American Airlines has warned that the rise in COVID cases will dent August earnings. The statement comes at the Delta variant causes a surge in hospitalizations across the country and in many key tourist destinations. After a strong recovery through the early summer, airlines are headed for another challenging period.
Speaking at the Raymond James industrial conference, seen in CNBC, American Airlines Chief Revenue Officer, Vasu Raju, talked about the impact of the Delta variant on the carrier. In particular, the rise in cases has caused a dent in the revenue for August, tempering expectations of a sustained recovery into the third quarter.
American is now facing a brewing storm of lower bookings and higher cancelations, hurting the long-term recovery. This data only applies to August, with Raju stating that July revenue came in above expectations. However, as the wave shows no signs of slowing, September could be even slower for travel.
Cases in the US are now at their highest levels since January, with hospitalizations surging and deaths creeping up too. The country is clearly in the midst of another (now fourth) wave, and airlines are starting the feel the effects. The warning from Raju comes less than two weeks after Southwest also reported a negative impact on operations due to the Delta variant.
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Not all bad
However, the dent in August’s quarter does not mean the hopes for a recovery have vanished. Raju also added, according to Reuters, that bookings for the holiday season remain incredibly strong and have not taken a hit for now. This has meant the airline is not making changes to its guidance or schedule, with Raju saying,
“This has been and we expect will continue to be a very choppy recovery…Given the fluidity of the current demand environment we are not ready to make definitive adjustments to our capacity plans or guides at this point in time”
This is a slightly more optimistic view than rival Southwest. The low-cost giant cut its expectations for August and September amid the rapid rise in cases. American could be hoping that a strong July would offset some of August’s losses, and a recovery begins in September. Chances of that seem slim as of now, but with the situation changing every day, nothing is certain.
After announcing a small-yet-significant profit of $19 million in Q2, the carrier is not out of the woods just yet. Leading epidemiologists, including Dr. Fauci, expect this latest wave of COVID to take months before abating. This would almost certainly mean a return to the red for carriers, especially given how tenuous the recovery has been.
For now, airlines are urging or mandating their employees to get vaccinated and offering perks to passengers who do the same. To get out of this crisis, a higher vaccination rate seems to be the only real solution.
What do you think about American’s guidance for August? Let us know in the comments!