Southwest Air Knocks Industry Optimists: ‘We’re Not in Control’
(Bloomberg) -- Southwest Airlines Co.’s chief executive officer had blunt words for industry peers who have predicted that carriers will stop bleeding cash this year, saying it all comes down to the coronavirus pandemic.
“The fact of the matter is, we’re not in control,” Gary Kelly said Thursday in an interview with Yahoo Finance after Southwest reported earnings.
His comments came after Delta Air Lines Inc. offered a rosy outlook when it reported earnings earlier this month.
Kelly’s sober outlook summed up the uncertainty over how the pandemic will affect travel in the coming weeks. Will the spring break across the U.S. bring increased demand for leisure flights? Airline executives said they couldn’t predict. For this quarter, at least, Southwest and two other carriers that also reported results -- American Airlines Group Inc. and JetBlue Airways Corp. -- don’t expect much improvement.
“We just don’t know what twists and turns that this pandemic will take,” Kelly said.
Southwest rose 1.2% to $44.68 at 2:45 p.m. in New York amid broad airline gains. American got swept up in a rally among heavily shorted stocks targeted in Reddit’s Wall Street Bets forum. American jumped 10%, while JetBlue climbed less than 1%.
When Delta posted earnings two weeks ago, it said it had a “good shot” at turning a third-quarter profit and stood firm that it could break even on a cash-flow basis in the second quarter.
By contrast, Kelly and his team kept adding cautious notes in a day of interviews and at its conference call.
“We’re just reluctant to make any bold predictions,” Kelly told Bloomberg News. “At this point, we certainly have bookings out there in March, but I’m not drawing any conclusions whatsoever from them.”
Same from American CEO Doug Parker: There’s “a lot of unknowns when or how quickly demand will return,” he said on an earnings call.
A hoped-for recovery during the summer could be complicated by new, more-infectious strains of the virus, as well as by a potential requirement that domestic travelers test negative for the virus before boarding planes. Federal agencies are “actively looking” into such a rule, representatives of the State Department and the Centers for Disease Control and Prevention said this week.
Tests are already required for international travel and have hurt demand, particularly in short-distance markets like Mexico and the Caribbean, where U.S. residents have been traveling for vacation during the pandemic, American said.
Airlines have resisted adding a testing requirement for domestic travelers. Delta has said that the number of passengers in the U.S. make such an effort impractical. Southwest noted that testing resources are expensive and limited in some areas, and said that mandatory testing within the U.S. shouldn’t be limited to airlines.
“On the domestic front, it’s hard to see, practically, something like that working at that scale,” JetBlue President Joanna Geraghty said on an analyst call.
©2021 Bloomberg L.P.