A flurry of first quarter results from the large US carriers show an improved picture across the board, with passenger traffic up aiding a recovery in revenue and balance sheet strength even though net losses persist.
American Airlines reported first quarter revenue of $8.9bn – a steep rise from the $4bn posted in the year-ago quarter and which represents a recovery to 84% of pre-COVID levels in Q1 2019. The rise was boosted by a return of passenger revenue of $7.8 billion, and cargo revenues of $364 million. The airline produced record sales in March, which it was the first month since the onset of the pandemic that total revenue was above 2019 levels. Despite the recovery in revenue, American posted a first-quarter net loss of $1.6 billion, excluding the $157 million non-cash impairment charge write down of the carrying value of the company’s retired A330 fleet to the estimated fair value due to current market conditions for certain used aircraft. American was profitable excluding net special items in March and states that it “expects to be profitable in the second quarter based on the current demand trends and fuel price forecast”.
American ended the first quarter with $15.5 billion of total available liquidity, with a plan to pay down $15 billion of debt by the end of 2025. In the first quarter, American completed $317 million of open market repurchases of its $750 million unsecured senior notes maturing in June. American further noted that it has cost-effective financing in place for all aircraft deliveries through the third quarter of 2022 and adds that it is beginning to evaluate financing options for the fourth quarter of 2022 and first half of 2023.
“Our priorities for this year are clear: Run a reliable operation and return to profitability,” said American’s CEO Robert Isom. “The outstanding progress we’ve made is only possible because of the amazing efforts of the American Airlines team and we’re optimistic about the continued recovery in the second quarter and beyond. The demand environment is very strong, and as a result, we expect to be profitable in the second quarter based on our current fuel price assumptions. The work we have accomplished over the past two years — simplifying our fleet, modernizing our facilities, fine-tuning our network, developing new partnerships, rolling out new tools for customers and team members, and hiring thousands of new team members — has us very well-positioned as the industry continues to rebound.”
American also noted a steady improvement in demand for domestic business travel as offices reopen and travel restrictions have been lifted. “Revenue from small- to medium-size businesses and customers traveling for a mix of business and leisure remains very strong and is approaching a full recovery, and corporate bookings are the highest they have been since the start of the pandemic. Demand for international travel has also picked up considerably as travel restrictions have been lifted in certain parts of the world.”
American expects its second-quarter capacity to be approximately 92% to 94% of what it was in the second quarter of 2019; with second-quarter total revenue expected to be 6% to 8% higher than the second quarter of 2019.
United Airlines first quarter numbers also cheered the markets with its improved performance and robust outlook. The airline reported first quarter 2022 total operating revenue of $7.6bn, down 21% compared to first quarter 2019, but a substantial increase over the $3.2bn reported for the first quarter in 2021, helped by a strong increase in passenger revenue to $6.3bn compared to $2.3bn in the year-ago period and uptick in cargo revenue to $627million. United reported a net loss of $1.4bn, similar to the year-ago quarter. Operating costs rose sharply to $8.9bn driven by steep fuel price rise as well as increased maintenance costs.
During the quarter, United recorded net gains of $8 million primarily related to sale-leaseback transactions and the sale of aircraft, and also recorded $4 million of net charges, primarily related to the sale of aircraft. The early redemption of $400 million of its unsecured debt cost United $7 million in charges.
United ended the first quarter with available liquidity of $20 billion, with a total net debt of $29.7bn, which declined by $700 million since the year-ago quarter.
United expects to return to profitability in the second quarter on a robust operating revenue outlook, including total revenue per available seat mile (TRASM) of approximately 17% over 2019, the strongest second quarter revenue guidance in company history. The company stated that it expects to be solidly profitable in the second quarter with an approximate 10% operating margin, despite cost headwinds driven by the recent fuel price spike.
United notes that its Pratt & Whitney-powered Boeing 777 aircraft are expected to gradually return to service and it will gradually add back capacity “based on its ability to best serve customers and will take a long-term view of profitability by not sacrificing operational reliability”. United is also seeing a rapid return of business travel and expects further improvement in international travel, including Asia.
The airline has a bullish outlook on the future – bolstered by this persistent strength of demand and the fact that it is nearing 2019 operating margins – United targets of adjusted pre-tax margin of approximately 9% in 2023 and about 14% in 2026. The airline states that such confidence is underpinned by the company's current expectation to report a profit for the full year 2022.
"I am proud of the United team that once again managed to overcome the challenges of the quarter and prioritized high operating reliability for our customers by gradually adding back capacity. Our team continues to do an outstanding job of caring for our customers," said United Airlines CEO Scott Kirby. "The demand environment is the strongest it's been in my 30 years in the industry – and United and its customers will benefit more than any other airline. We're now seeing clear evidence that the second quarter will be an historic inflection point for our business. It leaves me more optimistic than ever about United's future."
Alaska Air Group first quarter results follow a similar pattern – passenger revenue has recovered strongly but higher operating expenses kept net income in negative territory. Alaska total operating revenue for the first quarter ending March 31, 2022, was $1.7bn from $797 million a year ago, aided by 129% rise in passenger revenue to $1.5bn and with cargo revenue up 19% to $112 million. Alaska generated $287 million in operating cash flow for the first quarter, driven by increased advance bookings as both leisure and business demand for air travel continue to recover.
Operating expenses were driven 97% higher to due steep fuel and maintenance costs and Alaska posted a $143 million net loss for the quarter compared to a net loss of $131 million in the first quarter of 2021.
"Alaska has a proven track record and a resilient business model that delivers in good times and through challenging ones. We are on course to deliver 6% to 9% adjusted pre-tax margins in 2022, as we recently announced at our investor day," said Alaska Airlines CEO Ben Minicucci. "March results were particularly strong, marked by our highest cash sales month in history and revenues that exceeded 2019 levels for the first time since the pandemic began. Our people are working hard to get our airline back to its pre-COVID size and to return to growth from there, all while delivering the operational excellence that we're known for."
Alaska held $2.9 billion in unrestricted cash and marketable securities as of March 31, 2022, and ended the quarter with a debt-to-capitalisation ratio of 50%, within its target range of 40% to 50%.
During the quarter, Alaska modified its Boeing aircraft order to include six firm and 41 option 737-10 aircraft and 10 firm 737-8 aircraft. The group took delivery of nine 737-9 aircraft, bringing the total number of 737-9s in the fleet to 20.
Alaska recently reduced its second quarter Q2 scheduled capacity in response to shortfalls in its pilot training department compared to what was originally planned, which coupled with Alaska’s commitment to exit the Airbus A320 fleet on an accelerated timeline, as well as persistent high oil prices, the airline has reduced its planned capacity growth modestly as compared to previous expectations. Full year 2022 capacity expectations have been changed from up 1% to 3% versus 2019, to flat to down 3% versus 2019. The airline group continues to expect full year 2022 adjusted pre-tax margins between 6% and 9%.