Two major U.S. airlines said on Tuesday that ticket cancellations were slowing and demand was seeing a modest improvement. United Airlines (UAL) said in a regulatory filing that as of May 18, it has seen a reduction in customer cancellation rates and a moderate improvement in demand in the Domestic U.S. and certain international destinations for the remainder of the second quarter of 2020. Meanwhile, Southwest (LUV) noted that it "has recently experienced a modest improvement in passenger demand, bookings, and trip cancellations, resulting in month-to-date net positive bookings through May 18, where new passenger bookings outpaced trip cancellations."
'MODERATE' U.S. DEMAND IMPROVEMENT: In a regulatory filing earlier, United Airlines said it continues to expect total adjusted capital expenditures for 2020 to be below $4.5B, and currently expects total adjusted capital expenditures for 2021 to be close to $2B. As previously disclosed, the company plans to only take delivery of aircraft that are fully financed. In 2022, the company does not expect to be required to take delivery of any new aircraft and expects that non-aircraft adjusted capital expenditures will not exceed $500M.
The filing added that, "In April, the company experienced gross bookings that were down over 95% compared to April 2019, with customer cancellation rates reaching unprecedented highs. As of May 18, 2020, the company has seen a reduction in customer cancellation rates and a moderate improvement in demand in the Domestic United States and certain international destinations for the remainder of the second quarter of 2020. As such, the company expects its scheduled capacity, relative to 2019 levels, for July 2020 to be down approximately 75%. Scheduled capacity for May and June 2020 were reduced by approximately 90% from 2019 levels. The company plans to continue to proactively evaluate and cancel flights on a rolling 60-day basis until it sees signs of a recovery in demand."
'MODEST IMPROVEMENT' IN PASSENGER DEMAND: Southwest Airlines gave guidance regarding its second quarter financial and operational trends in a regulatory filing. The company said it experienced weak passenger demand and bookings in April 2020 due to the novel coronavirus COVID-19 pandemic. The company's preliminary April operating revenues decreased, year-over-year, in the range of 90%-95%; available seat miles, or ASMs or capacity, decreased approximately 58%, year-over-year; and load factor was approximately 8%; all "relatively in line with the company's previous estimations."
The company added that, it "has recently experienced a modest improvement in passenger demand, bookings, and trip cancellations, resulting in month-to-date net positive bookings through May 18, where new passenger bookings outpaced trip cancellations." The company's month-to-date net positive bookings represent a reversal in the net negative booking trends experienced during the majority of March and April 2020, where trip cancellations outpaced new passenger bookings. For May 2020, operating revenues are currently estimated to decrease, year-over-year, in the range of 85%-90%; capacity is estimated to decrease in the range of 60%-70%, year-over-year; and load factor is estimated to be in the range of 25%-30%. This compares to the company's previous estimations of May 2020 operating revenues decreasing, year-over-year, in the range of 90%-95%; capacity decreasing in the range of 60%-70%, year-over-year; and load factor in the range of 5%-10%.
The company has also recently experienced a modest improvement in passenger demand and bookings in June 2020, with operating revenues currently estimated to decrease, year-over-year, in the range of 80%-85%; capacity estimated to decrease in the range of 45%-55%, year-over-year; and load factor estimated to be in the range of 35%-45%. "The revenue environment remains uncertain and may require additional capacity reductions depending on passenger demand," Southwest added.
SEQUENTIAL IMPROVEMENT: Commenting on both filings, Goldman Sachs analyst Catherine O'Brien pointed out that Southwest and United Airlines indicated a modest improvement in demand driven by both bookings and cancellation rates. Southwest also improved its May revenue outlook, and introduced a June revenue forecast that implies a sequential improvement from this new May outlook, she added. The analyst also highlighted that this better revenue outlook drives an improvement in the company's expected cash burn when incorporated to its prior forecast.
In terms of liquidity bolstering activities, O'Brien noted that Southwest has raised liquidity via various measures since March quarter reporting that would give the company a 20-month liquidity runway based on its June quarter cash burn exit rate. United introduced 2021 and 2022 capital expenditures forecasts of about $2B and no more than $500M, respectively, both material declines from its 2020 capex forecast of $4.5B, she added.
PRICE ACTION: In morning trading, shares of Southwest have gained about 2% to $27.57, while United Airlines' stock has dropped over 1% to $23.80.
