Virus-Era Volaris

Pushing Back: Inside This Issue

For United CEO Scott Kirby, channeling Winston Churchill, it’s 1942. The war underway is still a long way from over. Battles still are being lost. But positive momentum is building. And a vision for post-war revival is starting to take shape.

United, like Delta, lost gobs of money during the third quarter. But both carriers are witnessing steady if slow demand improvement as Americans grow more comfortable flying during the pandemic. This is true even as infection rates spike again. Airlines hope that industry-wide testing for Covid will further ease the public’s anxieties, allowing for additional demand momentum before vaccines open the door to a more comprehensive recovery. That will be the industry’s 1945.

The virus won’t unconditionally surrender. But if all goes well with vaccine development and distribution, it will stop posing a threat to mass air travel sometime in the second half of 2021. Thereafter, United expects a favorable competitive landscape abroad as wounded foreign rivals slash capacity. Undeterred by short-term cash concerns thanks to widely available capital throughout the crisis, United, Delta, and other U.S. airlines can now start shifting their focus to post-crisis strategizing. United itself is resuming investment in new premium cabins. Delta remains committed to its Latam joint venture. Southwest is adding new routes. Allegiant might acquire new planes.   

On the other side of the world, most of China’s major airlines reached an important milestone, carrying more domestic traffic this September than they did last September. But hold the celebrations. With ticket yields extremely weak and international traffic nearly nonexistent, carriers continue to lose large sums of money.

In other news, Virgin Australia will get a new CEO who’s controversial with some unions. The CEOs of Air Canada and British Airways are leaving — one voluntarily and the other, well, not so voluntarily. Air Canada is proceeding with its Transat takeover but paying a lot less. Malaysia Airlines wants to pay its suppliers and creditors a lot less, threatening dissolution if they don’t. No dissolution at Ryanair, just more capacity cutting amid boiling quarantine frustrations.

This week, the earnings show goes on, headlined by U.S. giants American and Southwest. Expect a market update from Qantas as well.

Verbulence

“The light at the end of the tunnel is now visible.”

United CEO Scott Kirby

Earnings

July-September 2020 (3 Months)

• Delta: -$5.4b/-$2.1b*; -89%
• United: -$1.8b/-$2.4b*; -108%

*Net result in USD/*Net result excluding special items/ Operating margin

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