A significant uptick in the number of new COVID-19 infections across the United States is about to put the brakes on the airline industry’s recovery there. With the number of new COVID-19 infections in the US reaching six-month highs, at least one airline is warning it is impacting passenger demand and revenues.
Southwest sees cancelations increase and forward bookings decrease
The United States has recorded around 118,000 new COVID-19 infections every day over the past week. On Wednesday, Dallas-based Southwest Airlines said it was seeing a slowdown in bookings as a result.
“The Company has recently experienced a deceleration in close-in bookings and an increase in close-in trip cancellations in August 2021, which are believed to be driven by the recent rise in COVID-19 cases associated with the Delta variant,” Southwest Airlines said in an SEC filing.
“Based on the assumption that COVID-19 cases remain elevated in the near-term and current revenue trends in August continue into September, the Company’s current outlook for third-quarter 2021 operating revenues have worsened by an estimated three to four points from its previous outlook three weeks ago, compared with third-quarter 2019.”
Southwest Airlines revealed it made a profit in July, but the deceleration in forward bookings means it now expects to post a loss this quarter.
Southwest the first US-based airline to ring the bell on declining demand
Southwest is the first of the big United States-based airlines to ring the bell on rising COVID-19 infections. It marks a sharp turnaround from recent upbeat messaging from United States-based airline CEOs.
In mid-July, United Airlines CEO Scott Kirby told CNBC the spreading Delta variant wasn’t impacting bookings. Acknowledging there would be “ups and downs” in demand, he dismissed any downswing in demand as a temporary (and a not yet occurring) issue.
Delta’s CEO Ed Bastian echoed Kirby. “As the news of the variant’s spreading, we haven’t seen any slowdown at all,” the Delta boss said. He said 60 – 90 day forward bookings were strong and people were “learning to live” with the virus.
“Demand for our product remains strong in July and for the remainder of the summer,” said American Airlines CEO in July.
“As people have gotten vaccinated and things have reopened, the demand is just very, very strong,” Helane Becker, an airline analyst, said in an investor note. “People have money and time, and they’re using it to travel.”
A fast-changing environment may put US airlines in a tough spot
But a lot can change in a few weeks, especially in the airline industry. The COVID-19 situation in the United States has deteriorated significantly since then.
Any downturn in demand across the United States put the airline CEOs in an awkward position. Most have recently started rehiring on the back of strong demand over the northern hemisphere summer season. American Airlines has recently upped the number of pilots it plans to rehire. Delta Air Lines is also hiring thousands of new employees. At Southwest, CEO Gary Kelly is moving to increase the minimum wage at the airline.
Meanwhile, Southwest Airlines has resisted calls to mandate vaccinations for its employees. While strongly encouraging employee vaccinations, Southwest’s Gary Kelly has declined to follow United’s lead in mandating employee vaccinations.
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