Delta variant spreads, Southwest no longer sees profit in third quarter

Southwest Airlines said on Wednesday that it no longer expects to turn a profit in the third quarter as a surge in COVID-19 infections fuelled by the highly contagious delta variant darkens the outlook for travel.

The disclosure comes just three weeks after Southwest CEO Gary Kelly said the airline had passed a milestone by earning a profit in June even, excluding government pandemic relief.

The airline said on Wednesday that it was profitable again in July, but it believes that the pandemic’s shadow makes it less likely that the airline can post a profit in the third quarter without federal aid for payroll costs.

Southwest is the second United States airline to lower expectations because of the highly contagious delta variant of COVID-19. Last week Frontier Airlines, a smaller discount carrier, blamed the virus for causing bookings to weaken more than the usual decline that occurs each year as summer winds down.

Savanthi Syth, an airline analyst for Raymond James, predicted that other airlines will lower their revenue projections, but probably not until early September.

In another sign of the impact that the surge in virus cases is having on travel, United Airlines announced last week that it will require workers to be vaccinated against COVID-19. Hawaiian Airlines followed with a similar announcement on Monday, and Frontier will require workers who don’t get vaccinated to undergo “regular” testing for the virus.

Southwest, however, has resisted making vaccinations mandatory. American Airlines and Delta Air Lines also have stuck to their current strategy of encouraging but not requiring workers to get the shots.

United CEO Scott Kirby was scheduled to take part in an online meeting on Wednesday with US President Joe Biden that is designed to persuade more companies to require vaccinations for their employees.

Southwest said on Wednesday in a filing with the US Securities and Exchange Commission that last-minute bookings have dropped, while cancellations have increased in recent weeks, and it tied both trends to the rise in COVID-19 cases.

Southwest said last month that it hoped to be profitable in the third and fourth quarters even without federal pandemic aid, but it warned then that rising virus cases could alter those expectations. US airlines have received US$54 billion in federal pandemic relief since March 2020. The aid is scheduled to end September 30 but has been extended twice before.

Despite rising infections, the US continued to set new marks for air travel during the pandemic, with more than 2.2 million people going through airport checkpoints on August 1, according to the US Transportation Security Administration.

Since then, however, crowds have thinned slightly. The seven-day moving average of US flyers dropped for a ninth straight day on Tuesday, when TSA screened slightly more than 1.7 million travellers, the lightest day since July 4 and a 25 per cent decline from the comparable Tuesday in 2019.

Despite the warning from Southwest, shares of the Dallas-based carrier and other US airlines rose slightly in morning trading.

AP