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Yahoo Finance's Julie Hyman, Brian Sozzi, and Adam Shapiro discuss outlook for the major airlines amid surging COVID cases.
JULIE HYMAN: To another piece of news, or really a collection of news this morning, that is perhaps not surprising but nonetheless disturbing for people who are looking for signs that the Delta variant is slowing down, the US economic recovery. Look to the airlines this morning. We have a host of them coming out and cutting their guidance related to the Delta variant, and also with some talk of Hurricane Ida and its effect thrown in.
We've got a special guest this morning. Adam Shapiro is here with us, our afternoon host here on Yahoo Finance. Good to see you this morning, Adam. Good morning. Tell us what these airlines are saying.
ADAM SHAPIRO: I guess if you're going to do it in one headline it would be, we told you we were probably going to see a slowdown because of COVID, we did, but it's not perhaps as bad as it could have been.
Let's start with the good news, for instance, Delta. They're actually upping their guidance-- not upping, but their guidance for the third quarter, because that will end at the end of the month, is unchanged. So they're the strongest of the airlines that are updating investors this morning. But they are taking a hit because of COVID-19.
Here is what Delta said in their 8-K filing with the SEC. "During the quarter, demand exceeded expectations. In July and early August, the pace of recovery paused due to the sharp rise in COVID cases." They do expect the business travel recovery that Ed Bastian told us about on Yahoo Finance a couple of months ago to continue. But right now, it has paused, quote, "as companies delay or scale down their initial office reopenings." When it comes to Delta, their adjusted total revenue is projected to be down 30% to 35% in the September quarter compared to 2019.
Then you look at Southwest. Southwest says it's going to cancel about 2,700 flights in the aftermath of Hurricane Ida, and that's during the whole quarter. So what they expect is that their revenue this quarter is going to be down 18% to 20%. They will not be profitable, as they had earlier predicted. And they told us this a couple of months ago that they wouldn't meet this in the third quarter because of the spikes in COVID-19.
They will be profitable, though, when you adjust for the support they got from the Payroll Support Program, as the other airlines also got that. What they said was that, quote, "the Company continues to experience softness in bookings and elevated trip cancellations, especially close in as a result of the rise in COVID-19 cases."
Same situation at United. United Airlines is predicting that their revenue is going to be off about 33% compared to 2019. And then there's American Airlines. They said that in the quarter, their revenue will be down about 24% to 28% compared to 2019. The one thing that if you're looking for a silver lining all of this, Julie and Brian, the one silver lining is that what they are seeing is a stabilization in the deceleration of bookings.
And the way I can say that in simple English is that on Friday, September 3, there were 2.1 million people who went through TSA checkpoints. That was essentially the same as it was in 2019. So leisure demand is still there. It's dropped a bit because people are worried about COVID-19. The airlines are adjusting. They had thought they'd be profitable in the third quarter. That's on hold for right now.
BRIAN SOZZI: Adam, you do get the sense, though, the airlines are holding out for a rebound or somewhat strong rebound for the holiday season. How important is the holiday season for the airlines?
ADAM SHAPIRO: Summer is very important for them. The holiday season equally important, although it's the summer travel season that's the big bang buck for them. But Southwest, what they said in looking forward to that, is that it's the bookings for Thanksgiving and for all of the holidays in the winter or in the late fall are, quote, "fairly typical booking patterns for holiday travel periods in fourth quarter of 2021." So Brian, I guess the way the second headline would be, OK, we slowed down, but we're still on course for the fourth quarter.
JULIE HYMAN: Yeah, and similarly, Adam, at one point during all of this, it seemed as though the airlines were facing a much more existential threat in the depths of the pandemic. And the way that I'm sort of trying to extrapolate from this airline news is to the economy more broadly, which is that the full recovery seems to be getting pushed off a little bit, but not erased. And we're not facing as big a threat, certainly, as we were last year.
ADAM SHAPIRO: That would be a good way to describe it. One thing, though, with the airlines is you have to keep an eye on Europe. They will not be back at their stock prices that we saw pre-pandemic in valuations until they have full international travel. And that is still way off. They thought they would have more, but we've seen the setbacks with the European Union. It just hasn't come. So we've seen, actually, share prices for the airlines. If you go back to, say, May they've essentially just kind of flatlined. They haven't really done much.
JULIE HYMAN: All right. Well, we'll keep watching them to see what kind of updates we get going forward. Adam Shapiro, thanks so much for being with us this morning. It is lovely to see you, even if we're talking about negative news on the airlines.