Shares in the airline industry jumped out to a strong start through the first quarter of 2021, but closer inspection paints a more mixed outlook. Cost-cutting and the resulting low-fare environment has jump-started air travel demand, but a return of airline staff hiring and rising energy costs could cause ticket prices to rebound through the Spring and Summer months – perhaps paving the way for an even bigger bounce in budget carriers.
While domestic operations are going strong in the US, international routes and carriers across Europe and South America are still struggling to get back on their feet.
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The Transportation Security Administration (TSA) said Saturday that more than 1.58 million people were screened at US airports ahead of Easter weekend, in the highest recorded number since the pandemic began. As Newsweek notes only 129,763 people traveled on April 2 of last year, amid nationwide lockdowns and travel restrictions in the early days of the COVID-19 pandemic.
That follows a much-needed Spring Break bounce that has ignited each leg of the travel industry – particularly hotels, as MRP highlighted last month. Since March 11th, the TSA has consistently recorded over one million passengers at security checkpoints each day.
American Airlines Looking For a Quick Rebound
As of March 26th, American Airlines’ seven-day moving average of net bookings hit approximately 90% of the levels it saw at this time in 2019. As Simple Flying writes, the domestic load factor for the same seven-day moving average hit approximately 80%. This is one of the highest load factors for a seven-day average American has seen since the start of the pandemic.
Along with a rebound in traffic, the US’s largest airline by fleet size and revenue passenger-kilometers (RPKs) – which lost nearly $9 billion last year – is working quickly to initiate a gradual recovery in its financial health as well.
Recently, American Airlines paid $2.8 billion to reduce three revolving credit facilities to zero with enhanced liquidity from AAdvantage-backed financing in March. The $6.5 billion of bonds and $3.5 billion of loans American issued on March 10 is “the largest transaction in the history of commercial aviation”, according to CEO Doug Parker. Now, for the first time since the crisis began, the company is not actively seeking to bolster its cash reserves as it expects to have over $17 billion in total available liquidity in the first quarter.
However, to make sure they could pay all of those loans that helped them survive the pandemic, the total load of American’s new debt comes in at $22 billion, bringing total obligations to $50 billion. As the Wall Street Journal notes, those liabilities come with higher interest costs and will boost American’s annual interest expense by $500 million to $600 million. While some worry that could weigh on profitability for years to come, American insists those expenses can be offset by $1.3 billion of cost savings the company achieved over the past year through management cuts and labor changes.
Cost-Cutting Opens Up Low-Fare Flying
American is not alone in their cost-cutting. Airlines worldwide cut $1 billion of expenses a day last year to cope with the slump in passengers, and that’s given them some wiggle room to lower ticket prices. As Bloomberg notes, the resulting ultra-cheap fares have likely played a role in the increasingly rapid turnaround of airline passenger numbers.
However, a lot of the fixed costs airlines have cut are staff-related…