Southwest and American slow quarterly cash burn but warn demand has stalled

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(Reuters) – Southwest Airlines (N:LUV) and American Airlines (O:AAL) each slowed their cash burn over the second quarter but warned that demand had stalled as COVID-19 cases spike, prompting Southwest to rethink the number of flights it had planned to add in August and September.

Optimism about a summer rebound in travel has waned as U.S. states scale back reopening plans to tackle surging cases. With demand not forecast to fully recover before a vaccine, airlines are boosting liquidity and conserving cash while they try to match their flight schedules to bookings.

Southwest, which analysts have forecast to weather the coronavirus pandemic better than larger U.S. carriers thanks to its domestic focus and lower-cost structure, said its average core cash burn had nearly halved to $16 million a day from $30 million in April as revenue improved.

But it estimated the burn rate to be $18 million in July, rising to an average of $23 million per day in the third quarter.

Delta Air Lines (N:DAL) and United Airlines (O:UAL), which have been less aggressive in adding flights, are forecasting a downward trend in their daily cash burn rates over the rest of the year but said halting the burn rate entirely will depend on demand.

American said its second-quarter cash burn rate was about $55 million per day, lower than its forecast of $70 million per day.

Southwest had $15.5 billion at the end of June and American $10.2 billion.

Both airlines have warned of furloughs in the fall, though Southwest said 16,900 employees had volunteered for extended leaves or early retirements, which it expects to result in more than $400 million in lower costs in the fourth quarter.

Excluding items, Southwest posted $1.5 billion net loss, or $2.67 per share, as total operating revenue fell 82.9% to $1.01 billion.

At American, the net loss excluding items was $3.4 billion, or $7.82 per share, while operating revenue plunged 86.4% to $1.62 billion.

Alaska Air Group (N:ALK), which reported a second quarter net loss of $214 million on Thursday, said it expected its capacity to be down about 35% in the fourth quarter, forcing it to cut about 7,000 of its 23,000 employees.