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Airline Stocks Whipsaw as Rebound Signals, Covid Risks Converge

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Mary Schlangenstein and Brendan Case
·3 min read
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(Bloomberg) -- American Airlines Group Inc. and Southwest Airlines Co. are preparing for a busy summer, even as they watch for signs that the coronavirus pandemic will derail expectations for a speedy rebound. U.S. carriers’ shares swung between gains and losses.

Bookings started to pick up in mid-February, and accelerating gains since then are fueling optimism for the summer, Southwest said Thursday as it reported first-quarter results. American, which also posted earnings, expects strong demand for destinations in the U.S. and nearby countries such as Mexico, even as flights across the Atlantic and Pacific remain depressed.

“We are a long way from where we need to be,” American Chief Executive Officer Doug Parker said on a conference call to discuss the company’s results. “But there is no doubt the pace of the recovery is accelerating.”

The outlooks from American and Southwest capped an airline earnings season that has cooled investor enthusiasm about the industry after a share rally earlier this year. While rising vaccination rates have prompted carriers to ramp up summer capacity for an expected surge in vacationers, competition will be tough and only Delta Air Lines Inc. has been willing to venture a forecast that it will return to profitability in the third quarter.

“We have to expect it’s going to be a very competitive fare environment for the foreseeable future,” Southwest CEO Gary Kelly said. “There are too many seats chasing too few customers. Every airline is trying to get out of survival mode and fight its way back to prosperity.”

Southwest rose less than 1% to $62.29 at 1:48 p.m. in New York, leading a Standard & Poor’s index of major U.S. airlines. American fell 2.3% to $20.54 after climbing earlier in the session. The industry stock index flipped between gains and losses even before President Joe Biden’s plans to propose higher capital gains taxes sent a shudder through financial markets.

‘Picking Up Speed’

American reiterated plans to fly about 90% of its 2019 domestic seat capacity and 80% of international this summer, and said it would add or restart 150 routes to mountain and beach destinations. Southwest said capacity in June would be only 4% lower than pre-pandemic levels with a similar number for July.

“The recovery appears to be picking up speed across the industry,” Helane Becker, an analyst at Cowen & Co., said in a report.

Southwest’s domestic focus has shielded it from the near-collapse in flying to many international markets. While American is adjusting its schedule to benefit from demand at home, “demand recovery in the Atlantic and Pacific continues to weigh on results, likely improving only when Covid-19 case trends improve and borders reopen,” Becker said.

American’s adjusted loss of $4.32 a share in the first quarter was slightly better than the $4.34 deficit expected by analysts. Revenue tumbled 53% to $4.01 billion, Fort Worth, Texas-based American said. Wall Street expected $4.04 billion, according to the average of analyst estimates compiled by Bloomberg.

Southwest reported a first-quarter adjusted loss of $1.72 a share, while analysts anticipated $1.85. Revenue fell 52% to $2.05 billion. Analysts had expected $2.06 billion. The Dallas-based company said it was likely to stop burning cash in June.

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