Air ticket cancellations decline, bookings on some routes improve

Top US airlines and Air Canada reported slower ticket cancellations and an improvement in bookings on some routes, though executives said overall demand remained weak and changes to travel rules may force new business models.

From face masks to social distancing, the global airline industry is scrambling to implement measures to protect travelers and revive demand decimated by the coronavirus pandemic.

“We may have to change things in our business plan from top to bottom,” United Airlines CFO Gerry Laderman said at a Wolfe Research industry conference, which was held virtually.

Air Canada, Delta Air Lines and American Airlines Group executives also spoke at the conference.

Pre-pandemic passenger levels will be slow to return, they said, depending on development of a vaccine and the broader re-opening of businesses, restaurants, hotels and theme parks.

US domestic load factors will likely remain below 75% next year, they said.

Delta CFO Paul Jacobson said it could be three years before the sector sees “normalized demand” and questioned whether customers would want to fly on full planes before a vaccine.

That does not mean that airlines are considering changing airplanes’ seating configuration, which would be a multi-year certification process, United executives said.

“I’m confident we’ll be on the other side of this situation by the time we could do anything even close to that,” United Chief Commercial Officer Andrew Nocella said. US airline shares rose on Tuesday.

Executives said they were now focused on reducing daily cash burns to become cash flow positive in 2021.

Delta thinks it will reach cash flow break-even by the end of this year, said Jacobson, who sees daily cash burn slowing to about $40 million by the end of June as the airline restores around 100 flights to its schedule.

Jacobson said he expected any necessary headcount changes at Delta could be done through voluntary programs.

American Airlines CFO Derek Kerr told the conference his company would need to “right-size” to ensure positive cash flow next year, with all excess cash used to pay off debt for the next five years. American, which invested heavily in renovating its fleet, has the highest debt load of the US majors.

Air Canada CFO Mike Rousseau said he could not predict when his airline’s cash burn would go to zero, noting it will depend on revenue performance in the coming months.

Separately, Southwest Airlines Co said its June capacity would be roughly half its schedule a year ago - an improvement from a 60% to 70% reduction in May. It projected its daily cash burn will slow to the low-$20 million range in June.

United, with more international exposure, said earlier that its June capacity would still be down by about 90% year-on-year, and 75% in July. Its total adjusted capital expenditure for 2021 would be close to $2 billion versus around $4.5 billion this year, it said, falling to below $500 million in 2022 when it does not expect to take delivery of any new aircraft. It is taking fully financed jet deliveries this year and next.

Meanwhile, US plans to mandate new safety-management tools for aircraft makers. The Federal Aviation Administration said Tuesday it would require Boeing Co and other aircraft manufacturers to adopt new safety-management tools following two fatal Boeing 737 MAX crashes that killed 346 people.

The plan to begin the regulatory process to mandate Safety Management Systems (SMS) comes in response to recommendations released in January by an expert panel named by Transportation Secretary Elaine Chao.

The panel did not back ending a long-standing practice of delegating some certification tasks to aircraft manufacturers. Boeing grounded its entire 737 Max fleet after an Ethiopian Airlines flight crashed in March 2019.

SMS systems are mandated for Airlines. The special committee report said “SMSs foster a holistic assessment of whether the combinations of actions such as design, procedures, and training work together to counter potential hazards.”

Boeing’s safety culture was harshly criticized in January after it released hundreds of internal messages about the development of the 737 MAX, including one that said the plane was “designed by clowns who in turn are supervised by monkeys.”

Boeing, which halted production in January, is addressing two software issues before it can move to a key certification test flight. Reuters has reported the 737 MAX is expected to remain grounded until at least August.

“To further strengthen our safety culture, Boeing is working with the FAA to implement a safety management system,” it said in a statement on Tuesday.

Reuters