for other airline stocks are also weak, after the pandemic-related travel restrictions last year caused the carriers to lose money.

American Airlines Earnings

Estimates: Wall Street officially expected American Airlines to lose $2.03 per share, narrowing from a per-share loss of $7.82 a year ago. Revenue was seen rebounding 351% to $7.32 billion. Last week, management guided per-share loss at $1.67-$1.76.

Results: American Airlines lost $1.69 a share adjusted. Revenue was $7.48 billion.

American turned daily cash burn into a daily cash build of about $1 million in the second quarter. The carrier said last week that it expected to report positive average daily cash build for the first time since the start of the pandemic.

American Airlines expects Q3 revenue to be down 20% vs. Q3 2019.

AAL stock dipped 0.5% on Thursday. Among other airline stocks, Delta and United were little changed.

Full Recovery Forecasts

United on Tuesday said it expected a full recovery in demand by 2023. And it said “international long haul and business travel accelerated even faster than anticipated.”

CEO Scott Kirby on Wednesday said the carrier hadn’t seen any impact, so far, on demand from the more contagious delta variant of the coronavirus. That new variant, which researchers say poses a low risk to people who are vaccinated, has driven infection rates higher.

Delta, when it reported earnings last week, said it was “mindful of the risks that new variants pose to the pace of recovery.” And it said it would “stay very disciplined in restoring international capacity.”

However, CEO Ed Bastian said it was unlikely that Delta would bring back the blocking of middle seats or pull back on flights to parts of the U.S. struggling with low vaccinations and variants of the virus.

“We have not seen any reduction or drop in demand looking out over the next 60 to 90 days, which is about as far as our crystal ball can go right now,” Bastian said.


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