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Delta Variant Stalled Recovery, But U.S. Airlines look to 2022!

Date: October 22, 2021

By Lori Aratani, Washington Post

Domestic airlines this week reported earnings that topped expectations, expressing optimism their financial outlook would continue to improve as the industry weans itself from government assistance that expired last month.

The four carriers reporting earnings this week said they were profitable, but only Alaska Airlines reached that milestone without the benefit of federal payroll support. American Airlines, United Airlines and Southwest Airlines indicated they were profitable because of billions in government grants designed to prevent layoffs in the industry. Delta Air Lines, which reported earnings last week, also was profitable without government support.

“While thedelta variant has shifted the timing of the recovery, we remain very bullish,” American Airlines President Robert Isom said in a call with analysts.

Airlines entered the third quarter with optimism. With vaccines widely available and coronavirus cases dropping, there was a surge in bookings as people tired of being cooped up returned to the skies. In some cases, passenger volumes and airfares were above 2019 levels. While the uptick was largely fueled by leisure travel, airlines also reported a rise in lucrative business travel.

By July, however, enthusiasm for travel began to wane, and bookings dropped. In August, Southwest Airlines warned investors the delta variant was having a significant effect on bookings.

Southwest said Thursday its third-quarter net income was $446 million, but excluding money it received through the Cares Act, it posted a net loss of $135 million.

The carrier also disclosed it lost $75 million from the more than 2,000 flights it canceled this month. The airline initially blamed weather and air traffic control issues in Florida for the cancellations but later said staffing also played a role. Those losses will be reflected in the airline’s fourth-quarter report.

Southwest also said it has trimmed its schedule for the next several months to avoid a repeat of those operational woes.

American reported a net profit of $169 million, but excluding government aid it would have posted a net loss of $641 million. In a letter to American Airlines employees, Isom and chief executive Doug Parker said the third quarter started out strong as people returned to offices and resumed traveling.

“But then the spread of the delta variant led to fewer people flying,” they wrote. The airline was profitable in July but lost money in August and September.

Several executives said they expected the delta variant to be less of a factor going forward.

“We’re now past what we believe is the worst of the impact from this wave of the delta variant,” United President Brett Hart said in a call with analysts Wednesday.

Still, they acknowledged challenges ahead. Delta Air Lines, which last week reported a third-quarter profit — its first excluding government support — warned that rising fuel costs mean it would probably lose money in the final three months of 2021.

At least one executive said another area of uncertainty is vaccination mandates, particularly in the aviation sector, where carriers such as American and Southwest have faced pushback from a small number of employees over requirements. Delta is one of the few U.S. carriers that has not announced a vaccination requirement, although it does require employees who have not been vaccinated to undergo weekly testing.

Scott Kirby, chief executive of United, which announced in early August that all U.S.-based employees would have to be vaccinated, said the issue could pose operational challenges for carriers that allow a testing option. Virtually all of United’s employees have been vaccinated.

“People forget to get their test, people do the test wrong, people don’t get it done, people test positive,” he said. “And if you think weather in one state can lead to a meltdown, imagine when you have thousands of employees on one day calling in and saying [they can’t come in] for some reason. I mean, it is going to be a huge challenge for airlines that are not implementing vaccine requirements.”

However, United acknowledged its own vaccination requirement does not include its regional carriers, which could pose some of the same operational challenges that competitors are facing.

“What we will say is that our regional carriers, we know that they’re evaluating the applicability of [President Biden’s] executive order on their business, and we’re in discussions with them,” Hart said. “I think it’s pretty clear where we stand with respect to the vaccinations, but they’re in the process of working through that now.”

Though he declined to release specific numbers, American’s Parker said that the vast majority of employees are vaccinated and that the carrier will accommodate those who receive medical or religious exemptions. Parker said he did not expect the vaccination mandate to hurt holiday travel.

“We are well prepared to meet all federal mandates and to meet all the customers who are coming for the holidays,” he said.

Southwest chief executive Gary Kelly also said a vaccination mandate would not get in the way of the carrier’s mission.

“My duty is to take care of our people and our customers, and we are not going to let this disrupt any of our customers’ travel, especially during the busy holiday season,” he said.

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