Southwest Airlines’ hope for profits fade as delta variant hinders travel demand

Kyle Arnold
Dallas Morning News
Southwest Airlines says it believes the surge in COVID-19 cases is causing passenger bookings to slow.

Dallas-based Southwest Airlines says that new passenger bookings are slowing down, and it believes the cause is “the recent rise in COVID-19 cases associated with the delta variant,” the carrier warned investors Wednesday.

The slowdown “will make it difficult for the company to be profitable in third-quarter 2021″ on its own without government aid, the company said, even after a stronger-than-anticipated start to the summer season in which planes have been mostly full.

Southwest has made a profit in each of the last two quarters but only because it got nearly $2 billion in stimulus grants to cover payroll costs. Leaders at Southwest and other airlines spoke recently of making a legitimate profit as early as the third quarter without any help from Congress, but the new virus variant is clouding the future. There is little hope of another stimulus package that includes assistance for airlines.

“The company was profitable again in July 2021; however, the company believes the recent negative effects of the pandemic on August and September revenue trends will make it difficult for the company to be profitable in third-quarter 2021,” Southwest said in the regulatory update.

Southwest thinks its third-quarter revenue will still be down 15% to 20% in the third quarter compared to 2019. However, Southwest is planning to fly about as many flights as it did in 2019 during the month.

Analysts have warned that the delta variant is causing a sudden downturn in consumer sentiment after months and months of optimism due to increasing vaccine rates and dropping COVID-19 case counts.

But just like last winter, hospitals and local governments are reporting that ICU hospital beds are in short supply.

“Unfortunately, with COVID-19 cases and hospitalizations on the rise, optimism about the pandemic has receded to a level last seen this past winter,” said a report this week from travel research firm Destination Analysts. “After months of steady recovery, confidence in travel’s safety now continues to decline. Delta variant-related concerns are disrupting trip plans, diminishing travel enthusiasm and making it more difficult to market travel right now.”

Passenger counts at U.S. airports have been at about 80% of 2019 levels over the last two months, strong figures considering that business travel and international travel are still depressed.

The travel recovery has come with strong demand for domestic travel to beach locations and short-haul international flights to outdoor destinations such as Mexican beaches.

But analysts have wondered whether planes would be as full in September and October, which are typically slower months that rely more heavily on business travelers. In recent weeks, company owners have indicated that their return-to-office plans are being pushed back in light of the highly contagious delta variant of the COVID-19 virus and increasing case counts.

“More than 54% say that the Delta variant has made them less interested in traveling right now,” the survey from Destination Analysts said.