The American Airlines Group announced on Friday that it expects its second-quarter revenue to drop by 90% compared to the previous year. However, it also said that a modest increase in demand in June is helping it lower its daily cash burn, a rate it forecasts will be down to zero by the end of the year.
Revenue losses of 90%
On Friday, American Airlines joined Delta in announcing that it foresees revenue losses of up to 90% for the second quarter of 2020 compared to the previous year. The reason for this, which should come as no surprise to anyone, it said was the recent decline in demand caused by the COVID-19 pandemic.
However, a small light can be discerned at the end of the tunnel as American also said it would slow its daily cash burn rate to about $40 million in June. It also plans to fly 55% of domestic capacity, and 20% of international in July. This means that system-wide, capacity will be at about 40% come next month.
“The company has recently experienced improving demand conditions and has passed the peak in cash refund activity,” American Airlines said in a statement seen by Simple Flying.
Reducing cash burn to zero by end of 2020
The airline’s capacity was down by about 75% year-on-year in April, and approximately 80% in May. Meanwhile, June is expected to be back at 75%. However, granted that the CARES act loan of $4.75 billion is funded in June, the company still expects its liquidity to amount to approximately $11 billion as of June 30th.
Hopefully, that will be enough to tie it over until demand has increased sufficiently. American further said that it intends to have reduced its daily cash burn to zero by the end of 2020, as “expected demand conditions continue to improve, and its cost initiatives continue to gain traction.”
As previously reported, some of these cost-saving measures include not only halting refurbishment plans but also large-scale reductions of the airline’s workforce. While American is not allowed to let any staff go until October 1st according to the conditions placed on any US airline that received federal payroll grants to see it through the crisis, preparations for downsizing its staff are already underway.
Retiring aircraft early
In the report, American Airlines further addressed the retirement of certain aircraft earlier than it had intended, although it did not specify how many.
“Additionally, the Company has determined to retire certain mainline aircraft earlier than planned including Boeing 757, Boeing 767, Airbus A330-300 and Embraer 190 aircraft as well as regional aircraft, including certain Embraer 140 and Bombardier CRJ200 aircraft.”
Meanwhile, it acknowledged the uncertainty of the influence the COVID-19 continues to exert on passenger demand and air travel. It thus expects its final fiscal 2020 results to be materially impacted.
In addition, the carrier added that “an outbreak of another disease or similar public health threat, or fear of such an event” could adversely impact future financial results and operating results.
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