5 things to watch in airlines' dismal quarterly results

Published Wed, Jan 13 20212:34 PM ESTUpdated Wed, Jan 13 20213:59 PM EST

Key Points

Demand isn't expected to significantly recover until at least the second half of the year.
More questions than answers remain as the coronavirus pandemic continues to worsen.
The coronavirus snapped a decade-long profit streak for airlines.

The coronavirus pandemic snapped U.S. carriers' decadelong streak of profits. Analysts estimate U.S. airlines lost more than $35 billion . "2020 was the worst year in aviation history," is how Cowen airline analyst Helane Becker put it. Quarantines, travel restrictions, closed attractions, grounded business trips or fears of catching the disease kept millions of travelers off airplanes. Positive vaccine news ignited a rally for airlines at the end of the year but it wasn't enough to undo the damage. American Airlines shares fell 45% in 2020, Delta Air Lines lost 31%, United Airlines shed 51% and Southwest dropped 14%, while the S & P 500 rose by 16%. Airline executives this month will detail the brutal year and their outlook, however murky, for 2021, starting with Delta before the market opens Thursday. Analysts expect the carrier to report an adjusted per-share loss of $2.48 for the fourth quarter and a 68% year-on-year drop in revenue to $3.67 billion. United is set to follow suit on Jan. 20 and Southwest on Jan. 28. Here's what to watch in their reports and words as the industry faces another difficult year: Demand The Transportation Security Administration screened 324 million people at U.S. airports last year, 500 million fewer than in 2019. Where demand is headed in 2021 is perhaps the trickiest thing for airlines to predict. Executives warned last year that bookings had softened late last year outside of major holidays as coronavirus infections broke records. Those trends extended into early 2021. The second half of the year looks better but demand will be based on how quickly Covid-19 vaccines are administered and something that's even more difficult to gauge: when potential customers will feel safe traveling again en masse. Capacity How much capacity are they adding and where? Too aggressive for the amount of demand and airlines risk driving up expenses with little reward. Too conservative and they risk missing out on much-needed revenue. Travel demand has almost entirely come from domestic leisure travel, the bread and butter of discount carriers like Spirit Airlines and Allegiant Air. International and business travel, those lucrative flights that giants like Delta, American and United have long counted on, is scarce at best, so investors should pay close attention to how the big network carriers will continue to adapt this year. Analysts expect corporate travel to remain minimal until 2022. American Airlines President Robert Isom last month said the airline expects to fly 45% of its 2019 capacity levels through February. Southwest expects to increase some of its capacity early in 2021. "Our published flight schedule for March represents approximately 3,300 flights per day, which is a large increase from recent months when we have been flying between 1,800 and 3,000 flights per day," it said in a memo to flight attendants explaining why it couldn't offer them any more leaves of absence. Cash burn Investors should keep a close eye on airlines' progress in managing their cash burn. Delta's CEO, Ed Bastian, in a Jan. 1 memo estimated the company should return to cash positive "by the spring," so analysts are sure to press executives for more specifics. Airlines have parked planes, slashed routes and shed tens of thousands of workers to cut costs. Travel demand remains the question mark and has been a headwind that forced airlines to rethink break-even timing expectations last year. Debt and balance sheets U.S. carriers added $67 billion in debt last year, bringing their totals to $172 billion by the end of 2020, estimates Airlines for America, an industry group that represents most of the country's large airlines. Investors should pay close attention to whether airlines feel they need to raise more and how and what impact those interest payments will have on their bottom lines. A4A expects net interest expenses will rise 37% this year from last to $5.2 billion. Federal aid, round 2 Airlines won $15 billion in additional federal payroll support in the latest coronavirus relief package. That's on top of the $25 billion Congress set aside for them in the March 2020 CARES Act to keep workers through Sept. 30. The new round of support requires them to maintain staffing through March 31, and in the case that they furloughed, like American and United, which together shed more than 30,000 employees, those workers must be called back. Executives will detail the impact of the additional funds. United's CEO, Scott Kirby, and President Brett Hart last month told workers they expected the callbacks to be temporary. "The truth is, we just don't see anything in the data that shows a huge difference in bookings over the next few months," they said. "That is why we expect the recall will be temporary." Airlines have also lowered their payroll costs by offering buyouts so the funds have the potential to have a greater impact. Around 18,000 Delta employees, roughly a fifth of its pre-pandemic head count, have left the company.

Travelers wearing protective masks check-in at the Delta Air Lines Inc. check-in counter at San Francisco International Airport (SFO) in San Francisco, California, U.S., on Monday, Dec. 21, 2020.

David Paul Morris | Bloomberg | Getty Images

Quarantines, travel restrictions, closed attractions, grounded business trips or fears of catching the disease kept millions of travelers off airplanes. Positive vaccine news ignited a rally for airlines at the end of the year but it wasn't enough to undo the damage. American Airlines shares fell 45% in 2020, Delta Air Lines lost 31%, United Airlines shed 51% and Southwest dropped 14%, while the S&P 500 rose by 16%.

Airline executives this month will detail the brutal year and their outlook, however murky, for 2021, starting with Delta before the market opens Thursday. Analysts expect the carrier to report an adjusted per-share loss of $2.48 for the fourth quarter and a 68% year-on-year drop in revenue to $3.67 billion. United is set to follow suit on Jan. 20 and Southwest on Jan. 28.

Here's what to watch in their reports and words as the industry faces another difficult year: